ALZA CORP, S-3, 1994-05-17

ALZA CORP
S-3, 1994-05-17
PHARMACEUTICAL PREPARATIONS

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1994

REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALZA CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 77-0142070
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
</TABLE>

950 Page Mill Road, P.O. Box 10950
Palo Alto, California 94303-0802
(415) 494-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

BRUCE C. COZADD
Vice President and Chief Financial Officer
ALZA Corporation
950 Page Mill Road, P.O. Box 10950
Palo Alto, California 94303-0802
(415) 494-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES OF ALL ORDERS, NOTICES AND COMMUNICATIONS TO:

<TABLE>
<S> <C>
SARAH A. O'DOWD, Esq. WILLIAM H. HINMAN, JR., Esq.
Heller, Ehrman, White & McAuliffe Shearman & Sterling
525 University Avenue 555 California Street
Palo Alto, CA 94301 San Francisco, CA 94104
(415) 324-7000 (415) 616-1100
</TABLE>

------------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If any of the securities on this Form are being offered pursuant to dividend
or interest reinvestment plans, check the following box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER LYON-TM- (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Liquid Yield Option-TM- Notes Due 2014
(Zero Coupon -- Subordinated)............ $948,750,000(2) 39.106% $371,018,175 $127,937
Common Stock, par value $.01 per share.... (3) -- -- None
<FN>
- -TM- Trademark of Merrill Lynch & Co., Inc.
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Includes $123,750,000 principal amount at maturity of LYONs subject to the
Underwriter's over-allotment option.
(3) Also being registered are such indeterminate number of shares of Common
Stock as may be issuable upon conversion of the LYONs registered hereby.
</TABLE>

------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 17, 1994
P R O S P E C T U S
$825,000,000

[LOGO]
LIQUID YIELD OPTION-TM- NOTES DUE 2014
(ZERO COUPON--SUBORDINATED)
------------------

The issue price of each Liquid Yield Option-TM- Note ("LYON"-TM-) to be
issued by ALZA Corporation, a Delaware corporation ("ALZA"), will be $
( % of principal amount at maturity) (the "Issue Price"), and there will be
no periodic payments of interest. The LYONs will mature on June , 2014. The
Issue Price of each LYON represents a yield to maturity of % per annum
(computed on a semi-annual bond equivalent basis) calculated from June , 1994.
The LYONs will be subordinated to all existing and future Senior Indebtedness of
ALZA, the principal amount of which as of April 30, 1994 was $1.7 million,
excluding ALZA's $249.3 million principal amount of outstanding commercial
paper, which will be retired with a portion of the proceeds from the sale of the
LYONs. See "Capitalization" and "Description of LYONs -- Subordination of
LYONs."

Each LYON will be convertible at the option of the Holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased by ALZA.
Upon conversion, ALZA may elect to deliver Common Stock, par value $.01 per
share (the "Common Stock"), of ALZA at a conversion rate of shares per
LYON (the "Conversion Rate") or cash equal to the market value of the shares of
Common Stock into which the LYONs are convertible. The Conversion Rate will not
be adjusted for accrued Original Issue Discount, but will be subject to
adjustment upon the occurrence of certain events affecting the Common Stock.
Upon conversion, the Holder will not receive any cash payment representing
accrued Original Issue Discount; such accrued Original Issue Discount will be
deemed paid by the Common Stock or cash received on conversion. See "Description
of LYONs -- Conversion Rights." On May 13, 1994, the last reported sale price of
the Common Stock on the New York Stock Exchange was $23 1/8 per share.

LYONs will be purchased by ALZA, at the option of the Holder, as of June ,
1999, June , 2004 and June , 2009 (each, a "Purchase Date") for a Purchase
Price per LYON of $ , $ and $ (Issue Price plus accrued
Original Issue Discount to such Purchase Date), respectively, representing a
yield per annum to the Holder on each such Purchase Date of % (computed on a
semi-annual bond equivalent basis). Subject to certain conditions, ALZA, at its
option, may elect to pay the Purchase Price as of any particular Purchase Date
in cash or shares of Common Stock, or in any combination thereof. See
"Description of LYONs -- Purchase of LYONs at the Option of the Holder." In
addition, as of 35 business days after the occurrence of any Change in Control
of ALZA occurring on or prior to June , 1999, each LYON will be purchased for
cash by ALZA, at the option of the Holder, for a Change in Control Purchase
Price equal to the Issue Price plus accrued Original Issue Discount to the date
set for such purchase. See "Description of LYONs -- Change in Control Permits
Purchase of LYONs at the Option of the Holder."

The LYONs will not be redeemable by ALZA prior to June , 1999. Thereafter,
the LYONs are redeemable for cash at any time at the option of ALZA, in whole or
in part, at Redemption Prices equal to the Issue Price plus accrued Original
Issue Discount to the date of redemption. See "Description of LYONs --
Redemption of LYONs at the Option of ALZA."

For a discussion of certain United States federal income tax considerations
for Holders of LYONs, see "Certain United States Federal Income Tax
Considerations."

Application has been made to list the LYONs on the New York Stock Exchange.
--------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT PRICE TO UNDERWRITING PROCEEDS TO
AT MATURITY PUBLIC DISCOUNT (1) ALZA (2)
<S> <C> <C> <C> <C>
Per LYON.................................. 100% % % %
Total (3)................................. $825,000,000 $ $ $
<FN>
(1) ALZA has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by ALZA estimated at $400,000.
(3) ALZA has granted the Underwriter an option, exercisable within 30 days
after the date of this Prospectus, to purchase up to an additional
$123,750,000 aggregate principal amount at maturity of LYONs on the same
terms as set forth above to cover over-allotments, if any. If the option is
exercised in full, the total Principal Amount at Maturity, Price to Public,
Underwriting Discount and Proceeds to ALZA will be $948,750,000,
$ , $ and $ , respectively. See
"Underwriting."
</TABLE>

--------------------------

The LYONs are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, subject to approval of
certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the LYONs will be made in New York, New York, on or about June ,
1994.

- -TM- Trademark of Merrill Lynch & Co., Inc.
--------------------------
MERRILL LYNCH & CO.
---------------

The date of this Prospectus is June , 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE LYONS OFFERED
HEREBY OR THE COMMON STOCK OF ALZA, OR BOTH OF THEM, AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------

AVAILABLE INFORMATION

ALZA is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected at the public reference facilities of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material can be obtained at prescribed rates from the Commission
at such address. Such reports, proxy statements and other information can also
be inspected at the Commission's regional offices at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, such reports, proxy statements and other
information concerning ALZA may be inspected at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005.

ALZA has filed with the Commission a Registration Statement on Form S-3
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered by this Prospectus. As permitted by the rules
and regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to ALZA and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, which may be examined without charge at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of which may be obtained from
the Commission upon payment of the prescribed fees.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by ALZA with the Commission,
are hereby incorporated by reference in this Prospectus:

(a) ALZA's Annual Report on Form 10-K for the fiscal year ended December
31, 1993;

(b) ALZA's Quarterly Report on Form 10-Q for the quarter ended March 31,
1994; and

(c) The description of the Common Stock contained in ALZA's registration
statement on Form 8-A filed May 14, 1992 under the Exchange Act, including
any amendment or reports filed for the purpose of updating such description.

All documents filed by ALZA pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

Upon written or oral request directed to Corporate and Investor Relations,
ALZA Corporation, 950 Page Mill Road, P.O. Box 10950, Palo Alto, California
94303-0802, telephone (415) 494-5222, ALZA will provide, without charge, to any
person to whom this Prospectus is delivered, a copy of any document incorporated
by reference in this Prospectus (not including exhibits to any such document
except to the extent any such exhibits are specifically incorporated by
reference in the information incorporated in this Prospectus).

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED BY THE DETAILED INFORMATION AND FINANCIAL
STATEMENTS INCLUDED ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED.

ALZA

ALZA is the recognized leader in the development of pharmaceutical products
based on controlled drug delivery technologies. Since the company's founding in
1968, ALZA's research and development efforts have resulted in a broad range of
proprietary therapeutic systems designed to improve the medical value and cost
effectiveness of drug compounds by improving efficacy, minimizing side effects
and/or providing greater patient compliance. Among the ALZA-developed products
commercialized to date by client companies are Procardia XL-R-, for the
treatment of both angina and hypertension, Volmax-R- (albuterol), an
anti-asthmatic product, and Efidac/24-R-, an over-the-counter nasal decongestant
product, all utilizing ALZA's OROS-R- oral therapeutic systems; and
Transderm-Nitro-R- for the prevention and treatment of angina, Nicoderm-R-, an
aid in smoking cessation, and Duragesic-R- for the management of chronic pain
(such as cancer pain), utilizing various transdermal therapeutic systems. More
than 60 additional products utilizing ALZA therapeutic systems are in various
stages of development or clinical evaluation, a number of which are awaiting
marketing clearance in the United States and/or other countries. ALZA recently
announced United States Food and Drug Administration ("FDA") clearance of two
products -- Glucotrol XL-R- and Actisite-R- (tetracycline HCl) periodontal
fiber. Glucotrol XL-R-, developed jointly with Pfizer, Inc., is a product for
the treatment of diabetes taken orally once a day. Actisite-R-, developed
jointly with On-Site Therapeutics, Inc., is the first sustained-release,
site-specific drug therapy cleared for marketing in the United States for the
treatment of patients with adult periodontitis.

Most of ALZA's product development activities have been undertaken pursuant
to joint development and commercialization agreements, including agreements with
many of the world's largest pharmaceutical companies. These agreements normally
provide for the pharmaceutical company client to reimburse ALZA for ALZA's costs
incurred in product development and clinical evaluation. The client receives
marketing rights to the products and ALZA receives royalties on product sales.
In some cases, ALZA has rights to co-promote the products developed. In many
cases, ALZA manufactures all or a portion of the client's requirements of the
product. ALZA's clients often take responsibility for obtaining necessary
regulatory approvals and make all marketing and other commercialization
decisions regarding the products. Therefore, most of the variables that affect
ALZA's royalties and fees are not within ALZA's control. For the year ended
December 31, 1993, royalties from sales of Procardia XL accounted for
approximately 60% of ALZA's royalties and fees.

As part of ALZA's Target 2000 strategic plan, ALZA intends to increase
significantly the development, manufacturing and marketing of its own products
in addition to continuing its client-based business. In furtherance of this
goal, ALZA formed Therapeutic Discovery Corporation ("TDC") and distributed
"units," consisting of TDC shares and ALZA warrants, as a special dividend to
ALZA stockholders in June 1993. TDC was formed to develop and commercialize,
most likely through licensing to ALZA, products incorporating ALZA's drug
delivery systems with various drug compounds. ALZA contributed $250 million in
cash to TDC and will develop products on behalf of TDC under a development
contract. ALZA has an option to license each product developed by TDC, and also
has an option to purchase all of the TDC shares. The formation of TDC, and the
development of products with TDC, are intended to result in a potential pipeline
of products for marketing by ALZA.

With the approval and launch of the Testoderm-R- transdermal therapeutic
system for the treatment of testosterone deficiencies in hypogonadal males, ALZA
has begun to accelerate its marketing activities. ALZA introduced the Testoderm
product in the United States in April 1994 through ALZA Pharmaceuticals, ALZA's
sales and marketing group. ALZA Pharmaceuticals also has begun to co-promote the
Duragesic transdermal fentanyl system with Janssen Pharmaceutica. With the
Testoderm product, the

3
<PAGE>
Duragesic co-promotion activities, other co-promotion arrangements and the
opportunity to market the products developed by TDC, ALZA intends to increase
the number of products it develops for marketing by ALZA Pharmaceuticals while
continuing its business of developing products for third party clients.

ALZA's principal executive offices are located at 950 Page Mill Road, P.O.
Box 10950, Palo Alto, California 94303-0802 and its telephone number is (415)
494-5000.

THE OFFERING

<TABLE>
<S> <C>
LYONs.................................. $825,000,000 aggregate principal amount at maturity
(excluding $123,750,000 aggregate principal amount
at maturity subject to the Underwriter's
over-allotment option) of LYONs due June , 2014.
There will be no periodic interest payments on the
LYONs. Each LYON will have an Issue Price of
$ and a principal amount due at maturity of
$1,000.
Yield to Maturity of LYONs............. % per annum (computed on a semi-annual bond
equivalent basis) calculated from June , 1994.
Conversion Rights...................... Each LYON will be convertible at the option of the
Holder at any time on or prior to maturity, unless
previously redeemed or otherwise purchased by
ALZA. Upon conversion of a LYON, ALZA may elect to
deliver shares of Common Stock, at a Conversion
Rate of shares per LYON, or cash equal to
the market value of the shares of Common Stock
into which the LYONs are convertible. The
Conversion Rate will not be adjusted for accrued
Original Issue Discount, but will be subject to
adjustment upon the occurrence of certain events
affecting the Common Stock. Upon conversion, the
Holder will not receive any cash payment
representing accrued Original Issue Discount; such
accrued Original Issue Discount will be deemed
paid by the Common Stock or cash received by the
Holder on conversion. See "Description of LYONs --
Conversion Rights."
Subordination.......................... The LYONs will be subordinated in right of payment
to the prior payment in full of all existing and
future Senior Indebtedness of ALZA, the principal
amount of which as of April 30, 1994 totalled $1.7
million, excluding ALZA's $249.3 million principal
amount of outstanding commercial paper, which will
be retired with a portion of the proceeds from the
sale of the LYONs. See "Capitalization" and
"Description of LYONs -- Subordination of LYONs."
Original Issue Discount................ Each LYON is being offered at an Original Issue
Discount for United States federal income tax
purposes equal to the excess of the principal
amount at maturity over the amount of the Issue
Price. Prospective purchasers of LYONs should be
aware that, although there will be no periodic
payments of interest on the LYONs, accrued
Original Issue Discount will be includable,
periodically, in a Holder's gross income for
United States federal income tax purposes prior to
conversion, redemption, other
</TABLE>

4
<PAGE>
<TABLE>
<S> <C>
disposition or maturity of such Holder's LYONs,
whether or not such LYONs are ultimately
converted, redeemed, sold (to ALZA or otherwise)
or paid at maturity. See "Certain United States
Federal Income Tax Considerations -- Original
Issue Discount."
Sinking Fund........................... None.
Optional Redemption.................... The LYONs will not be redeemable by ALZA prior to
June , 1999. Thereafter, the LYONs are
redeemable for cash at any time at the option of
ALZA, in whole or in part, at Redemption Prices
equal to the Issue Price plus accrued Original
Issue Discount to the date of redemption. See
"Description of LYONs -- Redemption of LYONs at
the Option of ALZA."
Purchase at the Option of the Holder... ALZA will purchase any LYON, at the option of the
Holder, as of June , 1999, June , 2004 and June
, 2009, for a Purchase Price of $ ,
$ and $ (Issue Price plus accrued
Original Issue Discount to such Purchase Date),
respectively, representing a % yield per annum
to the Holder on such date, computed on a
semi-annual bond equivalent basis. Subject to
certain exceptions, ALZA, at its option, may elect
to pay the Purchase Price as of any such Purchase
Date in cash or Common Stock, or any combination
thereof. Because the Market Price of any Common
Stock to be delivered in payment, in whole or in
part, of the Purchase Price is determined prior to
the applicable Purchase Date, Holders of LYONs
bear the market risk with respect to the value of
the Common Stock to be received from the date such
Market Price is determined to such Purchase Date.
In addition, as of 35 business days after the
occurrence of a Change in Control of ALZA
occurring on or prior to June , 1999, ALZA will
also purchase for cash any LYON, at the option of
the Holder, for a Change in Control Purchase Price
equal to the Issue Price plus accrued Original
Issue Discount to the Change in Control Purchase
Date. The Change of Control purchase feature of
the LYONs may in certain circumstances have an
anti-takeover effect. See "Description of LYONs --
Purchase of LYONs at the Option of the Holder" and
"-- Change in Control Permits Purchase of LYONs at
the Option of the Holder."
Use of Proceeds........................ ALZA will use the net proceeds of this offering for
the retirement at maturity of all of ALZA's
outstanding commercial paper, which had an
aggregate principal amount of $249.3 million as of
April 30, 1994, and for general corporate
purposes. See "Use of Proceeds."
Listing................................ Application has been made to list the LYONs on the
New York Stock Exchange. The Common Stock is
currently traded on the New York Stock Exchange
under the symbol "AZA."
</TABLE>

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
Set forth below are summary consolidated financial data for ALZA as of the
dates and for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEARS ENDED DECEMBER 31,
--------------------------- -----------------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------------- ------------- -------------- ------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENT OF OPERATIONS
DATA:
Total revenues............ $ 68,165 $ 69,936(1) $ 234,182 (1 $ 250,519 $ 162,349 $ 109,425 $ 92,687
Income (loss) before
extraordinary item and
cumulative effect of
accounting change........ 15,617 20,769 42,869(2) 72,170 (62,076)(3) 24,654 18,774
Net income (loss)......... 15,617 27,342(4) 45,612(4)(5) 72,170 (62,076) 24,654 18,774
Income (loss) per share
before extraordinary item
and cumulative effect of
accounting change........ 0.19 0.26 0.54(2) 0.90 (0.88)(3) 0.35(6) 0.27(6)
Net income (loss) per
share.................... 0.19 0.34(4) 0.57(4)(5) 0.90 (0.88) 0.35(6) 0.27(6)
BALANCE SHEET DATA:
Working capital........... $ 76,959(7) $ 118,235 $ (87,767)(5) $ 188,744 $ 227,950 $ 335,385 $ 130,329
Total assets.............. 642,384 737,741 621,824 698,381 580,490 530,868 288,447
Commercial paper.......... 249,370 -- 249,520 -- -- -- --
7 1/2% zero coupon
convertible subordinated
debentures (5)........... -- 233,244 -- 228,966 213,220 198,218 --
5 1/2% convertible
subordinated
debentures............... -- -- -- -- -- 75,000 75,000
Other long-term
liabilities.............. 32,437 25,141 28,969 22,723 23,607 19,474 10,357
Stockholders' equity...... 320,822(7)(8) 438,311 306,677(8) 407,543 322,854 219,605 186,636
OTHER DATA:
Ratio of earnings to fixed
charges (9).............. 7.6x 6.6x 3.9x 6.3x --(10) 6.3x 5.4x
Pro forma ratio of
earnings to fixed
charges.................. (11) -- (11) -- -- -- --
<FN>
- ------------------------------
(1) Includes approximately $5.0 million of one-time investment gains realized
on long-term investments liquidated in connection with ALZA's contribution
to TDC. See "Prospectus Summary."
(2) Includes pre-tax charges and allowances of $28.1 million ($0.23 per share
on an after-tax basis) related primarily to manufacturing activities.
(3) In 1991 ALZA incurred a one-time charge of $101.3 million relating to the
purchase of in-process technology in connection with the acquisition of
Bio-Electro Systems, Inc., a company acquired by ALZA in early 1992.
(4) In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). ALZA adopted the provisions of SFAS 109 in its financial
statements for the quarter ended March 31, 1993, increasing net income by
$6.6 million ($0.08 per share). As permitted by SFAS 109, prior year
financial statements have not been restated to reflect the change in
accounting method.
(5) On November 15, 1993 ALZA redeemed all of its outstanding 7 1/2% zero
coupon convertible subordinated debentures. In connection with this
redemption, ALZA incurred a $3.8 million (net of income taxes)
extraordinary refinancing charge. The 7 1/2% zero coupon convertible
subordinated debentures were replaced with commercial paper which was
classified as short term debt, thereby reducing working capital.
(6) Per share data for 1989 and 1990 have been restated to give retroactive
effect to a two-for-one stock split effective November 1991.
(7) In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). ALZA adopted the provisions of
the new standard for investments held as of or acquired after January 1,
1994. In accordance with SFAS 115, prior period financial statements have
not been restated to reflect the change in accounting principle. Under SFAS
115, all available-for-sale securities were classified as current assets
and a $2.3 million valuation allowance was established at March 31, 1994
for the difference between their cost and fair market value.
(8) Stockholders' equity decreased from December 31, 1992 to December 31, 1993
and from March 31, 1993 to March 31, 1994 due primarily to the TDC
distribution. See "Prospectus Summary."
(9) The ratios of earnings to fixed charges were calculated by dividing the sum
of (i) income (loss) before income taxes, extraordinary item and the
cumulative effect of the accounting change and (ii) fixed charges (reduced
by capitalized interest costs), by fixed charges. Fixed charges consist of
interest (expensed and capitalized), amortization of debt issue expense and
the estimated interest portion of rent expense.
(10) Earnings for the year ended December 31, 1991 were insufficient to cover
fixed charges by approximately $43 million.
(11) The pro forma ratio of earnings to fixed charges assumes the 7 1/2% zero
coupon convertible subordinated debentures and the commercial paper
outstanding during the periods presented had been refinanced on a
retroactive basis by the new LYONs.
</TABLE>

6
<PAGE>
INVESTMENT CONSIDERATIONS

RELATIONSHIPS WITH CLIENT COMPANIES. ALZA's net income currently results
primarily from royalties and fees paid by client companies. Royalties and fees
are derived from sales by the clients of products incorporating ALZA
technologies, and therefore vary from quarter to quarter as a result of changing
levels of product sales by client companies. Because ALZA's clients make all
marketing and other commercialization decisions with respect to such products
(including, in many cases, taking responsibility for obtaining necessary
regulatory approvals), most of the variables that affect ALZA's royalties and
fees are not directly within ALZA's control. In addition, ALZA's royalties and
fees could be adversely affected if the pressures for cost containment in the
United States health care system were to result in lower selling prices for
royalty-bearing products. During the quarter ended March 31, 1994, Procardia XL,
marketed by Pfizer, Inc., accounted for approximately 60% of ALZA's royalties
and fees.

RECENT AND PLANNED EXPANSION OF MARKETING AND MANUFACTURING
ACTIVITIES. ALZA recently began marketing the Testoderm transdermal therapeutic
system, and intends to expand its sales and marketing activities in the future,
under co-promotion arrangements, under its arrangements with TDC, and under
other arrangements with third parties (which could include the acquisition or
license of products and/or technologies). While the activities with TDC and
other third parties are intended to result in a valuable pipeline of products
for marketing by ALZA, there can be no assurance that this will be the case.
ALZA also has expanded and is continuing to expand its manufacturing facilities
in anticipation of future manufacturing needs. Utilization of these facilities
in any quarter depends on many factors, including client orders, product
approvals, and product launches and sales, many of which are outside of ALZA's
control. There can be no assurance that ALZA's expanded sales, marketing and
manufacturing activities will be successful.

VOLATILITY OF SECURITIES PRICES. The market prices of ALZA's securities are
subject to significant fluctuations in response to variations in quarterly
operating results, announcements of new commercial products by ALZA or its
competitors, developments or disputes concerning patent or proprietary rights,
regulatory developments in both the United States and foreign countries, health
care reform and regulation, and economic and other external factors. In
addition, the pharmaceutical sector of the stock market has in recent years
experienced significant price fluctuations. Such fluctuations, as well as
economic conditions generally, may adversely affect the market price of ALZA's
securities.

7
<PAGE>
USE OF PROCEEDS

The aggregate net proceeds to ALZA from the sale of the LYONs offered hereby
are estimated to be approximately $ million (or approximately $ million if
the Underwriter's over-allotment option is exercised in full). ALZA will use a
portion of the net proceeds to retire at maturity all of ALZA's outstanding
commercial paper, which had an aggregate principal amount of $249.3 million as
of April 30, 1994, and had maturities of less than 120 days and bore interest as
of such date at rates ranging from 3.65% to 4.22% per annum. The remainder of
the net proceeds will be used for general corporate purposes, which include
working capital, acquisition of additional facilities and equipment, expansion
of ALZA's pharmaceutical business (including its sales and marketing
activities), possible expenditures under joint ventures, partnerships or other
similar agreements, and the possible acquisition of assets, technologies,
products and businesses to expand ALZA's existing operations. Pending such uses,
ALZA will invest the net proceeds of the offering in marketable securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

ALZA's Common Stock is traded on the New York Stock Exchange under the
symbol AZA. Prior to June 1, 1992, the Common Stock was traded on the American
Stock Exchange under the same symbol. The following table sets forth the high
and low per share sales price for the Common Stock as reported on the composite
tape for the applicable exchange for the quarters indicated. The last reported
sale price for the Common Stock on the New York Stock Exchange on May 13, 1994
was $23 1/8. These prices do not include retail mark-ups, mark-downs or
commissions.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1992
First Quarter......................... $55 3/4 $40 5/8
Second Quarter........................ $48 5/8 $38 7/8
Third Quarter......................... $50 3/8 $40 3/8
Fourth Quarter........................ $47 3/8 $33 1/2
1993
First Quarter......................... $47 1/8 $25 1/4
Second Quarter........................ $35 1/8 $22 7/8
Third Quarter......................... $26 3/4 $19 1/4
Fourth Quarter........................ $29 1/2 $20 7/8
1994
First Quarter......................... $30 3/4 $21
Second Quarter (through May 13)....... $26 $20 1/4
</TABLE>

ALZA has never paid a cash dividend on its Common Stock and does not
anticipate doing so in the foreseeable future.

8
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization and short-term debt of
ALZA and its consolidated subsidiaries at March 31, 1994, and as adjusted to
give effect to the sale of the LYONs offered by this Prospectus (assuming no
exercise of the Underwriter's over-allotment option) and assuming the retirement
at maturity of $249,370,000 aggregate principal amount of outstanding commercial
paper from the net proceeds of the sale of the LYONs, in each case as if such
events had occurred on March 31, 1994.

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1994
-----------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Commercial paper............................................................. $ 249,370 $ --
Other short-term debt (2).................................................... 868 868
---------- -----------
Total short-term debt...................................................... $ 250,238 $ 868
---------- -----------
---------- -----------
Long-term liabilities:
LYONs offered hereby......................................................... $ -- $
Other long-term liabilities.................................................. 32,437 32,437
---------- -----------
Total long-term liabilities................................................ 32,437
Stockholders' equity:
Preferred Stock, $.01 par value; 100,000 shares authorized; none issued and
outstanding................................................................. -- --
Common Stock, $.01 par value, 300,000,000 shares authorized; 81,674,400
shares issued and outstanding (3)........................................... 817 817
Additional paid-in capital................................................... 295,818 295,818
Unrealized losses on available-for-sale securities (unrealized loss of $3,891
less $1,598 tax effects) (4)................................................ (2,293) (2,293)
Retained earnings............................................................ 26,480 26,480
---------- -----------
Total stockholders' equity................................................. 320,822 320,822
---------- -----------
Total capitalization..................................................... $ 353,259 $
---------- -----------
---------- -----------
<FN>
- ------------------------
(1) Adjusted to reflect: (i) the issuance of the LYONs assuming no exercise of
the Underwriter's over-allotment option and (ii) the retirement at
maturity of $249,370,000 of outstanding commercial paper from the net
proceeds of the sale of the LYONs, in each case as if such events had
occurred on March 31, 1994.
(2) Other short-term debt consists entirely of the current portion of
long-term debt.
(3) Excludes 5,832,501 shares reserved for issuance pursuant to ALZA's stock
option, stock purchase and other employee benefit plans, 1,000,000 shares
reserved for issuance upon the exercise of outstanding warrants
exercisable at $25 per share on or before January 31, 1996 and 966,697
shares reserved for issuance upon the exercise of outstanding warrants
exercisable at $65 per share on or before December 31, 1999.
(4) In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). ALZA adopted the
provisions of the new standard for investments held as of or acquired
after January 1, 1994. In accordance with SFAS 115, prior period financial
statements have not been restated to reflect the change in accounting
principle. Under SFAS 115, all available-for-sale securities were
classified as current assets and a $2.3 million valuation allowance was
established at March 31, 1994 for the difference between their cost and
fair market value.
</TABLE>

9
<PAGE>
DESCRIPTION OF LYONS

The LYONs are to be issued under an indenture to be dated as of June 1, 1994
(the "Indenture") between ALZA and The Chase Manhattan Bank, N.A., as trustee
(the "Trustee"). A copy of the form of Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the LYONs and the Indenture do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the LYONs and the Indenture, including the definitions
therein of certain terms which are not otherwise defined in this Prospectus.
Wherever particular provisions or defined terms of the Indenture (or of the Form
of LYON which is a part thereof) are referred to, such provisions or defined
terms are incorporated herein by reference. References herein are to sections in
the Indenture and paragraphs in the Form of LYON.

GENERAL

The LYONs will be unsecured obligations of ALZA limited to $825,000,000
aggregate principal amount at maturity ($948,750,000 aggregate principal amount
at maturity if the Underwriter's over-allotment option is exercised in full) and
will mature on June , 2014. The principal amount at maturity of each LYON is
$1,000 and will be payable at the office of the Paying Agent, which initially
will be the Trustee, in The City of New York, and payment will be made at its
office in New York, or any other office of the Paying Agent maintained for such
purpose. (Sections 2.2, 2.3 and 4.5 and Form of LYON, paragraph 3.)

The LYONs are being offered at a substantial discount from their principal
amount at maturity. There will be no periodic payments of interest. The
calculation of the accrual of Original Issue Discount (the difference between
the Issue Price and the principal amount at maturity of a LYON) in the period
during which a LYON remains outstanding will be on a semi-annual bond equivalent
basis using a 360-day year composed of twelve 30-day months; such accrual will
commence on the issue date of the LYONs. (Form of LYON, paragraph 1.) Maturity,
conversion, purchase by ALZA at the option of the Holder, or redemption of a
LYON will cause Original Issue Discount and interest, if any, to cease to accrue
on such LYON, under the terms and subject to the conditions of the Indenture.
(Section 2.8.) ALZA may not reissue a LYON that has matured or been converted,
purchased by ALZA at the option of a Holder, redeemed or otherwise canceled
(except for registration of transfer, exchange or replacement thereof). (Section
2.10.) See "Certain United States Federal Income Tax Considerations -- Original
Issue Discount."

The LYONs will be issued only in fully registered form, without coupons, in
denominations of $1,000 principal amount at maturity or an integral multiple
thereof. (Form of LYON, paragraph 11.) LYONs may be presented for conversion at
the office of the Conversion Agent and for exchange or registration of transfer
at the office of the Registrar, each of which initially will be the Trustee.
(Section 2.3.) No service charge will be made for any registration of transfer
or exchange of LYONs; however, ALZA may require payment by a Holder of a sum
sufficient to cover any tax, assessment or other governmental charge payable in
connection therewith. (Section 2.6.)

SUBORDINATION OF LYONS

Indebtedness evidenced by the LYONs will be subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Indebtedness. (Section 10.1 and Form of LYON,
paragraph 8.) "Senior Indebtedness" means the principal of (and premium, if any)
and unpaid interest on all present and future (i) indebtedness of ALZA for
borrowed money, (ii) obligations of ALZA evidenced by bonds, debentures, notes
or similar instruments, (iii) indebtedness incurred, assumed or guaranteed by
ALZA in connection with the acquisition by it or a subsidiary of any business,
properties or assets (except purchase money indebtedness classified as accounts
payable under generally accepted accounting principles), (iv) obligations of
ALZA as lessee under leases required to be capitalized on the balance sheet of
the lessee under generally accepted accounting principles and leases of property
or assets made as part of any sale and lease-back transaction to which ALZA is a
party, (v) reimbursement obligations of ALZA in respect of letters of credit
relating to indebtedness or other obligations of ALZA that qualify as
indebtedness or obligations of the kind referred to in clauses (i) through (iv)
above and (vi) obligations of ALZA under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or

10
<PAGE>
obligations of others of the kinds referred to in clauses (i) through (v) above,
in each case unless, in the instrument creating or evidencing the indebtedness
or obligation or pursuant to which the same is outstanding, it is provided that
such indebtedness or obligation is not superior in right of payment to the
LYONs. (Section 1.1.)

By reason of such subordination, in the event of dissolution, insolvency,
bankruptcy or other similar proceedings, upon any distribution of assets, (i)
the holders of Senior Indebtedness will be entitled to be paid in full before
payment may be made on the LYONs and the Holders of LYONs will be required to
pay over their share of such distribution in respect of the LYONs to the holders
of Senior Indebtedness until such Senior Indebtedness is paid in full and (ii)
unsecured creditors of ALZA who are not Holders of LYONs or holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the Holders of LYONs. (Section 10.2.)

No payment of the principal amount at maturity, Issue Price, accrued
Original Issue Discount, Redemption Price, Change in Control Purchase Price or
interest, if any, with respect to any LYONs may be made, nor may ALZA pay cash
with respect to the Purchase Price or upon conversion of any LYON (other than
cash in lieu of fractional shares) or acquire any LYONs except as set forth in
the Indenture, if there shall have occurred and be continuing (i) a default in
any payment with respect to any Senior Indebtedness of ALZA or (ii) an event of
default with respect to any Senior Indebtedness of ALZA permitting the holders
thereof to accelerate the maturity thereof. (Section 10.4.)

The LYONs will be effectively subordinated to all liabilities, including
trade payables and capitalized lease obligations, if any, of ALZA's
subsidiaries. Any right of ALZA to receive assets of any of its subsidiaries
upon liquidation or reorganization of the subsidiary (and the consequent right
of the Holders of the LYONs to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that ALZA is itself recognized as a creditor of
such subsidiary, in which case the claims of ALZA would still be subordinate to
any security interests in the assets of such subsidiary and any indebtedness of
such subsidiary senior to that held by ALZA.

As of April 30, 1994, the principal amount of Senior Indebtedness was $1.7
million, excluding ALZA's $249.3 million principal amount of outstanding
commercial paper, which will be retired with a portion of the proceeds from the
sale of the LYONs. There are no restrictions in the Indenture on the creation of
additional indebtedness, including Senior Indebtedness.

CONVERSION RIGHTS

A Holder of a LYON may convert it at any time before the close of business
on June , 2014; PROVIDED, HOWEVER, that if a LYON is called for redemption,
the Holder may convert it at any time before the close of business on the
Redemption Date. On conversion of a LYON, ALZA may elect to deliver shares of
Common Stock or an amount of cash determined as described below. A LYON in
respect of which a Holder has delivered a Purchase Notice or a Change in Control
Purchase Notice exercising the option of such Holder to require ALZA to purchase
such LYON may be converted only if such notice is withdrawn by a written notice
of withdrawal delivered to the Paying Agent prior to the close of business on
the Purchase Date or the Change in Control Purchase Date, as the case may be, in
accordance with the terms of the Indenture. (Form of LYON, paragraph 9.)

The initial Conversion Rate is shares of Common Stock per LYON,
subject to adjustment upon the occurrence of certain events described below. A
Holder otherwise entitled to a fractional share of Common Stock will receive
cash in lieu of such fractional share equal to the market value of such
fractional share based on the Sale Price on the Trading Day immediately prior to
the Conversion Date. A Holder may convert a portion of such Holder's LYON
provided that the portion is $1,000 principal amount at maturity or an integral
multiple thereof. (Sections 11.1 and 11.3 and Form of LYON, paragraph 9.)

On conversion of a LYON, a Holder must (i) complete and manually sign the
conversion notice on the back of the LYON (or complete and manually sign a
facsimile thereof) and deliver such notice to the Conversion Agent or any other
office or agency maintained for such purpose, (ii) surrender the LYON to the
Conversion Agent or such other office or agency by physical or book entry
delivery, (iii) if required, furnish

11
<PAGE>
appropriate endorsements and transfer documents and (iv) if required, pay all
transfer or similar taxes. The date on which all of the foregoing requirements
have been satisfied is the Conversion Date. (Section 11.2 and Form of LYON,
paragraph 9.)

On conversion of a LYON, a Holder will not receive any cash payment
representing accrued Original Issue Discount. ALZA's delivery to the Holder of
the fixed number of shares of Common Stock (or cash in the applicable amount as
provided below) into which the LYON is convertible (together with the cash
payment, if any, in lieu of fractional shares) will satisfy ALZA's obligation to
pay the principal amount at maturity of the LYON including the accrued Original
Issue Discount attributable to the period from the Issue Date to the Conversion
Date. Thus, the accrued Original Issue Discount is deemed to be paid in full
rather than canceled, extinguished or forfeited. (Section 11.2.) The Conversion
Rate will not be adjusted at any time during the term of the LYONs for such
accrued Original Issue Discount.

In lieu of delivering shares of Common Stock upon notice of conversion of
any LYON, ALZA may elect to pay the Holder surrendering a LYON an amount in cash
equal to the Sale Price of a share of Common Stock on the Trading Day
immediately prior to the Conversion Date multiplied by the Conversion Rate in
effect on such Trading Day, subject to adjustment upon the occurrence of certain
events described below; PROVIDED, that if such payment of cash is not permitted
pursuant to the provisions of the Indenture or otherwise, ALZA will deliver
shares of Common Stock (and cash in lieu of fractional shares) as set forth
below. Upon conversion of any LYON, ALZA shall inform the Holder through the
Conversion Agent of its election to deliver shares of Common Stock or to pay
cash in lieu of delivery of such shares no later than two business days
following the Conversion Date. If ALZA elects to deliver shares of Common Stock,
such shares will be delivered through the Conversion Agent no later than the
seventh business day following the Conversion Date. If ALZA elects to pay cash,
such cash payment will be made to the Holder surrendering such LYON no later
than the fifth business day following such Conversion Date. (Sections 11.1 and
11.2.) For a discussion of the tax treatment of a Holder receiving cash or
Common Stock, see "Certain United States Federal Income Tax Considerations --
Disposition or Conversion."

ALZA may not pay cash upon conversion of any LYON (other than cash in lieu
of fractional shares) if there has occurred and is continuing an Event of
Default described under "Events of Default; Notice and Waiver" below (other than
a default in such payment on such LYON). (Section 11.1.)

The "Sale Price" on any Trading Day means the closing sale price per share
for the Common Stock (or, if no closing price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date as reported in the
composite transactions for the principal United States securities exchange on
which the Common Stock is traded or, if the Common Stock is not listed on a
United States national or regional securities exchange, as reported by the
National Association of Securities Dealers Automated Quotation System. A
"Trading Day" means each day on which the securities exchange or quotation
system which is used to determine the Sale Price is open for trading or
quotation.

The Conversion Rate will be adjusted for dividends or distributions on
Common Stock payable in Common Stock or other capital stock of ALZA;
subdivisions, combinations or certain reclassifications of Common Stock;
distributions to all holders of Common Stock of certain rights, warrants or
options to purchase Common Stock expiring within 60 days after the record date
for such distribution at a price per share less than the Sale Price at the time
specified in the Indenture; and distributions to such holders of assets or debt
securities of ALZA or certain rights, warrants or options to purchase securities
of ALZA (excluding cash dividends or other cash distributions from current or
retained earnings other than any Extraordinary Cash Dividend). However, no
adjustment need be made if Holders may participate in the transactions on a
basis and with notice that the Board of Directors of ALZA determines to be fair
and appropriate or in certain other cases. In cases where the fair market value
of the assets, debt securities or certain rights, warrants or options to
purchase securities of ALZA distributed to stockholders exceeds the Average Sale
Price of the Common Stock or such Average Sale Price exceeds the fair market
value of the assets, debt securities or rights, warrants or options so
distributed, by less than $1.00, rather than being entitled to an adjustment in
the Conversion Rate, the Holder of a LYON upon conversion thereof will be

12
<PAGE>
entitled to receive, in addition to the shares of Common Stock into which the
LYON is convertible, the kind and amount of assets, debt securities or rights,
warrants or options comprising the distribution that such Holder would have
received if such Holder had converted such LYON immediately prior to the record
date for determining the stockholders entitled to receive the distribution. The
Indenture permits ALZA to increase the Conversion Rate from time to time for a
period of time not less than 20 business days. (Sections 11.6, 11.7, 11.8, 11.9,
11.10, 11.12 and 11.14 and Form of LYON, paragraph 9.)

If ALZA is a party to a consolidation, merger or binding share exchange, or
transfers all or substantially all of its assets, the right to convert a LYON
into Common Stock may be changed into a right to convert into securities, cash
or other assets of ALZA or another person. (Section 11.14.)

In the event of a taxable distribution to holders of Common Stock that
results in an adjustment of the Conversion Rate or in the event the Conversion
Rate is increased at the discretion of ALZA, the Holders of the LYONs may, in
certain circumstances, be deemed to have received a distribution subject to
United States federal income tax as a dividend. See "Certain United States
Federal Income Tax Considerations -- Constructive Dividend."

REDEMPTION OF LYONS AT THE OPTION OF ALZA

No sinking fund is provided for the LYONs. The LYONs will not be redeemable
by ALZA prior to June , 1999. Thereafter, ALZA may redeem the LYONs for cash
as a whole at any time, or from time to time in part, upon not less than 30
days' nor more than 60 days' notice of redemption given by mail to the Holders
of LYONs. (Sections 3.1 and 3.3 and Form of LYON, paragraphs 5 and 7.)

The following table shows Redemption Prices of a LYON on June , 1999, at
each June thereafter prior to maturity, and at maturity on June , 2014,
which prices reflect the accrued Original Issue Discount calculated to each such
date. The Redemption Price of a LYON redeemed between such dates would include
an additional amount reflecting the additional Original Issue Discount accrued
since the next preceding date in the table to, but excluding, the Redemption
Date. (Form of LYON, paragraph 5.)

<TABLE>
<CAPTION>
(3)
(2) REDEMPTION
(1) ACCRUED ORIGINAL PRICE
REDEMPTION DATE LYON ISSUE PRICE ISSUE DISCOUNT AT % (1)+(2)
- ------------------------------------ ---------------- --------------------- --------------
<S> <C> <C> <C>
June , 1999.......................
June , 2000.......................
June , 2001.......................
June , 2002.......................
June , 2003.......................
June , 2004.......................
June , 2005.......................
June , 2006.......................
June , 2007.......................
June , 2008.......................
June , 2009.......................
June , 2010.......................
June , 2011.......................
June , 2012.......................
June , 2013.......................
At maturity......................... $ 1,000.00
</TABLE>

If less than all of the outstanding LYONs are to be redeemed, the Trustee
shall select the LYONs to be redeemed in principal amounts at maturity of $1,000
or integral multiples thereof by lot, PRO RATA or by another method the Trustee
considers fair and appropriate. If a portion of a Holder's LYONs is selected for
partial redemption and such Holder converts a portion of such LYONs, such
converted portion shall be deemed to be of the portion selected for redemption.
(Section 3.2.)

13
<PAGE>
PURCHASE OF LYONS AT THE OPTION OF THE HOLDER

On June , 1999, June , 2004 and June , 2009 (each, a "Purchase
Date") ALZA will become obligated to purchase, at the option of the Holder
thereof, any outstanding LYON for which a written Purchase Notice has been
delivered by the Holder to the Paying Agent or to any other office or agency
maintained for such purpose at any time from the opening of business on the date
that is 20 business days prior to such Purchase Date until the close of business
on such Purchase Date and for which such Purchase Notice has not been withdrawn,
subject to certain additional conditions. The Purchase Price payable in respect
of a LYON shall be equal to the Issue Price plus accrued Original Issue Discount
to the Purchase Date, with respect to each Purchase Date, as set forth in the
table below. ALZA, at its option, may elect to pay the Purchase Price with
respect to any particular Purchase Date in cash or Common Stock, or any
combination thereof. (Section 3.8 and Form of LYON, paragraph 6.) For a
discussion of the tax treatment of a Holder receiving cash, Common Stock, or any
combination thereof, see "Certain United States Federal Income Tax
Considerations -- Disposition or Conversion."

ALZA will be required to give notice (the "ALZA Notice") on a date not less
than 20 business days prior to any Purchase Date to all Holders at their
addresses shown in the register of the Registrar (and to beneficial owners if
required by applicable law) stating, among other things, (i) whether ALZA will
pay the Purchase Price of LYONs in cash or Common Stock, or any combination
thereof (and, if a combination, specifying the percentage of the Purchase Price
to be paid in each of cash and Common Stock), and (ii) the procedures that
Holders must follow to require ALZA to purchase LYONs from such Holder. (Section
3.8.)

The Purchase Notice given by each Holder electing to require ALZA to
purchase LYONs shall state (i) the certificate numbers of the LYONs to be
delivered by such Holder for purchase by ALZA, (ii) the portion of the principal
amount at maturity of LYONs to be purchased, which portion must be $1,000 or an
integral multiple thereof, (iii) that such LYONs are to be purchased by ALZA
pursuant to the applicable provisions of the LYONs and (iv) in the event ALZA
elects, pursuant to the ALZA Notice, to pay the Purchase Price with respect to
the applicable Purchase Date in Common Stock (in whole or in part) but such
Purchase Price is ultimately to be paid in cash because any of the other
conditions to payment of the Purchase Price in Common Stock is not satisfied by
such Purchase Date, as described below, whether such Holder elects (a) to
withdraw such Purchase Notice as to some or all of the LYONs to which it relates
(stating the principal amount at maturity and certificate numbers of the LYONs
as to which such withdrawal shall relate) or (b) to receive cash in respect of
the Purchase Price for all LYONs subject to such Purchase Notice. If the Holder
fails to indicate such Holder's choice with respect to the election described in
clause (iv) above in the Purchase Notice, such Holder shall be deemed to have
elected to receive cash in respect of the Purchase Price for all LYONs subject
to such Purchase Notice in such circumstances. (Section 3.8.)

Any Purchase Notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the Paying Agent or to any other office or agency
maintained for such purpose prior to the close of business on the Purchase Date.
The notice of withdrawal shall state the principal amount at maturity and the
certificate numbers of the LYONs as to which the withdrawal notice relates and
the principal amount at maturity, if any, which remains subject to the Purchase
Notice. (Section 3.10.)

The table below shows the Purchase Prices of a LYON as of the specified
Purchase Dates:

<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE
----------------- --------------
<S> <C>
June , 1999.......................................................
June , 2004.......................................................
June , 2009.......................................................
</TABLE>

If ALZA elects to pay the Purchase Price, in whole or in part, in shares of
Common Stock, the number of shares of Common Stock to be delivered in respect of
the portion of the Purchase Price to be paid in Common Stock shall be equal to
such portion of the Purchase Price divided by the Market Price of a share of
Common Stock. However, no fractional shares of Common Stock will be delivered
upon any purchase by ALZA of LYONs through the delivery of such Common Stock in
payment, in whole or in part, of the

14
<PAGE>
Purchase Price. Instead, ALZA will pay cash based on the Market Price for all
fractional shares of Common Stock. (Section 3.8.) See "Certain United States
Federal Income Tax Considerations -- Disposition or Conversion."

The "Market Price" means the average of the Sale Prices of the Common Stock
for the five Trading Day period ending on the third Trading Day prior to the
applicable Purchase Date, appropriately adjusted to take into account the
occurrence during the seven Trading Days preceding such Purchase Date of certain
events that would result in an adjustment of the Conversion Rate with respect to
the Common Stock. Because the Market Price of the Common Stock is determined
prior to the applicable Purchase Date, Holders of LYONs bear the market risk
with respect to the value of the Common Stock to be received from the date such
Market Price is determined to such Purchase Date. ALZA may elect to pay in
Common Stock only if the information necessary to calculate the Market Price is
reported in THE WALL STREET JOURNAL or another daily newspaper of national
circulation. (Section 3.8.)

Upon determination of the actual number of shares of Common Stock issuable
in accordance with the foregoing provisions, ALZA will publish such
determination in THE WALL STREET JOURNAL or another daily newspaper of national
circulation. (Section 3.8.)

ALZA's right to purchase LYONs, in whole or in part, with Common Stock is
subject to ALZA satisfying various conditions, including (i) the registration of
the Common Stock under the Securities Act and the Exchange Act, if applicable,
and (ii) any necessary qualification or registration under applicable state laws
or the availability of an exemption from such qualification and registration and
compliance with other applicable federal securities laws. If such conditions are
not satisfied with respect to a Holder or Holders by the Purchase Date, ALZA
will pay the Purchase Price of the LYONs of such Holder or Holders in cash.
(Section 3.8.) See "Certain United States Federal Income Tax Considerations --
Disposition or Conversion." ALZA may not change the form of consideration (or
components thereof) to be paid once ALZA has given the ALZA Notice to Holders of
LYONs, except as described in the second sentence of this paragraph. (Section
3.8.)

Payment of the Purchase Price for a LYON for which a Purchase Notice has
been delivered and not validly withdrawn is conditioned upon delivery of such
LYON (together with necessary endorsements) to the Paying Agent or to any other
office or agency maintained for such purpose at any time (whether prior to, on
or after the Purchase Date) after delivery of such Purchase Notice. (Section
3.8.) Payment of the Purchase Price for a LYON will be made promptly following
the later of the Purchase Date or the time of delivery of such LYON. (Section
3.10.) If the Paying Agent holds, in accordance with the terms of the Indenture,
money or securities sufficient to pay the Purchase Price of such LYON on the
business day following the Purchase Date, then, on and after the Purchase Date,
such LYON will cease to be outstanding and Original Issue Discount on such LYON
will cease to accrue and will be deemed paid, whether or not such LYON is
delivered to the Paying Agent or to any other office or agency maintained for
such purpose, and all other rights of the Holder will terminate (other than the
right to receive the Purchase Price upon delivery of the LYON). (Section 2.8.)

ALZA's ability to purchase LYONs with cash may be limited by the terms of
its then-existing borrowing agreements. No LYONs may be purchased for cash
pursuant to the provisions described above if there has occurred and is
continuing an Event of Default described under "Events of Default; Notice and
Waiver" below (other than a default in the payment of the Purchase Price with
respect to such LYONs). (Section 3.10.)

CHANGE IN CONTROL PERMITS PURCHASE OF LYONS AT THE OPTION OF THE HOLDER

In the event of any Change in Control of ALZA occurring on or prior to June
, 1999, each Holder of LYONs will have the right, at the Holder's option,
subject to the terms and conditions of the Indenture, to

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require ALZA to become obligated to purchase all or any part (provided that the
principal amount at maturity must be $1,000 or an integral multiple thereof) of
the Holder's LYONs on the date that is 35 business days after the occurrence of
such Change in Control (the "Change in Control Purchase Date") at a cash price
equal to the Issue Price plus accrued Original Issue Discount to the Change in
Control Purchase Date (the "Change in Control Purchase Price"). (Section 3.9 and
Form of LYON, paragraph 6.) See "Certain United States Federal Income Tax
Considerations -- Disposition or Conversion."

Within 15 business days after the Change in Control, ALZA is obligated to
give notice regarding the Change in Control to the Trustee and to all Holders of
LYONs at their addresses shown in the register of the Registrar (and to
beneficial owners if required by applicable law), which notice shall state,
among other things, (i) the date of such Change in Control and, briefly, the
events causing such Change in Control, (ii) the last date by which the Change in
Control Purchase Notice must be given, (iii) the Change in Control Purchase
Date, (iv) the Change in Control Purchase Price, (v) briefly, the conversion
rights of the LYONs, (vi) the name and address of the Paying Agent and the
Conversion Agent, (vii) the Conversion Rate and any adjustments thereto, (viii)
that LYONs as to which a Change in Control Purchase Notice has been given may be
converted into Common Stock only if the Change in Control Purchase Notice has
been withdrawn in accordance with the terms of the Indenture, (ix) a brief
description of these rights and the procedures the Holder must follow to
exercise these rights, and (x) the procedures for withdrawing a Change in
Control Purchase Notice. ALZA will cause a copy of such notice to be published
in THE WALL STREET JOURNAL or another daily newspaper of national circulation.
(Section 3.9.)

To exercise this right, the Holder must deliver written notice (a "Change in
Control Purchase Notice") to the Paying Agent or to any other office or agency
maintained for such purpose of the exercise of such right prior to the close of
business on the Change in Control Purchase Date. The Change in Control Purchase
Notice shall state (i) the certificate numbers of the LYONs to be delivered by
the Holder thereof for purchase by ALZA, (ii) the portion of the principal
amount at maturity of LYONs to be purchased, which portion must be $1,000 or an
integral multiple thereof, and (iii) that such LYONs are to be purchased by ALZA
pursuant to the applicable provisions of the LYONs. (Section 3.9.)

Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent or to any other
office or agency maintained for such purpose prior to the close of business on
the Change in Control Purchase Date. The notice of withdrawal shall state the
principal amount at maturity and the certificate numbers of the LYONs as to
which the withdrawal notice relates and the principal amount at maturity, if
any, that remains subject to a Change in Control Purchase Notice. (Section
3.10.)

Payment of the Change in Control Purchase Price for a LYON for which a
Change in Control Purchase Notice has been delivered and not validly withdrawn
is conditioned upon delivery of such LYON (together with necessary endorsements)
to the Paying Agent or to any other office or agency maintained for such
purpose, at any time (whether prior to, on or after the Change in Control
Purchase Date) after the delivery of such Change in Control Purchase Notice.
(Section 3.9.) Payment of the Change in Control Purchase Price for such LYON
will be made promptly following the later of the Change in Control Purchase Date
or the time of delivery of such LYON. (Section 3.10.) If the Paying Agent holds,
in accordance with the terms of the Indenture, money sufficient to pay the
Change in Control Purchase Price of such LYON on the business day following the
Change in Control Purchase Date, then, on and after such date, such LYON shall
cease to be outstanding and Original Issue Discount on such LYON will cease to
accrue and will be deemed paid, whether or not such LYON is delivered to the
Paying Agent or to any other office or agency maintained for such purpose, and
all other rights of the Holder shall terminate (other than the right to receive
the Change in Control Purchase Price upon delivery of the LYON). (Section 2.8.)

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Under the Indenture, a "Change in Control" of ALZA is deemed to have
occurred at such time as (i) any person (including its Affiliates and
Associates) other than ALZA, its subsidiaries or their employee benefit plans,
files a Schedule 13D or 14D-1 (or any successor schedule, form or report under
the Exchange Act) disclosing that such person has become the Beneficial Owner of
50% or more of ALZA's Voting Stock, or (ii) there shall be consummated any
consolidation or merger of ALZA in which ALZA is not the continuing or surviving
corporation or pursuant to which the Voting Stock of ALZA would be converted
into cash, securities or other property, in each case other than a consolidation
or merger of ALZA in which the holders of the Voting Stock of ALZA immediately
prior to the consolidation or merger have, directly or indirectly, at least a
majority of the Voting Stock of the surviving corporation immediately after the
consolidation or merger. (Section 3.9.)

"Voting Stock" means, with respect to any person, capital stock of such
person having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of such person
(irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency). (Section 3.9.)

ALZA will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be applicable and will
file Schedule 13E-4 or any other schedule required thereunder in connection with
any offer by ALZA to purchase LYONs at the option of Holders upon a Change in
Control. (Section 3.13.) The Change in Control purchase feature of the LYONs may
in certain circumstances make more difficult or discourage a takeover of ALZA
and, thus, the removal of incumbent management. The Change in Control purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate shares of Common Stock or to obtain control of ALZA by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the Change in
Control purchase feature is a standard term contained in other LYONs offerings
that have been marketed by the Underwriter and the terms of such feature result
from negotiations between ALZA and the Underwriter.

If a Change in Control were to occur, there can be no assurance that ALZA
would have sufficient funds to pay the Change in Control Purchase Price for all
LYONs tendered by the Holders thereof. In addition, ALZA's ability to purchase
LYONs with cash may be limited by the terms of its then-existing borrowing
agreements. Payment of the Change in Control Purchase Price will be subordinated
to the repayment of Senior Indebtedness. See "Subordination of LYONs." A default
by ALZA on its obligation to pay the Change in Control Purchase Price would
result in an Event of Default and could result in acceleration of the maturity
of other indebtedness of ALZA at the time outstanding pursuant to cross-default
provisions. See "Events of Default; Notice and Waiver." No LYONs may be
purchased if there has occurred and is continuing an Event of Default described
under "Events of Default; Notice and Waiver" below (other than a default in the
payment of the Change in Control Purchase Price with respect to such LYONs).
(Section 3.10.)

MERGERS AND SALES OF ASSETS BY ALZA

The Indenture provides that ALZA may not consolidate with or merge into any
other person or sell, lease or otherwise transfer all or substantially all of
its assets to any other person, unless, among other things, (i) the resulting,
surviving or transferee person (if other than ALZA) is organized and existing
under the laws of the United States, any state thereof or the District of
Columbia and such person expressly assumes all obligations of ALZA under the
LYONs and the Indenture and (ii) ALZA or such successor person shall not
immediately thereafter be in default under the Indenture. Upon the assumption of
ALZA's obligations by such a person in such circumstances, subject to certain
exceptions, ALZA shall be discharged from all obligations under the LYONs and
the Indenture. (Section 5.1.) Certain of the foregoing transactions occurring on
or prior to June , 1999 could result in a Change in Control of ALZA permitting
each Holder to require ALZA to purchase the LYONs of such Holder as described
above. (Section 3.9.)

EVENTS OF DEFAULT; NOTICE AND WAIVER

The Indenture provides that if an Event of Default specified therein shall
have occurred and be continuing, either the Trustee or the Holders of not less
than 25% in aggregate principal amount at maturity of the LYONs then outstanding
may declare the Issue Price of the LYONs plus the Original Issue Discount

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on the LYONs accrued to the date of such declaration to be immediately due and
payable. In the case of certain events of bankruptcy or insolvency, the Issue
Price of the LYONs plus the Original Issue Discount accrued thereon to the
occurrence of such event shall automatically become and be immediately due and
payable. See "Subordination of LYONs." If any LYONs are declared due and payable
before their stated maturity, the holders of Senior Indebtedness then
outstanding shall be entitled to receive payment in full of all amounts due or
to become due on or with respect to all Senior Indebtedness, or provision shall
be made for payment of such amounts, before the Holders of LYONs are entitled to
receive any payment on account of the LYONs. (Section 10.3.) Under certain
circumstances, the Holders of a majority in aggregate principal amount at
maturity of the outstanding LYONs may rescind any such acceleration with respect
to the LYONs and its consequences. (Section 6.2.) Interest shall accrue and be
payable on demand upon a default in the payment of principal amount at maturity,
Issue Price, accrued Original Issue Discount, Redemption Price, Purchase Price,
Change in Control Purchase Price or cash or shares of Common Stock to be
delivered on conversion of LYONs, in each case to the extent that payment of
such interest shall be legally enforceable. (Form of LYON, paragraph 1.)

Under the Indenture, an Event of Default is defined as any of the following:
(i) default in payment of the principal amount at maturity, Issue Price, accrued
Original Issue Discount, Redemption Price, Purchase Price or Change in Control
Purchase Price with respect to any LYON when such becomes due and payable
(whether or not payment is prohibited by the provisions of the Indenture), (ii)
failure by ALZA to deliver shares of Common Stock or pay cash in lieu thereof
when such Common Stock or cash is required to be delivered or paid, as the case
may be, following conversion of a LYON, (iii) failure by ALZA to comply with any
of its other agreements in the LYONs or the Indenture upon the receipt by ALZA
of notice of such default by the Trustee or by Holders of not less than 25% in
aggregate principal amount at maturity of the LYONs then outstanding and ALZA's
failure to cure such default within 60 days after receipt by ALZA of such
notice, (iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed of ALZA or any Consolidated Subsidiary, which
default shall have resulted in such indebtedness, in an aggregate principal
amount exceeding $25,000,000, becoming or being declared due and payable prior
to the date on which it would otherwise have become due and payable without such
indebtedness being discharged or such acceleration having been rescinded or
annulled, or there having been deposited in trust a sum of money sufficient to
discharge such indebtedness within a period of 30 days after the giving of a
Notice of Default by the Trustee or by Holders of not less than 25% in aggregate
principal amount at maturity of the LYONs then outstanding, or (v) certain
events of bankruptcy or insolvency. (Section 6.1.)

The Trustee shall give notice to Holders of the LYONs of any continuing
default known to the Trustee within 90 days after the occurrence thereof;
provided, that the Trustee may withhold such notice if it determines in good
faith that withholding the notice is in the interests of the Holders. (Section
7.5.)

The Holders of a majority in aggregate principal amount at maturity of the
outstanding LYONs may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other limitations.
(Section 6.5.) Before proceeding to exercise any right or power under the
Indenture at the direction of such Holders, the Trustee shall be entitled to
receive from such Holders reasonable security or indemnity satisfactory to it
against any cost, liability or expense which might be incurred by it in
complying with any such direction. No Holder of any LYON will have any right to
pursue any remedy with respect to the Indenture or the LYONs, unless (i) such
Holder shall have previously given the Trustee written notice of a continuing
Event of Default, (ii) the Holders of at least 25% in aggregate principal amount
at maturity of the outstanding LYONs shall have made a written request to the
Trustee to pursue such remedy, (iii) such Holder or Holders have offered to the
Trustee reasonable security or indemnity satisfactory to the Trustee, (iv) the
Holders of a majority in aggregate principal amount at maturity of the
outstanding LYONs have not given the Trustee a direction inconsistent with such
request within 60 days after receipt of such request and (v) the Trustee shall
have failed to comply with the request within such 60-day period. (Section 6.6.)

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Notwithstanding the foregoing, the right of any Holder (i) to receive
payment of the principal amount at maturity, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price or Change in Control Purchase Price
with respect to any LYON and any interest in respect of a default in the payment
of any such amounts on such LYON, on or after the due date expressed in such
LYON or (ii) to institute suit for the enforcement of any such payments or
conversion or (iii) to convert LYONs (including, without limitation, the right
to receive cash in lieu of Common Stock upon conversion if ALZA has elected to
pay cash with respect thereto) shall not be impaired or adversely affected
without such Holder's consent. (Section 6.7.) The Holders of at least a majority
in aggregate principal amount at maturity of the outstanding LYONs may waive an
existing default and its consequences, other than (i) any default in any payment
on the LYONs, (ii) any default with respect to the conversion rights of LYONs or
(iii) any default in respect of certain covenants or provisions in the Indenture
which may not be modified without the consent of the Holder of each LYON as
described in "Modification" below. (Section 6.4.)

ALZA will be required to furnish to the Trustee annually a statement as to
any default by ALZA in the performance and observance of its obligations under
the Indenture. (Section 4.3.)

MODIFICATION

Modification and amendment of the Indenture or the LYONs may be effected by
ALZA and the Trustee with the consent of the Holders of not less than a majority
in aggregate principal amount at maturity of the LYONs then outstanding. Without
the consent of each Holder affected thereby, however, no amendment may, among
other things, (i) reduce the principal amount at maturity, Issue Price, Purchase
Price, Change in Control Purchase Price, Redemption Price or the amount of cash
payable in respect of conversion upon ALZA's election to pay cash with respect
thereto, or extend the stated maturity of any LYON or alter the manner or rate
of accrual of Original Issue Discount or interest, or make any LYON payable in
money or securities other than that stated in the LYON, (ii) reduce the
principal amount at maturity of LYONs whose Holders must consent to an amendment
or any waiver under the Indenture, (iii) modify the Indenture provisions
relating to such amendments or waivers, (iv) make any change that adversely
affects the right to convert any LYON or the right to require ALZA to purchase a
LYON (including, without limitation, the right to receive cash in lieu of Common
Stock upon conversion or purchase other than elimination of ALZA's option to pay
cash in lieu of delivering shares of Common Stock upon conversion as described
below), (v) modify the provisions of the Indenture relating to the subordination
of the LYONs in a manner that adversely affects the rights of any Holder of the
LYONs, or (vi) impair the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the LYONs. (Section 9.2.) In
addition, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding, unless the holders of such Senior Indebtedness (as required
pursuant to the terms of such Senior Indebtedness) consent to such change.
(Section 9.2.)

Without the consent of any Holder of LYONs, ALZA and the Trustee may amend
the Indenture to (i) cure any ambiguity, omission, defect or inconsistency,
provided that such amendment does not materially adversely affect the rights of
any Holder, (ii) provide for the assumption by a successor corporation of the
obligations of ALZA under the Indenture, (iii) provide for uncertificated LYONs
in addition to certificated LYONs so long as such uncertificated LYONs are in
registered form for United States federal income tax purposes, (iv) eliminate
ALZA's option to pay cash in lieu of delivering shares of Common Stock upon
conversion of LYONs (other than cash in lieu of fractional shares and except
with respect to elections already made), (v) make any change that does not
adversely affect the rights of any Holder of LYONs or (vi) make any change to
comply with the Trust Indenture Act of 1939, as amended, or any requirement of
the Commission in connection with the qualification of the Indenture under such
act. (Section 9.1.)

DISCHARGE OF THE INDENTURE

ALZA may satisfy and discharge its obligations under the Indenture by
delivering to the Trustee for cancellation all outstanding LYONs or by
depositing with the Trustee, after the LYONs have become due and payable, cash
(or, if permitted by the terms of the Indenture, other securities) sufficient to
pay at stated maturity all of the outstanding LYONs and paying all other sums
payable under the Indenture by ALZA.

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INFORMATION CONCERNING THE TRUSTEE

The Chase Manhattan Bank, N.A. is the Trustee under the Indenture. ALZA and
its subsidiaries may maintain deposit accounts and conduct other banking
transactions with the Trustee in the ordinary course of business.

CLAIMS IN BANKRUPTCY

If ALZA becomes the subject of a voluntary or involuntary case under the
United States Bankruptcy Code, the claim of any Holder of a LYON may, under the
Bankruptcy Code, be limited to the Issue Price of the LYON plus that portion of
the Original Issue Discount that is deemed to have accrued from the date of
issue to the date of the commencement of the bankruptcy case. In addition, the
Holders of the LYONs will be subordinated in right of payment to Senior
Indebtedness and effectively subordinated to indebtedness and other obligations
of ALZA's subsidiaries. See "Subordination of LYONs."

DESCRIPTION OF CAPITAL STOCK

DESCRIPTION OF CAPITAL STOCK. ALZA's authorized capital stock consists of
300,000,000 shares of Common Stock par value $.01 per share, and 100,000 shares
of Preferred Stock, par value $.01 per share (the "Preferred Stock"). No
Preferred Stock is outstanding as of the date of this Prospectus. For recent
prices of Common Stock, see "Price Range of Common Stock and Dividend Policy."

On March 31, 1994 there were 81,674,400 shares of Common Stock outstanding.
In addition there were 1,966,697 shares of Common Stock reserved for issuance
upon exercise of outstanding warrants and 5,832,501 shares of Common Stock
reserved for issuance under option and other incentive plans. shares
have been reserved for issuance upon conversion of the LYONs.

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Subject to any superior rights of
Preferred Stock, holders of Common Stock are entitled to share, on a pro rata
basis, in all assets remaining after payment of or provision for liabilities.
The shares of Common Stock are not subject to redemption. ALZA has the corporate
power to repurchase Common Stock.

ALZA's Board of Directors has authority to fix or alter the rights,
preferences, privileges, restrictions and other terms of any series of Preferred
Stock, the number of shares constituting any such series and the designation
thereof. ALZA has no present plans to issue any shares of Preferred Stock.

ALZA has a classified Board of Directors with directors serving staggered
terms of three years each. Directors may not be removed by the stockholders
without cause. Special meetings of the stockholders may be called only by the
Board of Directors, the Chairman of the Board or the President. Nominations for
election of directors may be made by the Board of Directors or by any
stockholder of record entitled to vote for directors, provided that any
stockholder nominating a candidate for director must deliver written notice to
the Secretary of ALZA not later than the close of business 60 days in advance of
the stockholders' meeting or 10 days after the date on which the notice of
meeting is first given to stockholders, whichever is later. The stockholder's
notice must set forth certain information concerning the stockholder and the
stockholder's nominee. No nominations for director shall be presented to any
stockholders' meeting if not made in compliance with such procedures. ALZA's
bylaws also require that advance notice be given and certain other procedures be
followed with regard to any other business to be brought by a stockholder before
a meeting of stockholders. Such procedures include the delivery of notice of
such proposal to the Secretary of ALZA not later than the close of business 60
days in advance of the meeting or 10 days after the date on which the notice of
meeting is first given to stockholders, whichever is later. The notice must set
forth certain information concerning the stockholder and the proposed business,
including any material interest of the stockholder in that business. The
provisions of ALZA's Certificate of Incorporation and bylaws governing the
number and classification of the Board of Directors and certain related matters
cannot be amended without the approval of at least 75% of the Board of Directors
or the affirmative vote of not less than 80% of the voting power of the
outstanding shares of voting capital stock. The affirmative vote of at least 80%
of the voting power of the outstanding shares of voting capital stock is
required to approve certain business combinations.

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The provisions of ALZA's Certificate of Incorporation granting the Board of
Directors the authority to issue Preferred Stock with such terms as the Board
may determine, classifying ALZA's Board, preventing stockholders from calling
special meetings of ALZA's stockholders, and requiring supermajority votes in
the event of certain business combinations may inhibit any change in control of
ALZA.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material United States federal income tax
considerations is for general information only. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), its legislative history,
existing and proposed regulations thereunder, published rulings and court
decisions, all as in effect and existing on the date hereof and all of which are
subject to change at any time. The tax treatment of a Holder of the LYONs may
vary depending upon the Holder's particular situation. Certain Holders
(including insurance companies, tax-exempt organizations, individual retirement
and other tax-deferred accounts, financial institutions, broker-dealers, foreign
corporations, and individuals who are not citizens or residents of the United
States) may be subject to special rules not discussed below. This summary does
not discuss the tax considerations of subsequent purchasers of LYONs and is
limited to investors who hold LYONs as capital assets. Accordingly, purchasers
of LYONs should consult their own tax advisors as to the particular tax
consequences to them of acquiring, holding, converting or otherwise disposing of
the LYONs, including the applicability and the effect of any state, local or
foreign tax laws and recent changes in applicable tax laws.

ALZA has been advised by Mayer, Brown & Platt, special federal income tax
counsel to ALZA, that in the opinion of such counsel the LYONs will be treated
as indebtedness for United States federal income tax purposes. The following
discussion of tax considerations assumes that the LYONs will be treated as
indebtedness.

ORIGINAL ISSUE DISCOUNT
The LYONs are being issued at a substantial discount from their principal
amount at maturity. For federal income tax purposes, the difference between the
issue price (the first price at which a substantial amount of the LYONs are sold
for money) and the principal amount at maturity of each LYON constitutes
Original Issue Discount. Holders of the LYONs will be required to include
Original Issue Discount in income periodically over the term of the LYONs before
the receipt of the cash, Common Stock or other payments attributable to such
income.

A Holder of a LYON must include in gross income for federal income tax
purposes the sum of the daily portions of Original Issue Discount with respect
to the LYON for each day during the taxable year or portion of a taxable year on
which such Holder holds the LYON ("Accrued Original Issue Discount"). The daily
portion is determined by allocating to each day of the accrual period a PRO RATA
portion of an amount equal to the adjusted issue price of the LYON at the
beginning of the accrual period multiplied by the yield to maturity of the LYON
(determined by compounding at the close of each accrual period and adjusted for
the length of the accrual period). Under the Code, the accrual period will be
each six month period which ends on the day in each calendar year corresponding
to the maturity date of the LYON or the date six months before such maturity
date. The information returns provided to holders and the Internal Revenue
Service (the "Service") by the Company regarding the accrual of OID will be
based on these six month accrual periods. Treasury regulations, however, permit
a Holder to select an accrual period of any length and to vary the length of the
accrual period over the term of the debt instrument, provided that each accrual
period is no longer than one year and each scheduled payment of principal or
interest occurs on the final day of an accrual period or on the first day of an
accrual period. The adjusted issue price of the LYON at the start of any accrual
period is the issue price of the LYON increased by the Accrued Original Issue
Discount for each prior accrual period. Under these rules, Holders will have to
include in gross income increasingly greater amounts of Original Issue Discount
in each successive accrual period. ALZA will be required to furnish annually to
the Service and to certain noncorporate Holders information regarding the amount
of Original Issue Discount attributable to that year.

DISPOSITION OR CONVERSION
A Holder's basis for determining gain or loss on the sale or other
disposition of a LYON will be increased by any Accrued Original Issue Discount
includable in such Holder's gross income. Gain or loss

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upon a sale or other disposition (including a sale to ALZA or receipt of cash
from ALZA on conversion) of a LYON, except as described below, will generally be
capital gain or loss, which will be long term if the LYON has been held for more
than one year.

A Holder's conversion of a LYON for Common Stock is generally not a taxable
event (except with respect to cash received in lieu of a fractional share). A
Holder's obligation to include in gross income the daily portions of Original
Issue Discount with respect to a LYON will prospectively terminate on the date
of conversion. The Holder's basis in the Common Stock received on conversion of
a LYON will be the same as the Holder's basis in the LYON at the time of
conversion (exclusive of any tax basis allocable to a fractional share).

If the Holder elects to exercise the option to tender the LYONs to ALZA on a
Purchase Date and ALZA issues Common Stock in satisfaction of the Purchase
Price, such exchange is generally not a taxable event for federal income tax
purposes, and therefore, neither gain nor loss would be recognized, except as
described below with regard to fractional shares. In such event, a Holder's tax
basis in the Common Stock received in the exchange will be the same as the
Holder's tax basis in the LYON tendered to ALZA in exchange therefor (exclusive
of any tax basis allocable to a fractional share). If the original Holder elects
to exercise his or her option to tender the LYONs to ALZA on a Purchase Date and
ALZA delivers cash and Common Stock in satisfaction of the Purchase Price, the
Holder would recognize neither gain nor loss. In such event, the Holder's tax
basis in the Common Stock received in the exchange will be the same as the
Holder's tax basis in the LYON tendered to ALZA in exchange therefor, exclusive
of any basis allocable to fractional shares as described below, increased by the
amount of gain recognized on the exchange (other than gain recognized with
respect to a fractional share) and decreased by the amount of cash received in
the exchange.

The holding period for the Common Stock received in the conversion or
exchange will include the holding period for the LYON tendered to ALZA in
exchange therefor, except that the holding period of Common Stock allocable to
Accrued Original Issue Discount may commence on the day following the date of
conversion. Gain or loss upon a sale or other disposition of the Common Stock
received on conversion or exchange of a LYON will be capital gain or loss if the
Common Stock is a capital asset in the hands of the Holder.

If the Holder elects to exercise his or her option to tender the LYONs to
ALZA on a Purchase Date and ALZA delivers cash in satisfaction of the Purchase
Price or if a Holder elects to exercise his or her option to tender the LYON to
ALZA for cash on a Change in Control Purchase Date, such an exchange would be a
taxable sale. Also, if the holder elects to exercise the conversion option and
ALZA delivers cash equal to the value of the shares of the Common Stock, such an
exchange would be a taxable sale. The Holder would recognize capital gain or
loss upon the sale, measured by the difference between the amount of cash
transferred by ALZA to the Holder and the Holder's basis in the LYON.

Under the current advance ruling policy of the IRS, cash received in lieu of
a fractional share of Common Stock upon conversion or purchase of a LYON should
be treated as a payment in exchange for the fractional share interest in such
Common Stock. Accordingly, if the Common Stock is a capital asset in the hands
of the Holder, the receipt of cash in lieu of a fractional share of Common Stock
should generally result in capital gain or loss, if any (measured by the
difference between the cash received for the fractional share and the Holder's
tax basis in a fractional share).

CONSTRUCTIVE DIVIDEND

If at any time ALZA makes a distribution of property to stockholders that
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (for example, distributions of evidences of indebtedness or
assets of ALZA, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the antidilution provisions of the LYONs, the
Conversion Rate of the LYONs is increased, such increase may be deemed to be the
payment of a taxable dividend to Holders of the LYONs.

22
<PAGE>
UNDERWRITING

Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of the Purchase Agreement, to
purchase $825,000,000 aggregate principal amount at maturity of the LYONs from
ALZA. The Underwriter has advised ALZA that it proposes to offer the LYONs
directly to the public at the offering price set forth on the cover page of this
Prospectus. After the initial public offering, the offering price may be
changed. The LYONs are offered subject to receipt and acceptance by the
Underwriter and to certain other conditions, including the right to reject
orders in whole or in part.

ALZA has granted the Underwriter an option for 30 days after the date of
this Prospectus to purchase up to an additional $123,750,000 aggregate principal
amount at maturity of LYONs to cover over-allotments, if any, at the initial
public offering price less the underwriting discount as set forth on the cover
page of this Prospectus, plus accrued Original Issue Discount, if any, accrued
from the Issue Date, computed on a semi-annual bond equivalent basis.

ALZA has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriter may be required to make in respect thereof.

ALZA has agreed with the Underwriter not to sell, offer to sell, grant any
option for the sale of, or otherwise dispose of or transfer any securities
similar to the LYONs or any Common Stock or any securities convertible into or
exercisable or exchangeable for such securities or Common Stock for a period of
90 days after the date of this Prospectus without the prior written consent of
the Underwriter other than Common Stock issuable upon the exchange of LYONs
offered hereby, Common Stock issued or sold pursuant to employee benefit plans
and dividend reinvestment plans, Common Stock issued upon exercise of currently
outstanding options or warrants, or certain privately issued restricted
securities.

Application has been made to list the LYONs on the New York Stock Exchange.

The Underwriter has previously marketed (and anticipates continuing to
market) securities of other issuers under the trademark "LYONs." The LYONs
offered by ALZA hereby contain certain terms and provisions which are different
from such other previously marketed LYONs, the terms and provisions of which
also vary. See "Description of LYONs."

From time to time the Underwriter and certain of its affiliates have
performed, and may in the future perform, investment banking or financial
advisory services for ALZA.

LEGAL MATTERS

The validity of the issuance of the LYONs offered hereby will be passed upon
for ALZA by Heller, Ehrman, White & McAuliffe, Palo Alto, California, ALZA's
counsel. Shearman & Sterling, San Francisco, California, will act as counsel to
the Underwriter. Mayer, Brown & Platt, Chicago, Illinois, will act as special
counsel to the Underwriter and as special United States federal income tax
counsel to ALZA. At April 30, 1994, Julian N. Stern, a member of Heller, Ehrman,
White & McAuliffe who is also a director and the Secretary of ALZA, owned
beneficially 158,645 shares of Common Stock (including options and warrants) and
other attorneys in that firm owned, in the aggregate, 700 shares of Common Stock
(including warrants).

EXPERTS

The consolidated financial statements and financial statement schedules of
ALZA Corporation and subsidiaries, appearing or incorporated by reference in
ALZA's Annual Report (Form 10-K) for the year ended December 31, 1993, have been
audited by Ernst & Young, independent auditors, as set forth in their reports
thereon incorporated herein by reference. Such consolidated financial statements
and financial statement schedules are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.

23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ALZA OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF ALZA SINCE THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................................ 2
Incorporation of Certain Documents by Reference...... 2
Prospectus Summary................................... 3
Investment Considerations............................ 7
Use of Proceeds...................................... 8
Price Range of Common Stock and Dividend Policy...... 8
Capitalization....................................... 9
Description of LYONs................................. 10
Description of Capital Stock......................... 20
Certain United States Federal Income Tax
Considerations...................................... 21
Underwriting......................................... 23
Legal Matters........................................ 23
Experts.............................................. 23
</TABLE>

$825,000,000

[LOGO]
LIQUID YIELD OPTION-TM- NOTES
DUE 2014
(ZERO COUPON--SUBORDINATED)

------------------------

PROSPECTUS

------------------------

MERRILL LYNCH & CO.

JUNE , 1994

-TM- Trademark of Merrill Lynch & Co., Inc.

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are estimated as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 127,937
New York Stock Exchange Listing Fee............................... 1,500
Blue Sky Fees and Expenses*....................................... 20,000
NASD Registration Fee............................................. 30,500
Legal Fees and Expenses*.......................................... 50,000
Accounting Fees and Expenses*..................................... 40,000
Printing and Engraving Expenses*.................................. 35,000
Trustee and Registrar Fees and Expenses*.......................... 5,000
Rating Agencies' Fees*............................................ 60,000
Miscellaneous*.................................................... 30,063
---------
Total............................................................. $ 400,000
---------
---------
<FN>
- ------------------------
* Estimated
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his fiduciary duty as a director, except in the case where the director breached
his duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment of a dividend or
approved a stock repurchase in violation of Delaware corporate law or obtained
an improper personal benefit. ALZA's Certificate of Incorporation contains a
provision that eliminates directors' personal liability as set forth above.

Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at its request in such capacity in another
corporation or business association against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.

In addition, Article 9 of ALZA's Certificate of Incorporation provides as
follows:

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS.

(a) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of the
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit.

(b) INDEMNIFICATION AND INSURANCE.

(1) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or

II-1
<PAGE>
investigative (a "proceeding"), because he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise (including service
with respect to employee benefit plans), whether the basis of the proceeding
is alleged action in an official capacity as a director, officer, employee
or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the corporation
to the fullest extent authorized by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than that law permitted the
corporation to provide before such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, penalties, fines,
Employee Retirement Income Security Act of 1974 excise taxes or penalties,
and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith; provided, however, that the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if the proceeding (or part thereof) was authorized by the Board of Directors
of the corporation. Such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators. The right to
indemnification conferred by this Section shall be a contract right which
may not be retroactively amended and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not
in any other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation, service with
respect to an employee benefit plan) in advance of the final disposition of
the proceeding shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if ultimately it shall be determined that such director
or officer is not entitled to be indemnified under this Section or
otherwise. The corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the corporation with the same
scope and effect as the indemnification of directors and officers.

(2) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any
statute, provision of this Certificate of Incorporation, bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise.

(3) INSURANCE. The corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.

ALZA has directors and officers liability insurance which would indemnify
the directors and officers of ALZA against damages arising out of certain kinds
of claims which might be made against them based on their negligent acts or
omissions while acting in their capacity as such.

II-2
<PAGE>
ITEM 16. EXHIBITS.

<TABLE>
<C> <S>
1.1 Form of Purchase Agreement between the Registrant and the Underwriter
4.1 Form of Certificate for Liquid Yield Option Note (included in Exhibit 4.2)
4.2 Form of Indenture between the Registrant and The Chase Manhattan Bank, N.A. as
Trustee, relating to the LYONs
5.1 Opinion of Heller, Ehrman, White & McAuliffe as to legality of LYONs and Common
Stock
8.1 Opinion of Mayer, Brown & Platt with respect to certain tax matters
12.1 Computation of Ratios of Earnings to Fixed Charges
23.1 Consent of Ernst & Young, Independent Auditors
23.2 Consent of Heller, Ehrman, White & McAuliffe (included in its opinion filed as
Exhibit 5.1 to this Registration Statement)
23.3 Consent of Mayer, Brown & Platt (included in its opinion filed as Exhibit 8.1 to
this Registration Statement)
24.1 Power of Attorney (included on page II-4)
25.1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
on Form T-1 of The Chase Manhattan Bank, N.A. to act as Trustee under the
Indenture
</TABLE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934, as
amended) that is incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Palo Alto, State of California, on the 16th day of
May, 1994.

ALZA CORPORATION

___________/s/ ERNEST MARIO___________
Dr. Ernest Mario
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest Mario, Jane E. Shaw and Bruce C. Cozadd,
or any of them, each with the power of substitution, his or her
attorney-in-fact, to sign any amendments to this Registration Statement and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or choose to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
<C> <S> <C>
/s/ ALEJANDRO ZAFFARONI
------------------------------------------- Co-Chairman of the Board and Director May 16, 1994
Dr. Alejandro Zaffaroni
/s/ ERNEST MARIO Co-Chairman of the Board, Chief
------------------------------------------- Executive Officer and Director May 16, 1994
Dr. Ernest Mario (Principal Executive Officer)
------------------------------------------- Director , 1994
William G. Davis
/s/ MARTIN S. GERSTEL
------------------------------------------- Director May 16, 1994
Martin S. Gerstel
/S/ ROBERT J. GLASER
------------------------------------------- Director May 16, 1994
Dr. Robert J. Glaser
/s/ DEAN O. MORTON
------------------------------------------- Director May 16, 1994
Dean O. Morton
/s/ RUDOLPH A. PETERSON
------------------------------------------- Director May 16, 1994
Rudolph A. Peterson
/s/ JANE E. SHAW
------------------------------------------- Director May 16, 1994
Jane E. Shaw
/s/ ISAAC STEIN
------------------------------------------- Director May 16, 1994
Isaac Stein
/s/ JULIAN N. STERN
------------------------------------------- Director May 16, 1994
Julian N. Stern
/s/ BRUCE C. COZADD Vice President and Chief Financial
------------------------------------------- Officer (Principal Financial and May 16, 1994
Bruce C. Cozadd Accounting Officer)
</TABLE>

II-4
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQ. PAGE
EXHIBIT NO. DESCRIPTION NUMBER
- ----------- ----------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Purchase Agreement between the Registrant and the Underwriter....................
4.1 Form of Certificate for Liquid Yield Option Note (included in Exhibit 4.2)...............
4.2 Form of Indenture between the Registrant and The Chase Manhattan Bank, N.A. as Trustee,
relating to the LYONs...................................................................
5.1 Opinion of Heller, Ehrman, White & McAuliffe as to legality of LYONs and Common Stock....
8.1 Opinion of Mayer, Brown & Platt with respect to certain tax matters......................
12.1 Computation of Ratios of Earnings to Fixed Charges.......................................
23.1 Consent of Ernst & Young, Independent Auditors...........................................
23.2 Consent of Heller, Ehrman, White & McAuliffe (included in its opinion filed as Exhibit
5.1 to this Registration Statement).....................................................
23.3 Consent of Mayer, Brown & Platt (included in its opinion filed as Exhibit 8.1 to this
Registration Statement).................................................................
24.1 Power of Attorney (included on page II-4)................................................
25.1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 on Form
T-1 of The Chase Manhattan Bank, N.A. to act as Trustee under the Indenture.............
</TABLE>

<PAGE>

S&S DRAFT
05/10/94

ALZA CORPORATION

(a Delaware corporation)

$_____________ Principal Amount At Maturity

Liquid Yield OptionTM Notes due 2014
(Zero Coupon -- Subordinated)

PURCHASE AGREEMENT

May __, 1994

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, N.Y. 10281-1209

Dear Sirs:

ALZA Corporation, a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter") with respect to the sale by the Company and the
purchase by the Underwriter of $____________ aggregate principal amount at
maturity of its Liquid Yield OptionTM Notes due 2014 (Zero Coupon --
Subordinated) (the "LYONsTM") and with respect to the grant by the Company to
the Underwriter of the option described in Section 2(b) hereof to purchase all
or any part of an additional $____________ aggregate principal

________________________
22062
TM Trademarks of Merrill Lynch & Co., Inc.

<PAGE>

amount at maturity of its LYONs solely to cover over-allotments. The aforesaid
$____________ aggregate principal amount at maturity of LYONs (the "Initial
Securities") to be purchased by the Underwriter and all or any part of the
$____________ aggregate principal amount at maturity of the LYONs subject to the
over-allotment option described in Section 2(b) hereof (the "Option Securities")
are collectively referred to herein as the "Securities." The Securities are to
be issued pursuant to an indenture, in substantially the form filed as an
exhibit to the Registration Statement, to be dated as of May __, 1994 (the
"Indenture") between the Company and The Chase Manhattan Bank, N.A., as trustee
(the "Trustee").

The Securities are convertible into shares of Common Stock, par value
$.01 per share (the "Common Stock"), of the Company at any time before the close
of business on the maturity date of the Securities. Upon each of the fifth,
tenth and fifteenth anniversaries of the issuance date of the Securities, each
holder of the Securities has the option to require the Company to purchase such
Securities by paying, at the option of the Company, the issue price of the
Securities plus the accrued original issue discount to the date of purchase in
cash or in shares of Common Stock, or in any combination thereof.

Prior to the purchase and public offering of the Securities by the
Underwriter, the Company and the Underwriter shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Company and the Underwriter and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Securities will be governed by this Agreement, as supplemented
by the Pricing Agreement. From and after the date of the execution and delivery
of the Pricing Agreement, this Agreement shall be deemed to incorporate the
Pricing Agreement.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 33-_____) and a related
preliminary prospectus for the registration of the Securities, and the shares of
Common Stock to be issued upon conversion of the Securities, under the
Securities Act of 1933, as amended (the "1933 Act"), has filed such amendments
thereto, if any, and such amended preliminary prospectuses as may have been
required to the date hereof, and will file such additional amendments thereto
and such amended prospectuses as may hereafter be required. Such registration
statement (as amended, if applicable), in the form declared effective by the
Commission, and the prospectus constituting a part thereof (including in each
case all documents, if any, to the extent incorporated or deemed to be
incorporated by reference therein and the information, if any, deemed to be part
of the registration statement pursuant to Rule 430A(b) of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")),
as from time to time amended or supplemented pursuant to the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise,

22062

<PAGE>

are hereinafter referred to as the "Registration Statement" and the
"Prospectus", respectively, except that if any revised prospectus shall be
provided to the Underwriter by the Company for use in connection with the
offering of the Securities which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective (whether or
not such revised prospectus is required to be filed by the Company pursuant to
Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriter for such use. All references in this Agreement to financial
statements and schedules and other information which is "contained," "included"
or "stated" in the Registration Statement or the Prospectus (and all other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in, or deemed to be a part of, the Registration Statement or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement or the Prospectus shall
be deemed to mean and include the filing of any document under the 1934 Act
after the date of this Agreement which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be.

The Company understands that the Underwriter proposes to make a public
offering of the Securities as soon as the Underwriter deems advisable after the
Registration Statement becomes effective, the Pricing Agreement has been
executed and delivered and the Indenture has been qualified under the Trust
Indenture Act of 1939, as amended (the "1939 Act").

SECTION 1. REPRESENTATIONS AND WARRANTIES.

(a) The Company represents and warrants to, and agrees with, the
Underwriter as of the date hereof and as of the date of the Pricing Agreement
(such latter date being hereinafter referred to as the "Representation Date") as
follows:

(i) The Company meets the requirements for use of Form S-3 under the
1933 Act, and at the time the Registration Statement becomes effective and
at the Representation Date, the Registration Statement will comply in all
material respects with the requirements of the 1933 Act, the 1933 Act
Regulations, the 1939 Act and the rules and regulations of the Commission
under the 1939 Act (the "1939 Act Regulations"), and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus, at the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been provided to the
Underwriter by the Company for use in connection with the offering of the
Securities which differs from the Prospectus on file at the Commission at
the time the Registration Statement becomes effective, in which case at the
time it is first provided to the Underwriter for

22062

<PAGE>

such use) and at the Closing Time referred to in Section 2 hereof, will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by the Underwriter expressly for use in
the Registration Statement or the Prospectus.

(ii) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were filed with the
Commission complied, or at the time they hereafter are filed with the
Commission will comply, in all material respects with the requirements of
the 1934 Act and the rules and regulations of the Commission under the 1934
Act (the "1934 Act Regulations"), and, when read together with the other
information in the Prospectus, at the time the Registration Statement and
any amendments thereto became or become effective and at the Closing Time,
did not and will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.

(iii) The accountants who certified the financial statements and
supporting schedules included in the Registration Statement are independent
public accountants as required by the 1933 Act Regulations.

(iv) The financial statements included in the Registration Statement
and the Prospectus present fairly the financial position of the Company and
its consolidated subsidiaries as at the dates indicated and the results of
their operations for the periods specified; except as otherwise stated in
the Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis; the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein; and
the Company's ratios of earnings to fixed charges included in the
Prospectus under the caption "Prospectus Summary -- Summary Consolidated
Financial Data" and in Exhibit 12.1 to the Registration Statement have been
calculated in compliance with Item 503(d) of Regulation S-K of the
Commission.

(v) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings or business affairs of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, (B) there have been no
transactions entered into by the Company or any of its subsidiaries, other
than those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as

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one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.

(vi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and to enter into
and perform its obligations under this Agreement, the Pricing Agreement and
the Indenture; and the Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify would not have a material adverse effect on the condition,
financial or otherwise, or the earnings or business affairs of the Company
and its subsidiaries considered as one enterprise.

(vii) Each subsidiary of the Company has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify would not have a material adverse effect on the condition,
financial or otherwise, or the earnings or business affairs of the Company
and its subsidiaries considered as one enterprise; all of the issued and
outstanding capital stock of each such corporate subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity.

(viii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization" (except
for subsequent issuances, if any, pursuant to warrants, options or employee
benefit plans; the shares of issued and outstanding Common Stock have been
duly authorized and validly issued and are fully paid and non-assessable;
the Common Stock conforms to the statements relating thereto contained in
the Prospectus; and the issuance of the Securities and the Common Stock is
not subject to preemptive or other similar rights.

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(ix) Neither the Company nor any of its subsidiaries is in violation
of its charter or bylaws or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or
assets of the Company or any of its subsidiaries is subject, except for
such defaults that would not have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of the
Company and its subsidiaries, considered as one enterprise; and the
execution, delivery and performance of this Agreement, the Pricing
Agreement, the Indenture and the Securities, and the consummation of the
transactions contemplated herein and therein and compliance by the Company
with its obligations hereunder and thereunder have been duly authorized by
all necessary corporate action and do not and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to, any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any of its subsidiaries is subject, except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have
a material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and its subsidiaries,
considered as one enterprise, nor will such action entitle the holders of
any Senior Indebtedness (as such term is defined in the Indenture) to
accelerate the maturity thereof, nor will such action result in any
violation of the provisions of the charter, bylaws or other corresponding
organizational documents of the Company or any of its subsidiaries or any
applicable law, administrative regulation or administrative or court
decree.

(x) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent, and
the Company is not aware (without independent investigation) of any
existing or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors which might be expected
to result in any material adverse change in the condition, financial or
otherwise, or in the earnings or business affairs of the Company and its
subsidiaries considered as one enterprise.

(xi) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company or any of its subsidiaries, threatened, against
the Company or any of its subsidiaries, which is required to be disclosed
in the Registration Statement (other than as disclosed therein), or which
might result in any

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material adverse change in the condition, financial or otherwise, or in the
earnings or business affairs of the Company and its subsidiaries considered
as one enterprise, or which might materially and adversely affect the
properties or assets thereof or which might materially and adversely affect
the consummation of the transactions contemplated by this Agreement; all
pending legal or governmental proceedings to which the Company or any of
its subsidiaries is a party or of which any of their respective property or
assets is the subject which are not described in the Registration Statement
(other than applications for product approvals before the United States
Food and Drug Administration and health regulatory authorities in foreign
countries and applications for patents or trademarks before the United
States Patent and Trademark Office and similar authorities in foreign
countries), including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material; and there are no
contracts or documents of the Company or any of its subsidiaries which are
required to be filed as exhibits to the Registration Statement by the 1933
Act or by the 1933 Act Regulations which have not been so filed.

(xii) Except as disclosed in the Prospectus, each of the Company
and its subsidiaries owns or possesses the patents, patent licenses,
trademarks, service marks and trade names necessary to carry on its
business as presently conducted, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of any unfavorable decision,
ruling or finding, would result in any material adverse change in the
condition, financial or otherwise, or in the earnings or business affairs
of the Company and its subsidiaries considered as one enterprise.

(xiii) No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the
offering, issuance or sale of the Securities hereunder or the consummation
by the Company of any of the other transactions contemplated hereby, except
such as have been obtained to the extent required as of the date hereof and
will have been obtained prior to the Closing Time.

(xiv) The Securities have been duly authorized, and, at the
Closing Time, will have been duly executed, by the Company and, when
authenticated in the manner provided for in the Indenture and delivered
against payment of the purchase price therefor specified herein and in the
Pricing Agreement, will constitute valid and binding obligations of the
Company, subject as to enforcement (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights
and (ii) to general principles of equity whether such enforcement is
considered in a proceeding in equity or at law.

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(xv) The shares of Common Stock issuable upon conversion of the
Securities at the initial Conversion Rate (as defined in the Indenture)
have been, and, prior to the issuance of any shares of Common Stock
issuable at the Company's option upon purchase of the Securities at the
option of any holder thereof, such shares will have been, duly authorized
and validly reserved for issuance upon such conversion or purchase, as the
case may be, and such shares, when issued and delivered upon such
conversion or purchase in the manner provided for in the Indenture, will be
validly issued, fully paid and non-assessable; and the issuance of such
shares upon such conversion or purchase will not be subject to preemptive
or other similar rights.

(xvi) The Securities and the Common Stock conform in all material
respects to the respective statements relating thereto contained in the
Prospectus.

(xvii) The Indenture, when executed and delivered by the Company
(assuming the due authorization, execution and delivery thereof by the
Trustee), will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject as to
enforcement (i) to bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and (ii) to general principles
of equity, whether such enforcement is considered in a proceeding at equity
or at law. The Indenture conforms in all material respects to the
description thereof contained in the Prospectus.

(xviii) The Company and its subsidiaries have good and marketable
title to all of their respective properties, in each case free and clear of
all liens, encumbrances and defects, except (A) customary liens and
encumbrances arising in the ordinary course of the Company's business, (B)
as stated in the prospectus or (C) such as do not materially affect the
value of such properties in the aggregate to the Company and its
subsidiaries considered as one enterprise and do not materially interfere
with the use made and proposed to be made of such properties.

(xix) The Company and its subsidiaries possess such material
certificates, authorities or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings or business affairs of
the Company and its subsidiaries considered as one enterprise.

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(xx) To the knowledge of the Company, no event has occurred nor is any
action threatened or pending which would result in a Change in Control (as
defined in the Indenture).

(xxi) Except as contemplated by this Agreement, no distribution by
the Company or any of its affiliates, and no distribution that could be
attributed to the Company (as the result of distributions by an "affiliated
purchaser" within the meaning of Rule 10b-6 under the 1934 Act or
otherwise), of Securities or shares of Common Stock (collectively, the
"Subject Securities"), any securities of the same class and/or series as
the Subject Securities, or any securities immediately convertible into or
exchangeable for any right to acquire any Subject Security is now in
progress or pending or will have commenced at any time prior to the
completion of the distribution of the Securities, except for distributions
(i) pursuant to employee benefit plans and dividend reinvestment plans,
(ii) upon exercise of currently outstanding warrants or options or (iii)
made as gifts by officers or directors of the Company.

(xxii) This Agreement has been, and, at the Representation Date,
the Pricing Agreement will have been, duly executed and delivered by the
Company.

(b) Any certificate designated as such signed by any officer of the
Company and delivered to the Underwriter or to counsel for the Underwriter shall
be deemed a representation and warranty by the Company to the Underwriter as to
the matters covered thereby.

SECTION 2. SALE AND DELIVERY TO UNDERWRITER; CLOSING.

(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriter, and the Underwriter agrees to purchase from
the Company, the Initial Securities at the price per $1,000 principal amount at
maturity set forth in the Pricing Agreement.

(1) If the Company has elected not to rely upon Rule 430A under the
1933 Act Regulations, the initial public offering price, the initial
conversion rate, the yield to maturity of the Securities, and the purchase
price (per $1,000 principal amount at maturity) to be paid by the
Underwriter for the Securities have each been determined and set forth in
the Pricing Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectus will be filed before the
Registration Statement becomes effective.

(2) If the Company has elected to rely upon Rule 430A under the 1933
Act

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Regulations, the purchase price (per $1,000 principal amount at maturity)
to be paid by the Underwriter for the Securities shall be an amount equal
to the initial public offering price, less an amount per Security to be
determined by agreement between the Underwriter and the Company. The
initial public offering price (per $1,000 principal amount at maturity) of
the Securities shall be a fixed price to be determined by agreement between
the Underwriter and the Company. The initial Conversion Rate applicable to
the Securities and the yield to maturity of the Securities likewise shall
be determined by agreement between the Company and the Underwriter. The
initial public offering price, initial Conversion Rate, the purchase price
and yield to maturity, when so determined, shall be set forth in the
Pricing Agreement. In the event that such prices, yield and Conversion
Rate have not been agreed upon and the Pricing Agreement has not been
executed and delivered by the parties thereto by the close of business on
the fourth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to any
other party, unless otherwise agreed to by the Company and the Underwriter.

(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriter to purchase from it any or
all of the Option Securities (in multiples of $1,000 principal amount at
maturity) at the same price (per $1,000 principal amount at maturity) as is to
be paid by the Underwriter for the Initial Securities on the terms set forth in
the Pricing Agreement, plus accrued Original Issue Discount (as defined in the
Indenture), if any, from the date of issuance of the Initial Securities,
computed on a semi-annual bond-equivalent basis. The option hereby granted will
expire automatically 30 days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely upon Rule 430A under
the 1933 Act Regulations or (ii) the Representation Date, if the Company has
elected to rely upon Rule 430A under the 1933 Act Regulations, and may be
exercised in whole or in part (but only once) only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Underwriter to the
Company at least three business days prior to the Date of Delivery (as defined
below), or at least two business days prior to the delivery of the Initial
Securities, setting forth the number of Option Securities as to which the
Underwriter is then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a
"Date of Delivery") shall be determined by the Underwriter but shall not be
later than seven full business days after the exercise of such option, nor in
any event prior to the Closing Time, as hereinafter defined, unless otherwise
agreed by the Underwriter and the Company.

(c) Delivery of the Initial Securities shall be made at the offices
of the Underwriter in New York City, and payment of the purchase price for the
Initial Securities shall be made at the offices of Heller, Ehrman, White &
McAuliffe, 525 University Avenue,

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Suite 1100, Palo Alto, California, or in each case at such other place as shall
be agreed upon by the Underwriter and the Company, at 7:00 A.M., (Palo Alto
time) on the fifth business day following the date the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A, the
fifth business day after execution of the Pricing Agreement), or such other time
not later than ten business days after such date as shall be agreed upon by the
Underwriter and the Company (such time and date of payment and delivery being
herein called the "Closing Time"). In addition, in the event that any or all of
the Option Securities are purchased by the Underwriter, payment of the purchase
price for, and delivery of certificates for, such Option Securities shall be
made at the above-mentioned offices of Heller, Ehrman, White & McAuliffe and the
Underwriter, respectively, or at such other place as shall be agreed upon by the
Underwriter and the Company, on the Date of Delivery as specified in the notice
from the Underwriter to the Company. Payment shall be made to the Company by
certified or official bank check or checks drawn in New York Clearing House or
similar next day funds payable to the order of the Company, against delivery to
the Underwriter of certificates for the Securities to be purchased by it.
Certificates evidencing the Initial Securities and the Option Securities, if
any, shall be registered in such names and in such denominations as the
Underwriter may request in writing at least two business days before the Closing
Time or the Date of Delivery, as the case may be. The certificates for the
Initial Securities or the Option Securities, if any, will be made available for
examination and packaging by the Underwriter not later than 10:00 A.M. (New York
City time), on the last business day prior to the Closing Time or the Date of
Delivery, as the case may be.

SECTION 3. CERTAIN COVENANTS OF THE COMPANY. The Company covenants
with the Underwriter as follows:

(a) The Company will notify the Underwriter immediately, and confirm
the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective
amendment) and, if Rule 430A of the 1933 Act Regulations is being relied
upon, of the filing of the amended Prospectus pursuant to Rule 430A and
Rule 424(b)(1), (ii) of the receipt of any comments from the Commission,
(iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or the initiation of any proceedings for that purpose. The Company will
make every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the earliest
possible moment.

(b) The Company will not at any time file or make any amendment to
the Registration Statement (including any post-effective amendment) or any
amendment or

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supplement to the Prospectus (including any revised prospectus which the
Company proposes for use by the Underwriter in connection with the offering
of the Securities which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective,
whether or not such revised prospectus is required to be filed pursuant to
Rule 424(b) of the 1933 Act Regulations), whether pursuant to the 1933 Act,
the 1934 Act or otherwise, of which the Underwriter shall not have
previously been advised and furnished a copy a reasonable amount of time
prior to its proposed filing, or to which the Underwriter or counsel for
the Underwriter shall reasonably object.

(c) The Company will deliver to the Underwriter two signed copies of
the Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by reference
therein and documents incorporated or deemed incorporated by reference
therein) as the Underwriter may reasonably request and will also deliver to
the Underwriter as many conformed copies of the Registration Statement as
originally filed and of each amendment thereto (without exhibits) as the
Underwriter may reasonably request.

(d) The Company will furnish to the Underwriter, from time to time
during the period when the Prospectus is required to be delivered under the
1933 Act or the 1934 Act, such number of copies of the Prospectus (as
amended or supplemented) as the Underwriter may reasonably request for the
purposes contemplated by the 1933 Act or the 1934 Act or the respective
applicable rules and regulations of the Commission thereunder.

(e) If any event shall occur or condition exist as a result of which
it is necessary, in the opinion of counsel for the Underwriter or counsel
for the Company, to amend the Registration Statement or amend or supplement
the Prospectus in order that the Prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, the
Company will promptly prepare and file with the Commission, subject to
Section 3(b) hereof, such amendment or supplement as may be necessary to
correct such untrue statement or omission, and the Company will furnish to
the Underwriter a reasonable number of copies of such amendment or
supplement. The Company agrees to notify the Underwriter to suspend use of
the Prospectus as promptly as practicable after the occurrence of such an
event or the existence of such a condition, and the Underwriter hereby
agrees to suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission.

(f) The Company will use its best efforts, in cooperation with the

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Underwriter, to qualify the Securities and the shares of Common Stock
issuable upon conversion of the Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions of the
United States as the Underwriter may designate; provided, however, that the
Company shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. In each jurisdiction in
which the Securities or such shares of Common Stock have been so qualified,
the Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for so
long as may be required in connection with the distribution of the
Securities or such shares of Common Stock.

(g) The Company will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.

(h) The Company will use the net proceeds received by it from the
sale of the Securities in the manner specified in the Prospectus under "Use
of Proceeds".

(i) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance
upon Rule 430A of the 1933 Act Regulations, then immediately following the
execution of the Pricing Agreement, the Company will prepare, and file or
transmit for filing with the Commission in accordance with such Rule 430A
and Rule 424(b) of the 1933 Act Regulations, copies of an amended
Prospectus, or, if required by such Rule 430A, a post-effective amendment
to the Registration Statement (including an amended Prospectus), containing
all information so omitted.

(j) The Company, during the period when the Prospectus is required to
be delivered under the 1933 Act or the 1934 Act, will file all documents
required to be filed with the Commission pursuant to Section 13, 14 or 15
of the 1934 Act within the time periods required by the 1934 Act and the
1934 Act Regulations of which the Underwriter shall have previously been
advised and furnished a copy, and to which the Underwriter or its counsel
shall not have reasonably objected.

(k) For a period of five years after the Closing Time, the Company
will furnish to the Underwriter copies of all reports and communications
delivered to the Company's stockholders or to holders of the Securities as
a class and will also furnish copies of all reports (excluding exhibits)
filed with the Commission on forms 8-K, 10-

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Q and 10-K, and all other reports and information furnished to its
stockholders generally, not later than the time such reports are first
furnished to its stockholders generally.

(l) The Company will use its best efforts to effect the listing of
the Securities and the shares of Common Stock issuable upon conversion or
purchase of the Securities on the New York Stock Exchange (the "NYSE")
(and, in the case of such shares of the Common Stock, any other stock
exchange on which the Common Stock is listed) and to cause the Securities
to be registered under the 1934 Act.

(m) The Company will reserve and keep available at all times, free of
preemptive rights, sufficient shares of Common Stock for issuance upon
conversion of all the Securities.

(n) The Company has complied and will comply with all the provisions
of Florida H.B. 1771, codified as Section 517.075 of the Florida statutes,
and all regulations promulgated thereunder relating to issuers doing
business in Cuba.

(o) During a period of 90 days from the date of the Pricing
Agreement, the Company will not, without the Underwriter's prior written
consent, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of or transfer, any securities similar to
the Securities or any Common Stock or any security convertible into or
exchangeable or exercisable for any Securities or any such similar
securities or Common Stock except for securities (i) sold to the
Underwriter pursuant to this Agreement, (ii) issued or sold pursuant to
employee benefit plans and dividend reinvestment plans, (iii) issued upon
exercise of currently outstanding warrants or options, or (iv) issued or
sold in a transaction exempt from the registration requirements of the 1933
Act; PROVIDED, HOWEVER, that in the case of clause (iv), such securities
may not (A) exceed, or be convertible into or exchangeable or exercisable
for more than, fifteen percent (15%) of the fully diluted equity interest
in the company and (B) be eligible for the PORTAL trading system of the
National Association of Securities Dealers, Inc.

SECTION 4. PAYMENT OF EXPENSES. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the printing and filing of the Registration Statement as originally filed
and of each amendment thereto, (ii) the printing or reproduction of this
Agreement, the Pricing Agreement and the Indenture, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the Underwriter,
(iv) the fees and disbursements of the Company's counsel and accountants, (v)
the qualification of the Securities and the shares of Common Stock issuable upon
conversion

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or purchase of the Securities under state securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the fees and
disbursements of counsel for the Underwriter in connection therewith and in
connection with the preparation of the Blue Sky Survey and any Legal Investment
Survey, (vi) the printing and delivery to the Underwriter of copies of the
Registration Statement as originally filed and of each amendment thereto, of
each preliminary prospectus, and of the Prospectus and any amendments or
supplements thereto, (vii) the printing and delivery to the Underwriter of
copies of the Blue Sky Survey and any Legal Investment Survey, (viii) the fees
and expenses of the Trustee, including the fees and disbursements of counsel for
the Trustee in connection with the Indenture; (ix) any fees payable in
connection with the rating of the Securities; (x) the fee of the National
Association of Securities Dealers, Inc. in connection with its review of
corporate financings with respect to the Securities and the fees and
disbursements of counsel to the Underwriter in connection therewith; and (xi)
the fees and expenses incurred in connection with the listing on the NYSE of the
Securities and shares of Common Stock issuable upon conversion or purchase of
the Securities (and, in the case of such shares of Common Stock, the fees and
expenses incurred in connection with the listing of such shares of Common Stock
on each other stock exchange on which the Common Stock is listed).

If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 5 or Section 10(a)(i) hereof, the Company shall
reimburse the Underwriter for all of its out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriter.

SECTION 5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations
of the Underwriter hereunder are subject to the accuracy of the representations
and warranties of the Company herein contained, to the performance by the
Company of its obligations hereunder, and to the following further conditions:

(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or at such later time and date as may be
approved by the Underwriter; and at the Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened
by the Commission. If the Company has elected to rely upon Rule 430A of
the 1933 Act Regulations, the initial public offering price, the yield to
maturity of the Securities and initial Conversion Rate of the Securities
and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
1933 Act Regulations within the prescribed time period, and prior to the
Closing Time the Company shall have provided evidence satisfactory to the
Underwriter of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and

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declared effective in accordance with the requirements of Rule 430A of the
1933 Act Regulations.

(b) At the Closing Time, the Underwriter shall have received:

(1) A signed opinion of Heller, Ehrman, White & McAuliffe,
counsel to the Company, dated as of the Closing Time, in form and
substance satisfactory to counsel for the Underwriter, to the effect
that:

(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware.

(ii) The Company has all requisite corporate power and
corporate authority to enter into and perform this Agreement, the
Pricing Agreement and the Indenture, to own, lease and operate
its properties and to carry on its business as, to the knowledge
of such counsel, it is now conducted.

(iii) The Company is duly qualified to do business and
is in good standing in the State of California.

(iv) The Indenture has been duly authorized by all necessary
corporate action on the part of the Company and has been duly
executed and delivered on behalf of the Company.

(v) Assuming the due authorization, execution and delivery
thereof by the Trustee, the Indenture is a valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, subject as to enforcement (i) to
bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforcement is considered in a
proceeding in equity or at law.

(vi) The form of certificate representing the Securities is
in the form contemplated by the Indenture; the Securities have
been duly authorized by all necessary corporate action on the
part of the Company and, when executed by the Company and
authenticated by or on behalf of the Trustee in the manner
provided for in the Indenture (assuming the due authorization,
execution and delivery of the Indenture by the Trustee) and
delivered against payment of the purchase price therefor

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<PAGE>

specified herein and in the Pricing Agreement, will constitute
valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, subject as to
enforcement (i) to bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance and other laws of
general applicability relating to or affecting creditors' rights
and (ii) to general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law
and, except as set forth above, will be entitled to the benefits
of the Indenture; and the issuance of the Securities is not
subject to any preemptive rights or other rights of first refusal
arising by operation of law or under the Certificate of
Incorporation or bylaws of the Company.

(vii) The shares of Common Stock issuable upon
conversion of the Securities at the initial Conversion Rate (as
defined in the Indenture) have been duly authorized and validly
reserved by the Company for issuance upon such conversion and,
when issued and delivered upon such conversion in the manner
provided in the Indenture, will be validly issued, fully paid and
nonassessable; and the issuance of such shares upon such
conversion is not presently subject to any preemptive rights or
other rights of first refusal arising by operation of law or
under the Certificate of Incorporation or bylaws of the Company.

(viii) The Indenture has been qualified under 1939 Act.

(ix) This Agreement and the Pricing Agreement have been duly
authorized by all necessary corporate action on the part of the
Company and have been duly executed and delivered on behalf of
the Company.

(x) The Securities, the Common Stock and the Indenture
conform in all material respects to the descriptions thereof
contained in the Prospectus.

(xi) The form of certificate used to evidence the Common
Stock is in due and proper form and complies with applicable
provisions of the Delaware General Corporation Law.

(xii) The Registration Statement is effective under the
1933 Act and, to such counsel's knowledge, no stop order
suspending the

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effectiveness of the Registration Statement has been issued under
the 1933 Act or proceedings therefor initiated or threatened by
the Commission.

(xiii) At the time the Registration Statement became
effective and at the Representation Date, the Registration
Statement (other than the financial statements and supporting
schedules included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.

(xiv) The information in the Prospectus under the
captions "Description of LYONs," other than the information in
the last paragraph under the heading "Conversion Rights," to the
extent that it constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has been
reviewed by such counsel and is correct in all material respects.

(xv) No government consents, approvals, authorizations,
registrations, declarations or filings, or order of any court of
which such counsel has knowledge, are required in connection with
the offering, issuance or sale of the Securities to the
Underwriter, except such as may be required under the 1933 Act,
the 1933 Act Regulations, the 1934 Act, the 1934 Act Regulations,
the 1939 Act, the 1939 Act Regulations or state securities laws
for the offering and sale of the Securities and the qualification
of the Indenture under the 1939 Act.

(xvi) Neither the execution and delivery of this
Agreement, the Pricing Agreement or the Indenture by the Company
nor the performance of this Agreement, the Pricing Agreement or
the Indenture by the Company (A) conflicts with any provision of
the Certificate of Incorporation or bylaws of the Company or (B)
violates any law applicable to the Company.

(xvii) Neither the issuance and delivery of the
Securities or the Common Stock issuable upon conversion of the
Securities nor the purchase of the Securities by the Company
(A) conflicts with any provision of the Certificate of
Incorporation or bylaws of the Company or (B) violates any law
applicable to the Company.

The opinion expressed in subsection (xv) of this Section 5(b)(1)
shall

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not be construed to relate to, and no opinion need be rendered as to,
federal or state laws or regulations applicable to health, drugs and
cosmetics. The opinion expressed in subsections (xvi)(B) and
(xvii)(B) shall not be construed to relate to, and no opinion need be
rendered as to, federal or state securities laws, patent laws or
regulations or federal or state laws or regulations applicable to
health, drugs or cosmetics. In giving the opinion required by
subsection (b)(1) of this Section, Heller, Ehrman, White & McAuliffe
shall additionally state that nothing has come to their attention that
would lead them to believe (A) that the Registration Statement or any
amendment thereto (other than the financial statements and supporting
schedules and other financial data included therein, and other than
the information contained under the caption "Certain United States
Federal Income Tax Considerations" in the Registration Statement, as
to which no belief need be expressed), at the time the Registration
Statement or any such amendment became effective, contained an untrue
statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading or that (B) that the Prospectus or
any amendment or supplement thereto (other than the financial
statements and supporting schedules and other financial data included
therein, and other than the information contained under the caption
"Certain United States Federal Income Tax Considerations" in the
Prospectus, as to which no belief need be expressed), at the
Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriter by the Company
for use in connection with the offering of the Securities which
differs from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time it
is first provided to the Underwriter for such use) or at the Closing
Time, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading.

(2) A signed opinion of Peter D. Staple, Esq., Vice President
and General Counsel of the Company, dated as of the Closing Time, in
form and substance satisfactory to counsel for the Underwriter, to the
effect that:

(i) To the knowledge of such counsel, the Company is duly
qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to
so qualify would not have a material adverse effect on the
condition, financial or otherwise,

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<PAGE>

or the earnings or business affairs of the Company and its
subsidiaries considered as one enterprise.

(ii) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if any,
pursuant to employee benefit plans and dividend reinvestment
plans or issued upon exercise of currently outstanding warrants
or options, in each case as the same may be referred to in the
Prospectus), and the shares of issued and outstanding Common
Stock have been duly authorized and validly issued and are fully
paid and non-assessable.

(iii) Each subsidiary of the Company has been duly
organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and, to such counsel's knowledge, is duly qualified as
a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to
so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings or business
affairs of the Company and its subsidiaries considered as one
enterprise; all of the issued and outstanding capital stock of
each such subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and, to such counsel's
knowledge, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.

(iv) The information in the Company's Annual Report on Form
10-K filed with the Commission pursuant to the 1934 Act for the
year ended December 31, 1993 under the caption "Item 3. Legal
Proceedings", as supplemented by the information in the Company's
Quarterly Report on Form 10-Q filed with the Commission pursuant
to the 1934 Act for the quarter ended March 31, 1994 under the
caption "Part II: Other Information - Item 1. Legal
Proceedings," to the extent that it constitutes matters of law,
summaries of legal documents or proceedings, or legal
conclusions, has been reviewed by such counsel and is correct in
all material respects.

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<PAGE>

(v) To such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other
than those described or referred to therein or filed or
incorporated by reference as exhibits thereto; the descriptions
thereof or references thereto are correct; and no default exists
in the due performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument so described, referred to, filed or incorporated by
reference, which would result in any material adverse change in
the condition, financial or otherwise, or in the earnings or
business affairs of the Company.

(vi) The execution and delivery of this Agreement, the
Pricing Agreement and the Indenture on behalf of the Company, the
performance of this Agreement, the Pricing Agreement and the
Indenture on behalf of the Company, and the issuance and delivery
of the Securities or the Common Stock issuable upon conversion
thereof by the Company or the purchase of the Securities by the
Company do not and will not (A) conflict with any provision of
the Certificate of Incorporation or Bylaws of the Company or any
of its subsidiaries, (B) violate any law, administrative
regulation or administrative or court decree applicable to the
Company or any of its subsidiaries or (C) result in a breach or
violation of or constitutes a default under, or results in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of its subsidiaries
pursuant to, any term of any material agreement or instrument to
which the Company is a party or by which the Company is bound or
to which any of the properties or assets of the Company are
subject.

(vii) Each document filed pursuant to the 1934 Act and
incorporated or deemed to be incorporated by reference in the
Prospectus complied, when so filed, as to form in all material
respects with the 1934 Act and the 1934 Act Regulations.

(viii) Such counsel does not know of any contracts or
documents of a character required to be described or referred to
in the Registration Statement or to be filed as exhibits to the
Registration Statement that are not described, referred to or
filed as required.

(ix) Except as disclosed in the Prospectus, each United
States

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<PAGE>

patent and registered trademark referred to in the Prospectus as
owned by the Company has been issued by the United States Patent
and Trademark Office.

(x) To the knowledge of such counsel, except as disclosed
in the Prospectus, (A) the products being sold by the Company
(other than products merely packaged by the Company for third
parties) do not infringe any patent, patent right, trademark,
trade name or commercial name of a third party and (B) the
products (exclusive of drug) being sold by third parties
embodying technologies licensed from the Company do not infringe
any patent or patent right of any third party.

(xi) Except as disclosed in the Prospectus, such counsel
does not know of any pending or threatened legal or governmental
proceeding relating to patents or proprietary know-how used by
the Company or others to which the Company is a party or to which
any of the properties of the Company are the subject which, if
adversely decided, could result in any material adverse change in
the condition, financial or otherwise, or in the earnings or
business affairs of the Company and its subsidiaries considered
as one enterprise.

(xii) Neither of the issuance of the Securities or the
shares of Common Stock issuable upon conversion of the Securities
are subject to any preemptive rights or other rights of first
refusal arising by operation of law, under the Certificate of
Incorporation or bylaws of the Company or, to such counsel's
knowledge, otherwise.

(3) The favorable opinion of Shearman & Sterling, counsel for
the Underwriter, dated as of Closing Time, to the effect that the
opinions delivered pursuant to Sections 5(b)(1) and (2) appear on
their face to be appropriately responsive to the requirements of this
Agreement except, specifying the same, to the extent waived by the
Underwriter, and with respect to the adequacy of the disclosure
contained in the Registration Statement and the Prospectus, the
documents incorporated by reference therein and such other related
matters as the Underwriter may require.

(4) The favorable opinions, dated as of the Closing Time, of
Mayer, Brown & Platt, special counsel to the Underwriter and special
tax counsel to the Company, with respect to the validity of the
Securities and the Indenture and to the effect that (i) the opinion of
such counsel set forth in the Prospectus under the caption "Certain
United States Federal Income Tax
<PAGE>

22062

Considerations," is confirmed and (ii) the information in the
Prospectus under the caption "Certain United States Federal Income
Tax Considerations," while not purporting to discuss all tax matters
relating to the Securities, to the extent that it constitutes a
summary of federal income tax matters relating to the Securities, is
correct in all material respects.

(c) At the Closing Time, there shall not have been, since the date
hereof or since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change
in the condition, financial or otherwise, or in the earnings or business
affairs of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the
Underwriter shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting
officer of the Company, dated as of the Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1 hereof are true and correct
with the same force and effect as though expressly made at and as of the
Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to the Closing Time, (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission, and (v) to
such officers' knowledge, there are no contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or filed
or incorporated by reference as exhibits thereto.

(d) At the time of the execution of this Agreement, the Underwriter
shall have received from Ernst & Young a letter dated such date (the "First
E & Y Letter"), in form and substance satisfactory to the Underwriter.

(e) At the Closing Time, the Underwriter shall have received from
Ernst & Young a letter, dated as of the Closing Time, confirming, on the
basis of a review in accordance with the procedures set forth in the First
E & Y Letter, that nothing has come to their attention from the date of the
most recent financial statements of the Company filed with the Commission,
audited or interim, as the case may be, to a date not more than five days
prior to the Closing Time which would require any change in the First E & Y
Letter if it were required to be dated and delivered at the Closing Time,
except in each case as described in the second such letter.

(f) Subsequent to the execution of this Agreement, no downgrading
shall have occurred in the rating accorded any of the Company's debt
securities by

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<PAGE>

Standard & Poor's Corporation or Moody's Investors Service, and neither
such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating
accorded any of the Company's debt securities, if in the reasonable
judgment of the Underwriter any such development is so material and adverse
as to make it impracticable or inadvisable to consummate the sale and
delivery of the Securities by the Underwriter as contemplated in the
Prospectus.

(g) At the Closing Time, the Securities and the Common Stock issuable
upon conversion thereof shall have been approved for listing on the NYSE
upon notice of issuance.

(h) At the Closing Time, and at the Date of Delivery, if any, counsel
for the Underwriter shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities as herein contemplated shall
be satisfactory in form and substance to the Underwriter and counsel for
the Underwriter.

(i) In the event that the Underwriter exercises its option provided
in Section 2(b) hereof to purchase all or any portion of the Option
Securities and the Date of Delivery is not the same as the Closing Time,
the representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall be
true and correct as of the Date of Delivery, and, at the Date of Delivery,
the Underwriter shall have received:

(1) A certificate, dated the Date of Delivery, of the President
or a Vice President of the Company and the chief financial or chief
accounting officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(c) hereof remains
true and correct as of the Date of Delivery.

(2) The favorable opinion of Heller, Ehrman, White & McAuliffe,
counsel to the Company, in form and substance satisfactory to counsel
for the Underwriter, dated the Date of Delivery, relating to the
Option Securities to be purchased on the Date of Delivery and
otherwise to the same effect as the opinion required by Section
5(b)(1) hereof.

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<PAGE>

(3) The favorable opinion of Peter D. Staple, Esq., Vice
President and General Counsel of the Company, in form and substance
satisfactory to counsel for the Underwriter, dated the Date of
Delivery, and to the same effect as the opinion required by Section
5(b)(2) hereof.

(4) The favorable opinion of Shearman & Sterling, counsel for
the Underwriter, dated the Date of Delivery, relating to the Option
Securities to be purchased on the Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(b)(3) hereof.

(5) The favorable opinions of Mayer, Brown & Platt, special
counsel to the Underwriter and special tax counsel to the Company,
dated the Date of Delivery, to the same effect as the opinion required
by Section 5(b)(4) hereof.

(6) A letter from Ernst & Young, in form and substance
satisfactory to the Underwriter and dated the Date of Delivery,
substantially the same in form and substance as the letter furnished
to the Underwriter pursuant to Section 5(e) hereof, except that the
"specified date" in the letter furnished pursuant to this Section
5(i)(6) shall be a date not more than five days prior to the Date of
Delivery.

If any of the conditions specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriter by notice to the Company at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 4 hereof, and provided further
that Sections 6 and 7 hereof shall survive such termination.

SECTION 6. INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the 1933 Act as follows:

(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the information deemed to be part of
the Registration Statement pursuant to Rule 430A(b) of the 1933 Act
Regulations, if applicable, and all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the

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statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;

(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based, in each case, upon any such untrue statement or omission,
or any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and

(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by the Underwriter), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever based, in each case, upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under (i) or (ii) above;

PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter, or any person controlling the Underwriter, expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto); and PROVIDED,
FURTHER, that the Company shall not be liable to the Underwriter under the
indemnity agreement in this subsection (a) with respect to any preliminary
prospectus to the extent that any such loss, liability, claim, damage or expense
of the Underwriter results from the fact that the Underwriter sold Securities to
a person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus as then amended or
supplemented (excluding documents incorporated by reference therein) in any case
where such delivery is required by the 1933 Act if the Company has previously
furnished copies thereof to the Underwriter and the loss, liability, claim,
damage or expense of the Underwriter results from an untrue statement or
omission or alleged untrue statement or omission of a material fact contained in
the preliminary prospectus which was corrected in the Prospectus (or the
Prospectus as amended or supplemented).

(b) The Underwriter agrees to indemnify and hold harmless the
Company,

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its directors, each of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).

(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of any such action. If it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action, provided that, if such indemnified party or parties
reasonably determine that there may be legal defenses available to them which
are different from or in addition to those available to such indemnifying party
or parties, then such indemnifying party or parties shall not be entitled to
assume such defense. If the indemnifying party or parties are not entitled to
assume the defense of such action as a result of the proviso to the preceding
sentence, counsel for the indemnifying party or parties shall be entitled to
conduct the defense of such indemnifying party or parties and counsel for the
indemnified party or parties shall be entitled to conduct the defense of such
indemnified party or parties. If an indemnifying party is entitled to so assume
the defense of such action and does in fact assume the defense of such action,
the indemnifying parties shall not be liable for any fees and expenses of
counsel for the indemnified parties incurred thereafter in connection with such
action. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.

SECTION 7. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company and the
Underwriter shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by

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<PAGE>

said indemnity agreement incurred by the Company and the Underwriter, as
incurred, in such proportions that the Underwriter is responsible for that
portion represented by the percentage that the underwriting discount appearing
on the cover page of the Prospectus bears to the initial public offering price
appearing thereon and the Company is responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls the Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Company.

SECTION 8. CONDITION OF COMPANY'S OBLIGATION. The obligations of the
Company hereunder are subject to the condition that the Company shall have
received the favorable opinion, dated as of the Closing Time, of Mayer, Brown &
Platt, special tax counsel to the Company, to the effect that (i) the opinion of
such counsel set forth in the Prospectus under the caption "Certain United
States Federal Income Tax Considerations" is confirmed and (ii) the information
in the Prospectus under the caption "Certain United States Federal Income Tax
Considerations", while not purporting to discuss all tax matters relating to the
Securities, to the extent that it constitutes a summary of federal income tax
matters relating to the Securities, is correct in all material respects.

SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The representations, warranties, indemnities, agreements and other
statements of the Company or its officers set forth in this Agreement and the
Pricing Agreement, or contained in certificates of officers of the Company
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Underwriter or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities to, and payment for the Securities by, the
Underwriter. The indemnities of the Underwriter set forth in this Agreement and
the Pricing Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Company, its
directors, officers or controlling persons, or by or on behalf of the
Underwriter, and shall survive delivery of the Securities by, and payment for
the Securities to, the Company.

SECTION 10. TERMINATION OF AGREEMENT.

(a) The Underwriter may terminate this Agreement, by notice to the
Company, at any time at or prior to the Closing Time (i) if there has been,
since the date of this Agreement or since the respective dates as of which
information is given in the

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Registration Statement, any material adverse change in the condition,
financial or otherwise, or in the earnings or business affairs of the Company
and its subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or any outbreak of
hostilities or escalation thereof, or other calamity or crisis the effect of
which is such as to make it, in the judgment of the Underwriter, impracticable
to market the Securities or to enforce contracts for the sale of the Securities,
or (iii) if trading in the Common Stock has been suspended by the Commission, or
if trading generally on either the American Stock Exchange or the New York Stock
Exchange has been suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been required, by either
of said Exchanges or by order of the Commission or any other governmental
authority, or if a banking moratorium has been declared by either Federal, New
York or California authorities.

(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof, and provided further that Sections 6, 7 and 9
hereof shall survive such termination.

SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to it at 101 California Street, San Francisco,
California 94111, attention of D. Casey Safreno, Vice President; notices to the
Company shall be directed to it at 950 Page Mill Road, Palo Alto, California
94303, attention of Peter D. Staple, Vice President and General Cousnel, with a
copy to Heller, Ehrman, White & McAuliffe, 525 University Avenue, Palo Alto,
California 94301, Attention: Sarah A. O'Dowd.

SECTION 12. PARTIES. This Agreement and the Pricing Agreement are
made solely for the benefit of the Company and the Underwriter, and, to the
extent expressed, any person controlling the Company or the Underwriter within
the meaning of Section 15 of the 1933 Act, and the directors of the Company and
its officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser, of
Securities from the Underwriter.

SECTION 13. GOVERNING LAW AND TIME. This Agreement and the Pricing
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be performed in said
State. Unless otherwise set forth herein, specified times of day refer to New
York City time.

22062

<PAGE>

SECTION 14. AMENDMENTS. No amendment or waiver of any provision of
this Agreement, nor any consent or approval to any departure therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
parties hereto.

SECTION 15. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.

22062

<PAGE>

If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Company in accordance with its terms.

Very truly yours,

ALZA CORPORATION

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

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

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

22062

<PAGE>

EXHIBIT A

ALZA CORPORATION

(a Delaware corporation)

$ Principal Amount at Maturity
----------

Liquid Yield Option -TM- Notes due 2014
(Zero Coupon -- Subordinated)

, 1994
---------- --

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, N.Y. 10281-1209

Dear Sirs:

Reference is made to the Purchase Agreement dated May __, 1994 (the
"Purchase Agreement") relating to the purchase by Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Purchaser") of the above Liquid
Yield Option -TM- Notes due 2014 (Zero Coupon -- Subordinated)
(the "Securities") of ALZA Corporation (the "Company").

Pursuant to Section 2 of the Purchase Agreement, the Company agrees
with the Underwriter as follows:

1. The initial issue price per $1,000 principal amount at maturity
of Securities shall be $_____, reflecting a yield to maturity of ____% per
annum (computed on a semi-annual bond equivalent basis).

________________________

TM Trademarks of Merrill Lynch & Co., Inc. 21811

<PAGE>

2. The initial conversion rate per $1,000 principal amount at
maturity of Securities shall be __________ shares of the Company's Common
Stock, par value $0.01 per share, per $1,000 principal amount at maturity
of Securities.

3. The purchase price per $1,000 principal amount at maturity of
Securities to be paid by the Underwriter shall be $_____, being an amount
equal to the initial public offering price set forth above, less $____ per
$1,000 principal amount at maturity of Securities.

If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Purchaser and the Company in accordance with its terms.

Very truly yours,

ALZA CORPORATION

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

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

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

<PAGE>

- ----------------------------------------------------------------------------

ALZA CORPORATION

Liquid Yield Option -TM- Notes due 2014
(Zero Coupon -- Subordinated)

---------------------

INDENTURE

Dated as of June 1, 1994

---------------------

The Chase Manhattan Bank, N.A.
Trustee

- ----------------------------------------------------------------------------

-TM-Trademark of Merrill Lynch & Co., Inc.

<PAGE>

CROSS-REFERENCE TABLE*

TIA Indenture
Section Section
- ------- --------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2; 12.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 12.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . 12.6
2.8
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1
<FN>
N.A. means Not Applicable.

- ---------------------
* NOTE: THIS CROSS REFERENCE TABLE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO
BE PART OF THE INDENTURE.
</TABLE>

<PAGE>

PAGE
----
TABLE OF CONTENTS*

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

<C> <S> <C>
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Other Definitions . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.3. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . 6

ARTICLE 2

THE SECURITIES

SECTION 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.2. Execution and Authentication . . . . . . . . . . . . . . 6
SECTION 2.3. Registrar, Paying Agent and
Conversion Agent . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.4. Paying Agent To Hold Money and Securities
in Trust . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . 8
SECTION 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . 8
SECTION 2.7. Replacement Securities . . . . . . . . . . . . . . . . . 9
SECTION 2.8. Outstanding Securities; Determinations
of Holders' Action . . . . . . . . . . . . . . . . . . . 10
SECTION 2.9. Temporary Securities . . . . . . . . . . . . . . . . . . 11
SECTION 2.10. Cancellation . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE 3

REDEMPTION AND PURCHASES

SECTION 3.1. Right to Redeem; Notices to Trustee . . . . . . . . . . . 12
SECTION 3.2. Selection of Securities to Be Redeemed . . . . . . . . . 12
SECTION 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . 13
SECTION 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . 14
SECTION 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . 14
SECTION 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . 15
SECTION 3.7. Conversion Arrangement on Call for
Redemption . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.8. Purchase of Securities at the Option
of the Holder . . . . . . . . . . . . . . . . . . . . . . 16
<FN>
- ---------------------
* Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture.

</TABLE>

<PAGE>

<TABLE>
PAGE
----
<C> <S> <C>
SECTION 3.9. Purchase of Securities at Option of
the Holder Upon Change in Control . . . . . . . . . . . . 23
SECTION 3.10. Effect of Purchase Notice or Change
in Control Purchase Notice . . . . . . . . . . . . . . . 27
SECTION 3.11. Deposit of Purchase Price or Change
in Control Purchase Price . . . . . . . . . . . . . . . . 28
SECTION 3.12. Securities Purchased in Part . . . . . . . . . . . . . . 28
SECTION 3.13. Covenant to Comply With Securities Laws
Upon Purchase of Securities . . . . . . . . . . . . . . . 28
SECTION 3.14. Repayment to the Company . . . . . . . . . . . . . . . . 29

ARTICLE 4

COVENANTS

SECTION 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . 29
SECTION 4.2. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.3. Compliance Certificate;
Notice of Defaults. . . . . . . . . . . . . . . . . . . . 30
SECTION 4.4. Further Instruments and Acts . . . . . . . . . . . . . . 30
SECTION 4.5. Maintenance of Office or Agency . . . . . . . . . . . . . 30

ARTICLE 5

SUCCESSOR CORPORATION

SECTION 5.1. When Company May Merge
or Transfer Assets . . . . . . . . . . . . . . . . . . . 31

ARTICLE 6

DEFAULTS AND REMEDIES

SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . 35
SECTION 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . 35
SECTION 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . 36
SECTION 6.7. Rights of Holders to Receive Payment . . . . . . . . . . 36
SECTION 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . 37
SECTION 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . 37
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . 38
SECTION 6.12. Waiver of Stay, Extension or Usury Laws . . . . . . . . . 38

<PAGE>
PAGE
----

ARTICLE 7

TRUSTEE

SECTION 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . 40
SECTION 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . 41
SECTION 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 41
SECTION 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . 41
SECTION 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . . 41
SECTION 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . 42
SECTION 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . 42
SECTION 7.9. Successor Trustee by Merger . . . . . . . . . . . . . . . 43
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . 44
SECTION 7.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . . . . . . 44

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.1. Discharge of Liability on Securities . . . . . . . . . . 44
SECTION 8.2. Repayment to the Company . . . . . . . . . . . . . . . . 44

ARTICLE 9

AMENDMENTS

SECTION 9.1. Without Consent of Holders . . . . . . . . . . . . . . . 45
SECTION 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . 45
SECTION 9.3. Compliance with Trust Indenture Act . . . . . . . . . . . 47
SECTION 9.4. Revocation and Effect of Consents,
Waivers and Actions . . . . . . . . . . . . . . . . . . . 47
SECTION 9.5. Notation on or Exchange of Securities . . . . . . . . . . 47
SECTION 9.6. Trustee to Sign Supplemental Indentures . . . . . . . . . 47
SECTION 9.7. Effect of Supplemental Indentures . . . . . . . . . . . . 48

ARTICLE 10

SUBORDINATION

SECTION 10.1. Securities Subordinate to Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 10.2. Payment Over of Proceeds Upon
Dissolution, Etc. . . . . . . . . . . . . . . . . . . . . 48

iii

<PAGE>

PAGE
----

SECTION 10.3. Prior Payment of Senior Indebtedness
Upon Acceleration of Securities . . . . . . . . . . . . . 49
SECTION 10.4. No Payment When Senior Indebtedness
in Default . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.5. Payment Permitted If No Default . . . . . . . . . . . . . 51
SECTION 10.6. Subrogation to Rights of Holders of
Senior Indebtedness . . . . . . . . . . . . . . . . . . . 51
SECTION 10.7. Provisions Solely to Define Relative
Rights . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 10.8. Trustee to Effectuate Subordination . . . . . . . . . . . 52
SECTION 10.9. No Waiver of Subordination Provisions . . . . . . . . . . 52
SECTION 10.10. Notice to Trustee . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.11. Reliance on Judicial Order or Certificate
of Liquidating Agent . . . . . . . . . . . . . . . . . . 53
SECTION 10.12. Trustee Not Fiduciary for Holders of
Senior Indebtedness . . . . . . . . . . . . . . . . . . . 54
SECTION 10.13. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of
Trustee's Rights . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.14. Article Applicable to Paying Agents . . . . . . . . . . . 54
SECTION 10.15. Certain Conversions Deemed Payment . . . . . . . . . . . 54

ARTICLE 11

CONVERSION

SECTION 11.1. Conversion Privilege . . . . . . . . . . . . . . . . . . 55
SECTION 11.2. Conversion Procedure . . . . . . . . . . . . . . . . . . 57
SECTION 11.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . 58
SECTION 11.4. Taxes on Conversion . . . . . . . . . . . . . . . . . . . 58
SECTION 11.5. Company to Provide Stock . . . . . . . . . . . . . . . . 59
SECTION 11.6. Adjustment for Change in Capital Stock . . . . . . . . . 59
SECTION 11.7. Adjustment for Rights Issue . . . . . . . . . . . . . . . 60
SECTION 11.8. Adjustment for Other Distributions . . . . . . . . . . . 61
SECTION 11.9. When Adjustment May Be Deferred . . . . . . . . . . . . . 64
SECTION 11.10. When No Adjustment Required . . . . . . . . . . . . . . . 64
SECTION 11.11. Notice of Adjustment . . . . . . . . . . . . . . . . . . 64
SECTION 11.12. Voluntary Increase . . . . . . . . . . . . . . . . . . . 65
SECTION 11.13. Notice of Certain Transactions . . . . . . . . . . . . . 65
SECTION 11.14. Reorganization of Company;
Special Distributions . . . . . . . . . . . . . . . . . . 65
SECTION 11.15. Company Determination Final . . . . . . . . . . . . . . . 66
SECTION 11.16. Trustee's Adjustment Disclaimer . . . . . . . . . . . . . 66
SECTION 11.17. Simultaneous Adjustments . . . . . . . . . . . . . . . . 67
SECTION 11.18. Successive Adjustments . . . . . . . . . . . . . . . . . 67

<PAGE>

PAGE
----
ARTICLE 12

MISCELLANEOUS

SECTION 12.1. Trust Indenture Act Controls . . . . . . . . . . . . . . 67
SECTION 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 12.3. Communication by Holders with Other
Holders . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 12.4. Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 12.5. Statements Required in Certificate
or Opinion . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 12.6. Separability Clause . . . . . . . . . . . . . . . . . . . 69
SECTION 12.7. Rules By Trustee, Paying Agent,
Conversion Agent and Registrar . . . . . . . . . . . . . 69
SECTION 12.8. Legal Holidays . . . . . . . . . . . . . . . . . . . . . 69
SECTION 12.9. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 12.10. No Recourse Against Others . . . . . . . . . . . . . . . 69
SECTION 12.11. Successors . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 12.12. Multiple Originals . . . . . . . . . . . . . . . . . . . 70

EXHIBIT A FORM OF SECURITY
A-1

</TABLE>
v

<PAGE>

INDENTURE, dated as of June 1, 1994, between ALZA
CORPORATION, a Delaware corporation ("COMPANY"), and The Chase
Manhattan Bank, N.A., a national banking association incorporated
and existing under the laws of The United States of America, as
trustee (the "TRUSTEE").

Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the
Company's Liquid Yield Option -TM- Notes due 2014 (Zero Coupon --
Subordinated) (the "SECURITIES"):

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1. DEFINITIONS.

"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 or
cause the direction of 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.

"BOARD OF DIRECTORS" or "BOARD" means, with respect to any
matter, either the board of directors of the Company or any
committee of such board duly authorized, with respect to such
matter, to exercise the powers of such board.

"BUSINESS DAY" means each day of the year on which banking
institutions in The City of New York are not required or
authorized to close.

"CAPITAL STOCK" for any corporation means any and all
shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however
designated) capital stock issued by that corporation.

"CASH" or "CASH" means such coin or currency of The United
States of America as at any time of payment is legal tender for
the payment of public and private debts.

--------------------
-TM-Trademark of Merrill Lynch & Co., Inc.

<PAGE>

"COMMON STOCK" means the Common Stock, par value $.01 per
share, of the Company as it exists on the date of this Indenture
or any other shares of capital stock of the Company into which
such common stock shall be reclassified or changed.

"COMPANY" means the party named as the "Company" in the
first paragraph of this Indenture until a successor replaces it
pursuant to the applicable provisions of this Indenture and,
thereafter, shall mean such successor. The foregoing sentence
shall likewise apply to any subsequent such successor or
successors.

"COMPANY REQUEST" or "COMPANY ORDER" means a written request
or order signed in the name of the Company by either of its Co-
Chairmen of the Board, its President or any Vice President, and
by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.

"CONSOLIDATED SUBSIDIARY" means, at any date, any Subsidiary
the accounts of which are consolidated with those of the Company
as of such date for public financial reporting purposes.

"DEFAULT" means any event that is, or after notice or
passage of time or both would be, an Event of Default.

"HOLDER" or "SECURITYHOLDER" means a person in whose name a
Security is registered on the Registrar's books.

"INDENTURE" means this Indenture as amended or supplemented
from time to time in accordance with the terms hereof.

"ISSUE DATE" of any Security means the date on which the
Security was originally issued or deemed issued as set forth on
the face of the Security.

"ISSUE PRICE" of any Security means, in connection with the
original issuance of such Security, the initial issue price at
which the Security is sold as set forth on the face of the
Security.

"OFFICER" means either Co-Chairman of the Board, the
President, any Vice President, the Treasurer, the Secretary, any
Assistant Treasurer or Assistant Secretary of the Company.

"OFFICERS' CERTIFICATE" means a written certificate
containing the information specified in Sections 12.4 and 12.5,
signed in the name of the Company by either Co-Chairman of the
Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary,
and delivered to the Trustee.

<PAGE>

"OPINION OF COUNSEL" means a written opinion containing the
information specified in Sections 12.4 and 12.5, if applicable,
rendered by legal counsel who may be an employee of, or counsel
to, the Company.

"ORIGINAL ISSUE DISCOUNT" of any Security means the
difference between the Issue Price and the Principal Amount of
the Security as set forth on the face of the Security.

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

"PRINCIPAL" or "PRINCIPAL AMOUNT" of a Security means the
principal amount due at the Stated Maturity of the Security as
set forth on the face of the Security.

"REDEMPTION DATE" or "REDEMPTION DATE" shall mean the date
specified for redemption of any of the Securities in accordance
with the terms of the Securities and this Indenture.

"REDEMPTION PRICE" or "REDEMPTION PRICE" shall have the
meaning set forth in paragraph 5 of the Securities.

"SEC" means the Securities and Exchange Commission.

"SECURITIES" means any of the Company's Liquid Yield Option -TM-
Notes due 2014 (Zero Coupon -- Subordinated), as amended or
supplemented from time to time in accordance with the terms
hereof, issued under this Indenture.

"SECURITYHOLDER" or "HOLDER" means a person in whose name a
Security is registered on the Registrar's books.

"SENIOR INDEBTEDNESS" means the principal of (and premium,
if any) and unpaid interest on all present and future (i)
indebtedness of the Company for borrowed money, (ii) obligations
of the Company evidenced by bonds, debentures, notes or similar
instruments, (iii) indebtedness incurred, assumed or guaranteed
by the Company in connection with the acquisition by it or a
Subsidiary of any business, properties or assets (except
purchase-money indebtedness classified as accounts payable under
generally accepted accounting principles), (iv) obligations of
the Company as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted
accounting principles and leases of property or assets made as
part of any sale and lease-back transaction to which the Company
is a party, (v) reimbursement obligations of the Company in
respect of letters of credit relating to indebtedness or other
obligations of the Company that qualify as indebtedness or

<PAGE>

obligations of the kind referred to in clauses (i) through (iv)
above, and (vi) obligations of the Company under direct or
indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i)
through (v) above, in each case unless in the instrument creating
or evidencing the indebtedness or obligation or pursuant to which
the same is outstanding it is provided that such indebtedness or
obligation is not superior in right of payment to the Securities.

"SENIOR INDEBTEDNESS DEFAULT" means the happening of an
event of default with respect to any Senior Indebtedness, as
defined therein or in the instrument under which the same is
outstanding which, if occurring prior to the stated maturity of
such Senior Indebtedness, permits any holder thereof thereupon to
accelerate the maturity thereof.

"STATED MATURITY" when used with respect to any Security,
means the date specified in such Security as the fixed date on
which the Principal of such Security is due and payable.

"SUBSIDIARY" means (i) a corporation, a majority of whose
Capital Stock with voting power, under ordinary circumstances, to
elect directors is, at the date of determination, directly or
indirectly owned by the Company, by one or more Subsidiaries of
the Company or by the Company and one or more Subsidiaries of the
Company or (ii) a partnership in which the Company or a
Subsidiary of the Company is at the date of determination, a
general partner of such partnership, or (iii) any other person
(other than a corporation or a partnership) in which the Company,
a Subsidiary of the Company or the Company and one or more
Subsidiaries of the Company, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest
or (y) the power to elect or direct the election of a majority of
the directors or other governing body of such person.

"TIA" means the Trust Indenture Act of 1939 as in effect on
the date of this Indenture, except as provided in Section 9.3.

"TRADING DAY" means each day on which the securities
exchange or quotation system which is used to determine the Sale
Price is open for trading or quotation.

"TRUST OFFICER" means any officer of the Trustee assigned by
the Trustee to administer its corporate trust matters.

"TRUSTEE" means the party named as the "Trustee" in the
first paragraph of this Indenture until a successor replaces it
pursuant to the applicable provisions of this Indenture and,
thereafter, shall mean such successor.

<PAGE>

SECTION 1.2. OTHER DEFINITIONS.

DEFINED IN
TERM SECTION
---- ----------

"ASSOCIATE" . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
"AVERAGE SALE PRICE" . . . . . . . . . . . . . . . . . . 11.1
"BANKRUPTCY LAW" . . . . . . . . . . . . . . . . . . . . 6.1
"BENEFICIAL OWNER" . . . . . . . . . . . . . . . . . . . 3.9(a)
"CHANGE IN CONTROL" . . . . . . . . . . . . . . . . . . . 3.9(a)
"CHANGE IN CONTROL PURCHASE DATE" . . . . . . . . . . . . 3.9(a)
"CHANGE IN CONTROL PURCHASE NOTICE" . . . . . . . . . . . 3.9(c)
"CHANGE IN CONTROL PURCHASE PRICE" . . . . . . . . . . . 3.9(a)
"COMPANY NOTICE DATE" . . . . . . . . . . . . . . . . . . 3.8(c)
"CONVERSION AGENT" . . . . . . . . . . . . . . . . . . . 2.3
"CONVERSION DATE" . . . . . . . . . . . . . . . . . . . . 11.2
"CONVERSION RATE" . . . . . . . . . . . . . . . . . . . . 11.1
"CUSTODIAN" . . . . . . . . . . . . . . . . . . . . . . . 6.1
"EVENT OF DEFAULT" . . . . . . . . . . . . . . . . . . . 6.1
"EXCHANGE ACT" . . . . . . . . . . . . . . . . . . . . . 3.8(c)
"EX-DIVIDEND TIME" . . . . . . . . . . . . . . . . . . . 11.1
"EXTRAORDINARY CASH DIVIDEND" . . . . . . . . . . . . . . 11.8
"LEGAL HOLIDAY" . . . . . . . . . . . . . . . . . . . . . 12.8
"MARKET PRICE" . . . . . . . . . . . . . . . . . . . . . 3.8(e)
"NOTICE OF DEFAULT" . . . . . . . . . . . . . . . . . . . 6.1
"OVER-ALLOTMENT OPTION" . . . . . . . . . . . . . . . . . 2.2
"PAYING AGENT" . . . . . . . . . . . . . . . . . . . . . 2.3
"PURCHASE DATE" . . . . . . . . . . . . . . . . . . . . . 3.8(a)
"PURCHASE NOTICE" . . . . . . . . . . . . . . . . . . . . 3.8(a)
"PURCHASE PRICE" . . . . . . . . . . . . . . . . . . . . 3.8(a)
"REGISTRAR" . . . . . . . . . . . . . . . . . . . . . . . 2.3
"RULE 13E-4" . . . . . . . . . . . . . . . . . . . . . . 3.8(c)
"SALE PRICE" . . . . . . . . . . . . . . . . . . . . . . 3.8(d)
"SECURITIES ACT" . . . . . . . . . . . . . . . . . . . . 3.8(d)
"TIME OF DETERMINATION" . . . . . . . . . . . . . . . . . 11.1
"VOTING STOCK" . . . . . . . . . . . . . . . . . . . . . 3.9

SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE
ACT. Whenever this Indenture refers to a provision of the TIA,
such provision is incorporated by reference in and made a part of
this Indenture. The following TIA terms used in this Indenture
have the following meanings:

"COMMISSION" means the SEC.

"INDENTURE SECURITIES" means the Securities.

"INDENTURE SECURITY HOLDER" means a Securityholder.

"INDENTURE TO BE QUALIFIED" means this Indenture.

<PAGE>

"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee.

"OBLIGOR" on the indenture securities means the Company.

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

SECTION 1.4. RULES OF CONSTRUCTION. Unless the context
otherwise requires:

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

(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles as in effect from time to time in The
United States of America;

(3) "or" is not exclusive;

(4) "including" means including, without limitation;
and

(5) words in the singular include the plural, and
words in the plural include the singular.

ARTICLE 2

THE SECURITIES

SECTION 2.1. FORM AND DATING. The Securities and the
Trustee's certificate of authentication shall be substantially in
the form of Exhibit A, which is a part of this Indenture. The
Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage (provided that any such
notation, legend or endorsement required by usage is in a form
acceptable to the Company and the Trustee). Each Security shall
be dated the date of its authentication.

SECTION 2.2. EXECUTION AND AUTHENTICATION. The Securities
shall be executed by the Company by either of its Co-Chairmen of
the Board, its President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper Officers of the

<PAGE>

Company shall bind the Company, notwithstanding that such
individuals or any of them have ceased to hold such offices prior
to the authentication and delivery of such Securities or did not
hold such offices at the Issue Date of such Securities.

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 duly executed by
the Trustee by manual signature of an authorized signatory, and
such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly
authenticated and delivered hereunder.

The Trustee shall authenticate and make available for
delivery Securities for original issue in an aggregate Principal
Amount of up to $___,000,000 upon a Company Order without any
further action by the Company; PROVIDED, HOWEVER, that in the
event that the Company sells any Securities pursuant to the over-
allotment option (the "OVER-ALLOTMENT OPTION") granted pursuant
to Section 2 of the Purchase Agreement, dated _______________,
1994, between the Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, then the Trustee shall
authenticate and deliver Securities for original issue in an
aggregate Principal Amount of up to $___,000,000 plus up to
$___,___,000 aggregate Principal Amount of Securities sold
pursuant to the Over-allotment Option upon a Company Order
without any further action by the Company. The aggregate
Principal Amount of Securities outstanding at any time may not
exceed the amount set forth in the foregoing sentence, subject to
the proviso set forth therein, except as provided in Section 2.7.

SECTION 2.3. REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain an office or agency where Securities
may be presented for registration of transfer or for exchange
("Registrar"), an office or agency where Securities may be
presented for purchase or payment ("PAYING AGENT") and an office
or agency where Securities may be presented for conversion
("CONVERSION AGENT"). The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company may
have one or more co-registrars, one or more additional paying
agents and one or more additional conversion agents. The term
Paying Agent includes any additional paying agent. The term
Conversion Agent includes any additional conversion agent.

The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent, Conversion Agent or co-
registrar (with the consent of the Trustee) other than the
Trustee. The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall notify
the Trustee and the Holders of the name and address of any such

<PAGE>

agent and of any change in the office or agency referred to in
Section 4.5. If the Company fails to maintain a Registrar,
Paying Agent or Conversion Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor
pursuant to Section 7.7. The Company or any Subsidiary or an
Affiliate of either of them may act as Paying Agent, Registrar,
Conversion Agent or co-registrar.

The Company initially appoints the Trustee as Registrar,
Conversion Agent and Paying Agent in connection with the
Securities.

SECTION 2.4. PAYING AGENT TO HOLD MONEY AND SECURITIES IN
TRUST. Except as otherwise provided herein, prior to or on
each due date of payments in respect of any Security, the Company
shall deposit with the Paying Agent a sum of money or, if
permitted by the terms hereof, securities sufficient to make such
payments when so becoming due. The Company shall require each
Paying Agent (other than the Trustee) to agree in writing that
the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money and securities held by
the Paying Agent for the making of payments in respect of the
Securities and shall notify the Trustee of any default by the
Company in making any such payment. At any time during the
continuance of any such default, the Paying Agent shall, upon the
written request of the Trustee, forthwith pay to the Trustee all
money and securities so held in trust. If the Company, a
Subsidiary or an Affiliate of either of them acts as Paying
Agent, it shall segregate the money and securities held by it as
Paying Agent and hold it as a separate trust fund. The Company
at any time may require a Paying Agent to pay all money and
securities held by it to the Trustee and to account for any money
and securities disbursed by it. Upon doing so, the Paying Agent
shall have no further liability for the money and securities.

SECTION 2.5. SECURITYHOLDER LISTS. The Trustee shall
preserve in as current a form as is reasonably practicable the
most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the
Company shall furnish or cause to be furnished to the Trustee (i)
at least semiannually on January 1 and July 1 a list of the names
and addresses of Securityholders dated within 15 days of the date
on which the list is furnished and (ii) at such other times as
the Trustee may request in writing a list, in such form and as of
such date as the Trustee may reasonably require, of the names and
addresses of Securityholders.

SECTION 2.6. TRANSFER AND EXCHANGE. Upon surrender for
registration of transfer of any Security, together with a written
instrument of transfer satisfactory to the Registrar duly
executed by the Securityholder or such Securityholder's attorney

<PAGE>

duly authorized in writing, at the office or agency of the
Company designated as Registrar or co-registrar pursuant to
Section 2.3 or at the office or agency referred to in Section
4.5, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any
authorized denomination or denominations, of a like aggregate
Principal Amount. The Company shall not charge a service charge
for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to pay all taxes, assessments
or other governmental charges that may be imposed in connection
with the transfer or exchange of the Securities from the
Securityholder requesting such transfer or exchange (other than
any exchange of a temporary Security for a definitive Security
not involving any change in ownership).

At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations,
of a like aggregate Principal Amount, upon surrender of the
Securities to be exchanged, together with a written instrument of
transfer satisfactory to the Registrar duly executed by the
Securityholder or such Securityholder's attorney duly authorized
in writing, at such office or agency. Whenever any Securities
are so surrendered for exchange, the Company shall execute, and
the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive.

The Company shall not be required to make, and the Registrar
need not register, transfers or exchanges of (a) Securities
selected for redemption (except, in the case of Securities to be
redeemed in part, the portion thereof not to be redeemed), (b)
any Securities in respect of which a Purchase Notice or a Change
in Control Purchase Notice has been given and not withdrawn by
the Holder thereof in accordance with the terms of this Indenture
(except, in the case of Securities to be purchased in part, the
portion thereof not to be purchased) or (c) any Securities for a
period of 15 days before a selection of Securities to be
redeemed.

SECTION 2.7. REPLACEMENT SECURITIES. If (a) any mutilated
Security is surrendered to the Company or the Trustee, or (b) the
Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is
delivered to the Company and the Trustee such security or
indemnity as may be required by them to save each 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 its written
request the Trustee shall authenticate and deliver, in exchange
for any such mutilated Security or in lieu of any such destroyed,
lost or stolen Security, a new Security of like tenor and

<PAGE>

Principal Amount, 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, or is
about to be purchased by the Company pursuant to Article 3
hereof, the Company in its discretion may, instead of issuing a
new Security, pay or purchase such Security, as the case may be.

Upon the issuance of any new Securities 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) in connection therewith.

Every new Security issued pursuant to this Section in lieu
of any mutilated, 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 shall be entitled
to all 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 2.8. OUTSTANDING SECURITIES; DETERMINATIONS OF
HOLDERS' ACTION. Securities outstanding at any time are all the
Securities authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation,
mutilated, destroyed, lost or stolen Securities for which the
Trustee has authenticated and made available for delivery a new
Security in lieu therefor pursuant to Section 2.7 and those
described in this Section 2.8 as not outstanding. A Security
does not cease to be outstanding because the Company or an
Affiliate thereof holds the Security; PROVIDED, HOWEVER, that in
determining whether the Holders of the requisite Principal Amount
of Securities have given or concurred in any request, demand,
authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor
shall be disregarded and deemed not to be outstanding, except
that, in determining whether the Trustee shall be protected in
relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee
knows to be so owned shall be so disregarded. Subject to the
foregoing, only Securities outstanding at the time of such
determination shall be considered in any such determination

<PAGE>

(including, without limitation, determinations pursuant to
Articles 6 and 9).

If a Security is replaced pursuant to Section 2.7, it ceases
to be outstanding unless the Trustee receives proof satisfactory
to it that the replaced Security is held by a BONA FIDE
purchaser.

If the Paying Agent holds, in accordance with this
Indenture, on a Redemption Date, or on the Business Day following
a Purchase Date or a Change in Control Purchase Date, or on
Stated Maturity, money or, if permitted by the terms hereof,
securities sufficient to pay the Securities payable on that date,
then on and after that date such Securities shall cease to be
outstanding and Original Issue Discount and interest, if any, on
such Securities shall cease to accrue and all other rights of the
Holder shall terminate (other than the right to receive the
applicable Redemption Price, Purchase Price or Change in Control
Purchase Price, as the case may be, upon delivery of the Security
in accordance with the terms of this Indenture); PROVIDED, that
if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made.

If a Security is converted in accordance with Article 11,
then from and after the Conversion Date such Security shall cease
to be outstanding and Original Issue Discount and interest, if
any, shall cease to accrue on such Security.

SECTION 2.9. TEMPORARY SECURITIES. Pending the
preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other
variations as the Officers executing such Securities may
determine, as conclusively evidenced by their execution of such
Securities.

If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay.
After the preparation of definitive Securities, the temporary
Securities shall be exchangeable for definitive Securities upon
surrender of the temporary Securities at the office or agency of
the Company designated for such purpose pursuant to Section 2.3
or 4.5, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the Company
shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like Principal Amount of definitive

<PAGE>

Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.

SECTION 2.10. CANCELLATION. All Securities surrendered for
payment, redemption or purchase by the Company pursuant to
Article 3, conversion pursuant to Article 11, registration of
transfer or exchange shall, if surrendered to any person other
than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so
delivered shall be promptly cancelled by the Trustee. The
Company may not issue new Securities to replace Securities it has
paid or delivered to the Trustee for cancellation or that any
Holder has converted pursuant to Article 11. No Securities shall
be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by
the Trustee shall be disposed of by the Trustee in accordance
with its normal procedures and evidence of such disposition shall
be delivered to the Company unless the Company directs by Company
Order that the Trustee deliver cancelled Securities to the
Company.

ARTICLE 3

REDEMPTION AND PURCHASES

SECTION 3.1. RIGHT TO REDEEM; NOTICES TO TRUSTEE. The
Company, at its option, may redeem the Securities for cash in
accordance with the provisions set forth in paragraphs 5 and 7 of
the Securities. If the Company elects to redeem Securities
pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the Redemption Date, the Principal Amount
of Securities to be redeemed and the Redemption Price.

The Company shall give the notice to the Trustee provided
for in this Section 3.1 at least 60 days before the Redemption
Date (unless a shorter notice shall be satisfactory to the
Trustee). If fewer than all the Securities are to be redeemed,
the record date relating to such redemption shall be selected by
the Company and given to the Trustee, which record date shall not
be less than ten days after the date of notice to the Trustee.

SECTION 3.2. SELECTION OF SECURITIES TO BE REDEEMED. If
less than all the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed PRO RATA or by lot or
by any other method the Trustee considers fair and appropriate
(so long as such method is not prohibited by the rules of any

<PAGE>

stock exchange on which the Securities are then listed). The
Trustee shall make the selection at least 35 but not more than 60
days before the Redemption Date from outstanding Securities not
previously called for redemption. The Trustee may select for
redemption portions of the Principal of Securities that have
denominations larger than $1,000. Securities and portions of
them the Trustee selects shall be in Principal Amounts of $1,000
or an integral multiple of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to
portions of Securities called for redemption. The Trustee shall
notify the Company promptly, but not less than 35 days before the
Redemption Date, of the Securities or portions of Securities to
be redeemed.

If any Security selected for partial redemption is
thereafter surrendered for conversion in part before termination
of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security
shall be deemed (so far as may be), solely for purposes of
determining the aggregate Principal Amount of Securities to be
redeemed by the Company, to be the portion selected for
redemption. Securities that 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.
Nothing in this Section 3.2 shall affect the right of any Holder
to convert any Security pursuant to Article 11 before the
termination of the conversion right with respect thereto.

SECTION 3.3. NOTICE OF REDEMPTION. At least 30 days but
not more than 60 days before a Redemption Date, the Company shall
mail a notice of redemption by first-class mail to each Holder of
Securities to be redeemed in the manner provided in Section 12.2.

The notice shall identify the Securities to be redeemed and
shall state:

(1) the Redemption Date;

(2) the Redemption Price;

(3) the Conversion Rate;

(4) the name and address of the Paying Agent and
Conversion Agent and of the office or agency referred to in
Section 4.5;

(5) that Securities called for redemption may be
converted at any time before the close of business on the
Redemption Date;

<PAGE>

(6) that Holders who want to convert Securities must
satisfy the requirements set forth in paragraph 9 of the
Securities;

(7) that Securities called for redemption must be
surrendered to the Paying Agent or at the office or agency
referred to in Section 4.5 to collect the Redemption Price;

(8) the CUSIP number of the Securities;

(9) if fewer than all the outstanding Securities are
to be redeemed, the certificate numbers and Principal
Amounts of the particular Securities to be redeemed; and

(10) that, unless the Company defaults in payment of
the Redemption Price, Original Issue Discount on Securities
called for redemption and interest, if any, will cease to
accrue on and after the Redemption Date.

At the Company's written request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's
expense.

SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION. Once notice
of redemption is given, Securities called for redemption become
due and payable on the Redemption Date stated in the notice and
at the Redemption Price therefor except for Securities that are
converted in accordance with the terms of this Indenture. Upon
the later of the Redemption Date and the date such Securities are
surrendered to the Paying Agent or at the office or agency
referred to in Section 4.5, such Securities called for redemption
shall be paid at the Redemption Price therefor.

SECTION 3.5. DEPOSIT OF REDEMPTION PRICE. Prior to or on
the Redemption Date, the Company shall deposit with the Paying
Agent (or if the Company or a Subsidiary or an Affiliate of
either of them is the Paying Agent, shall segregate and hold in
trust) money sufficient to pay the Redemption Price of all
Securities to be redeemed on that date other than Securities or
portions of Securities called for redemption which prior thereto
have been delivered by the Company to the Trustee for
cancellation. The Paying Agent shall as promptly as practicable
return to the Company any money, with interest, if any, thereon
(subject to the provisions of Section 7.1(f)), not required for
that purpose because of conversion of Securities pursuant to
Article 11. If such money is then held by the Company or a
Subsidiary or an Affiliate of the Company in trust and is not
required for such purpose it shall be discharged from such trust.

<PAGE>

SECTION 3.6. SECURITIES REDEEMED IN PART. Upon surrender
of a Security that is redeemed in part, the Company shall
execute, and the Trustee shall authenticate and deliver to the
Holder, a new Security in an authorized denomination equal in
Principal Amount to the unredeemed portion of the Security
surrendered.

SECTION 3.7. CONVERSION ARRANGEMENT ON CALL FOR
REDEMPTION. In connection with any redemption of Securities, the
Company may arrange for the purchase and conversion of any
Securities called for redemption by an agreement with one or more
investment bankers or other purchasers to purchase all or a
portion of such Securities by paying to the Trustee in trust for
the Securityholders whose Securities are to be so purchased, on
or before the close of business on the Redemption Date, an amount
that, together with any amounts deposited with the Trustee by the
Company for redemption of such Securities is not less than the
Redemption Price, together with interest, if any, accrued to the
Redemption Date, of such Securities. Notwithstanding anything to
the contrary contained in this Article 3, the obligation of the
Company to pay the Redemption Price of such Securities, including
all accrued interest, if any, shall be deemed to be satisfied and
discharged to the extent such amount is so paid by such
purchasers but no such agreement shall relieve the Company of its
obligation to pay such Redemption Price and interest, if any. If
such an agreement is entered into, any Securities not duly
surrendered for conversion by the Holders thereof may, at the
option of the Company, be deemed, to the fullest extent permitted
by law, acquired by such purchasers from such Holders and
(notwithstanding anything to the contrary contained in Article
11) surrendered by such purchasers for conversion, all as of
immediately prior to the close of business on the Redemption
Date, subject to payment of the above amount as aforesaid. The
Trustee shall hold and pay to the Holders whose Securities are
selected for redemption any such amount paid to it for purchase
and conversion in the same manner as it would moneys deposited
with it by the Company for the redemption of Securities. Without
the Trustee's prior written consent, no arrangement between the
Company and such purchasers for the purchase and conversion of
any Securities shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Trustee as
set forth in this Indenture, and the Company agrees to indemnify
the Trustee from, and hold it harmless against, any loss,
liability or expense arising out of or in connection with any
such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers, including the
costs and expenses incurred by the Trustee in the defense of any
claim or liability arising out of or in connection with the
exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.

<PAGE>

SECTION 3.8. PURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDER.

(a) GENERAL. Securities shall be purchased by the Company
pursuant to paragraph 6 of the Securities as of June __, 1999, June
__, 2004 and June __, 2009 (each, a "PURCHASE DATE"), at the
purchase price specified therein (each, a "PURCHASE PRICE"), at
the option of the Holder thereof, upon:

(1) delivery to the Paying Agent or to the office or
agency referred to in Section 4.5 by the Holder of a written
notice of purchase (a "PURCHASE NOTICE") at any time from
the opening of business on the date that is 20 Business Days
prior to a Purchase Date until the close of business on such
Purchase Date stating:

(A) the certificate number of the Security that
the Holder will deliver to be purchased;

(B) the portion of the Principal Amount of the
Security which the Holder will deliver to be purchased,
which portion must be $1,000 or an integral multiple
thereof;

(C) that such Security shall be purchased on the
Purchase Date pursuant to the terms and conditions
specified in this Indenture and in paragraph 6 of the
Securities; and

(D) whether, if the Company elects pursuant to
Section 3.8(b) to pay the Purchase Price on such
Purchase Date, in whole or in part, in shares of Common
Stock, but such portion of the Purchase Price to be
paid in Common Stock is ultimately to be paid in cash
because any condition in Section 3.8(d) is not
satisfied, such Holder elects (i) to withdraw such
Purchase Notice as to some or all of the Securities to
which it relates (stating the Principal Amount and
certificate numbers of the Securities as to which such
withdrawal shall relate), or (ii) to receive cash in
respect of the Purchase Price for all Securities
subject to such Purchase Notice; and

(2) delivery of such Security, by hand or by
registered mail prior to, on or after the Purchase Date
(together with all necessary endorsements) to the Paying
Agent at the offices of the Paying Agent or to the office or
agency referred to in Section 4.5, such delivery being a
condition to receipt by the Holder of the Purchase Price
therefor; PROVIDED, HOWEVER, that such Purchase Price shall
be so paid pursuant to this Section 3.8 only if the Security

<PAGE>

so delivered conforms in all respects to the description
thereof in the related Purchase Notice.

If a Holder, in such Holder's Purchase Notice and in any
written notice of withdrawal delivered by such Holder pursuant to
the terms of Section 3.10, fails to indicate such Holder's choice
with respect to the election set forth in clause (D) of Section
3.8(a)(1), such Holder shall be deemed to have elected to receive
cash in respect of the Purchase Price otherwise payable in Common
Stock.

The Company shall purchase from the Holder thereof, pursuant
to this Section 3.8, a portion of a Security if the Principal
Amount of such portion is $1,000 or an integral multiple of
$1,000. Provisions of this Indenture that apply to the purchase
of all of a Security also apply to the purchase of such portion
of such Security.

Any purchase by the Company contemplated pursuant to the
provisions hereof shall be consummated by the delivery of the
consideration to be received by the Holder promptly following the
later of the Purchase Date and the time of delivery of the
Security.

Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent or the office or agency referred
to in Section 4.5 the Purchase Notice contemplated by this
Section 3.8(a) shall have the right to withdraw at any time prior
to the close of business on the Purchase Date such Purchase
Notice by delivery of a written notice of withdrawal to the
Paying Agent or such office or agency in accordance with Section
3.10.

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

(b) COMPANY'S RIGHT TO ELECT MANNER OF PAYMENT OF PURCHASE
PRICE. The Securities to be purchased pursuant to Section 3.8(a)
may be paid for, at the election of the Company, in cash or
Common Stock, or in any combination of cash and Common Stock,
subject to the conditions set forth in this Section 3.8. The
Company shall designate, in the notice from the Company delivered
pursuant to Section 3.8(e), whether the Company will purchase the
Securities for cash or Common Stock, and, if a combination
thereof, the percentages of the Purchase Price of Securities in
respect of which it will pay in cash or Common Stock; PROVIDED
that the Company will pay cash for fractional interests in Common
Stock. For purposes of determining the existence of potential
fractional interests, all Securities subject to purchase by the
Company held by a Holder shall be considered together (no matter

<PAGE>

how many separate certificates are to be presented). Each Holder
whose Securities are purchased pursuant to this Section 3.8 shall
receive the same percentage of cash or Common Stock in payment of
the Purchase Price for such Securities, except (i) as provided in
Section 3.8(d) with regard to the payment of cash in lieu of
fractional shares of Common Stock and (ii) in the event that the
Company is unable to purchase the Securities of a Holder or
Holders for Common Stock because any necessary qualifications or
registrations of the Common Stock under applicable state
securities laws cannot be obtained, the Company may purchase the
Securities of such Holder or Holders for cash. The Company may
not change its election with respect to the consideration (or
components or percentages of components thereof) to be paid once
the Company has given notice thereof to Securityholders except
pursuant to this Section 3.8(b) or Section 3.8(d).

At least five Business Days before the Company Notice Date
(as defined below), the Company shall deliver an Officers'
Certificate to the Trustee specifying:

(i) the manner of payment selected by the Company;

(ii) the information required by Section 3.8(e);

(iii) that the conditions to such manner of payment
set forth in Section 3.8(d), as the case may be, have or
will be complied with; and

(iv) whether the Company desires the Trustee to give
the notice required by Section 3.8(e).

(c) PURCHASE WITH CASH. On each Purchase Date, at the
option of the Company, the Principal Amount of the Securities in
respect of which a Purchase Notice pursuant to Section 3.8(a) has
been given, or a specified percentage thereof, may be purchased
by the Company with cash equal to the aggregate Purchase Price of
such Securities. If the Company elects to purchase Securities
with cash, notice as provided in Section 3.8(e) shall be sent to
Holders (and to beneficial owners if required by applicable law,
including without limitation, Rule 13e-4 ("RULE 13e-4", which
term, as used herein, includes any successor provision thereto)
under the Securities Exchange Act of 1934 (the "EXCHANGE ACT")
not less than 20 Business Days prior to the Purchase Date (the
"COMPANY NOTICE DATE").

(d) PAYMENT BY ISSUANCE OF COMMON STOCK. On each Purchase
Date, at the option of the Company, the Principal Amount of the
Securities in respect of which a Purchase Notice pursuant to
Section 3.8(a) has been given, or a specified percentage thereof,
may be purchased by the Company by the issuance of a number of
shares of Common Stock equal to the quotient obtained by dividing

<PAGE>

(i) the amount of cash to which the Securityholders would have
been entitled had the Company elected to pay all or such
specified percentage, as the case may be, of the Purchase Price
of such Securities in cash by (ii) the Market Price (as defined
below) of a share of Common Stock, subject to the next succeeding
paragraph.

The Company will not issue a fractional share of Common
Stock in payment of the Purchase Price. Instead the Company will
pay cash for the current market value of the fractional share.
The current market value of a fraction of a share shall be
determined by multiplying the Market Price by such fraction and
rounding the product to the nearest whole cent, with one-half
cent being rounded upward. It is understood that if a Holder
elects to have more than one Security purchased, the number of
shares of Common Stock shall be based on the aggregate amount of
Securities to be purchased.

If the Company elects to purchase the Securities by the
issuance of shares of Common Stock, notice as provided in Section
3.8(e) shall be sent to the Holders (and to beneficial owners if
required by applicable law, including without limitation, Rule
13e-4) not later than the Company Notice Date.

The Company's right to exercise its election to purchase the
Securities pursuant to Section 3.8 through the issuance of shares
of Common Stock shall be conditioned upon:

(i) the Company's not having given notice of an
election to pay entirely in cash and its giving of timely
notice of election to purchase all or a specified percentage
of the Securities with Common Stock as provided herein;

(ii) the registration of the shares of Common Stock to
be issued in respect of the payment of the Purchase Price
under the Securities Act of 1933 (the "SECURITIES ACT") and
the Exchange Act, in each case if required;

(iii) any necessary qualification or registration
under applicable state securities laws or the availability
of an exemption from such qualification and registration and
compliance with other applicable federal securities laws;
and

(iv) the receipt by the Trustee of an Officers'
Certificate and an Opinion of Counsel each stating that (A)
the terms of the issuance of the Common Stock are in
conformity with this Indenture and (B) the shares of Common
Stock to be issued by the Company in payment of the Purchase
Price in respect of Securities have been duly authorized
and, when issued and delivered pursuant to the terms of this

<PAGE>

Indenture in payment of the Purchase Price in respect of the
Securities, will be validly issued, fully paid and
nonassessable and shall be free of any preemptive rights and
any lien or adverse claim (provided that such Opinion of
Counsel may state that, insofar as it relates to the absence
of such preemptive rights, liens and adverse claims, it is
given upon the best knowledge of such counsel), and, in the
case of such Officers' Certificate, that conditions (i),
(ii) and (iii) above have been satisfied and, in the case of
such Opinion of Counsel, that conditions (ii) and (iii) (but
only with respect to compliance with applicable federal
securities laws) above have been satisfied.

Such Officers' Certificate shall also set forth the number of
shares of Common Stock to be issued for each $1,000 Principal
Amount of Securities and the Sale Price (as defined below) of a
share of Common Stock on each of the seven Business Days prior to
the Purchase Date. The Company may elect to pay in Common Stock
only if the information necessary to calculate the Market Price
is reported in THE WALL STREET JOURNAL or another daily newspaper
of national circulation. If such conditions are not satisfied
prior to or on the Purchase Date and the Company elected to
purchase the Securities pursuant to this Section 3.8 through the
issuance of shares of Common Stock, the Company shall pay the
Purchase Price in cash.

The "MARKET PRICE" means the average of the Sale Price of
the Common Stock for the five Trading Day period ending on the
third Trading Day prior to the related Purchase Date,
appropriately adjusted to take into account the actual
occurrence, during the seven Trading Days preceding such Purchase
Date, of any event described in Section 11.6, 11.7 or 11.8;
subject, however, to the conditions set forth in Sections 11.9
and 11.10.

The "SALE PRICE" of the Common Stock on any date means the
closing per share sale price (or if no closing sale price is
reported, the average of the bid and ask prices or, if more than
one in either case the average of the average bid and the average
ask prices) on such date as reported in composite transactions
for the principal United States securities exchange on which the
Common Stock is traded or, if the Common Stock is not listed on a
United States national or regional stock exchange, as reported by
the National Association of Securities Dealers Automated
Quotation System.

(e) NOTICE OF ELECTION. The Company shall send notices of
its election to purchase with cash or Common Stock or any
combination thereof to the Holders (and to beneficial owners if
required by applicable law, including without limitation, Rule
13e-4) in the manner provided in Section 12.2 at the times

<PAGE>

specified in Section 3.8(c) or (d), as applicable. Such notices
shall state the manner of payment elected and shall contain the
following information:

In the event the Company has elected to pay the Purchase
Price (or any specified percentage thereof) with Common Stock,
the notice shall:

(1) state that each Holder will receive Common Stock
with a Market Price determined as of a specified date prior
to the Purchase Date equal to such specified percentage of
the Purchase Price of the Securities held by such Holder
(except for any cash amount to be paid in lieu of fractional
shares); and

(2) state that because the Market Price of Common
Stock will be determined prior to the Purchase Date, Holders
will bear the market risk with respect to the value of the
Common Stock to be received from the date such Market Price
is determined to the Purchase Date.

In any case, each notice shall include a form of Purchase
Notice to be completed by the Securityholder and shall state:

(i) the Purchase Price and Conversion Rate;

(ii) the name and address of the Paying Agent and the
Conversion Agent and of the office or agency referred to in
Section 4.5;

(iii) that Securities as to which a Purchase Notice
has been given may be converted only if the applicable
Purchase Notice has been withdrawn in accordance with the
terms of this Indenture;

(iv) that Securities must be surrendered to the Paying
Agent or to the office or agency referred to in Section 4.5
to collect payment;

(v) that the Purchase Price for any security as to
which a Purchase Notice has been given and not withdrawn
will be paid promptly following the later of the Purchase
Date and the time of surrender of such Security as described
in (iv);

(vi) the procedures the Holder must follow to exercise
rights under Section 3.8 and a brief description of those
rights;

(vii) briefly, the conversion rights of the
Securities; and

<PAGE>

(viii) the procedures for withdrawing a Purchase
Notice.

At the Company's written request, the Trustee shall give
such notice in the Company's name and at the Company's expense;
PROVIDED, HOWEVER, that, in all cases, the text of such notice
shall be prepared by the Company.

Upon determination of the actual number of shares of Common
Stock to be issued for each $1,000 Principal Amount of
Securities, the Company will publish such determination in THE
WALL STREET JOURNAL or another daily newspaper of national
circulation and furnish the Trustee with an affidavit of
publication.

(f) COVENANTS OF THE COMPANY. All shares of Common Stock
delivered upon purchase of the Securities shall be newly issued
shares or treasury shares, shall be duly authorized, validly
issued, fully paid and nonassessable and shall be free from
preemptive rights and free of any lien or adverse claim.

The Company shall use its best efforts to list or cause to
have quoted any shares of Common Stock to be issued to purchase
Securities on each national securities exchange or over-the-
counter or other domestic market on which any other shares of the
Common Stock are then listed or quoted. The Company will
promptly inform the Trustee in writing of any such listing.

(g) PROCEDURE UPON PURCHASE. The Company shall deposit
cash (in respect of a cash purchase under Section 3.8(c) or for
fractional interests, as applicable) or shares of Common Stock,
or any combination thereof, as applicable, at the time and in the
manner as provided in Section 3.11, sufficient to pay the
aggregate Purchase Price of all Securities to be purchased
pursuant to this Section 3.8. As soon as practicable after the
later of the Purchase Date and the date such Securities are
surrendered to the Paying Agent or at the office or agency
referred to in Section 4.5, the Company shall deliver to each
Holder entitled to receive Common Stock through the Paying Agent
a certificate for the number of full shares of Common Stock
issuable in payment of the Purchase Price and cash in lieu of any
fractional interests. The person in whose name the certificate
for Common Stock is registered shall be treated as a holder of
record of such Common Stock on the Business Day following the
related Purchase Date. Subject to Section 3.8(d), no payment or
adjustment will be made for dividends on the Common Stock the
record date for which occurred prior to the Purchase Date.

(h) TAXES. If a Holder of a Security is paid in Common
Stock, the Company shall pay any documentary, stamp or similar
issue or transfer tax due on such issue of shares of Common

<PAGE>

Stock. However, the Holder shall pay any such tax which is due
because the Holder requests the shares of Common Stock to be
issued in a name other than the Holder's name. The Paying Agent
may refuse to deliver the certificates representing the Common
Stock being issued in a name other than the Holder's name until
the Paying Agent receives a sum sufficient to pay any tax which
will be due because the shares of Common Stock are to be issued
in a name other than the Holder's name. Nothing herein shall
preclude any income tax withholding required by law or
regulations.

SECTION 3.9. PURCHASE OF SECURITIES AT OPTION OF THE
HOLDER UPON CHANGE IN CONTROL. (a) If on or prior to June __,
1999 there shall have occurred a Change in Control, Securities
shall be purchased, at the option of the Holder thereof, by the
Company at the purchase price specified in paragraph 6 of the
Securities (the "CHANGE IN CONTROL PURCHASE PRICE"), on the date
that is 35 Business Days after the occurrence of the Change of
Control (the "CHANGE IN CONTROL PURCHASE DATE"), subject to
satisfaction by or on behalf of the Holder of the requirements
set forth in Section 3.9(c).

A "CHANGE IN CONTROL" shall be deemed to have occurred at
such time as either of the following events shall occur:

(i) There shall be consummated any consolidation or
merger of the Company (A) in which the Company is not the
continuing or surviving corporation or (B) pursuant to which
the Voting Stock (as defined below) of the Company would be
converted into cash, securities or other property, in each
case other than a consolidation or merger of the Company in
which the holders of Voting Stock of the Company immediately
prior to the consolidation or merger have, directly or
indirectly, at least a majority of the Voting Stock of the
surviving corporation immediately after such consolidation
or merger; or

(ii) There is a report filed by any person, including
that person's Affiliates and Associates, on Schedule 13D or
14D-1 (or any successor schedule, form or report) pursuant
to the Exchange Act, disclosing that such person (for the
purposes of this Section 3.9 only, the term "person" shall
include a "person" within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing) has become the
beneficial owner (as the term "BENEFICIAL OWNER" is defined
under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of 50% or more of the
voting power of the Company's Voting Stock then outstanding;
PROVIDED, HOWEVER, that a person shall not be deemed

<PAGE>

beneficial owner of, or to own beneficially, (A) any
securities tendered pursuant to a tender or exchange offer
made by or on behalf of such person or any of such person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange thereunder, or (B) any
securities if such beneficial ownership (1) arises solely as
a result of a revocable proxy delivered in response to a
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations under
the Exchange Act, and (2) is not also then reportable on
Schedule 13D (or any successor schedule, form or report)
under the Exchange Act.

Notwithstanding the foregoing provisions of this Section 3.9, a
Change in Control shall not be deemed to have occurred if at any
time the Company, any Subsidiary, any employee stock ownership
plan or any other employee benefit plan of the Company or any
Subsidiary, or any person holding Voting Stock for or pursuant to
the terms of any such employee benefit plan, files or becomes
obligated to file a report under or in response to Schedule 13D
or Schedule 14D-1 (or any successor schedule, form or report)
under the Exchange Act disclosing beneficial ownership by it of
shares of Voting Stock, whether in excess of 50% or otherwise.

"VOTING STOCK" means, with respect to any person, the
capital stock of such person having general voting power under
ordinary circumstances to elect at least a majority of the board
of directors, managers or trustees of such person (irrespective
of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the
happening of any contingency).

"ASSOCIATE" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the
Exchange Act, as in effect on the date hereof.

(b) Within 15 Business Days after the occurrence of a
Change in Control, the Company shall mail a written notice of
such Change in Control by first-class mail to the Trustee and to
each Holder (and to beneficial owners if required by applicable
law, including without limitation, Rule 13e-4) and shall cause a
copy of such notice to be published in THE WALL STREET JOURNAL or
another daily newspaper of national circulation. The notice
shall include a form of Change in Control Purchase Notice to be
completed by the Securityholder and shall state:

(1) the events causing a Change in Control and the
date of such Change in Control;

(2) the date by which the Change in Control Purchase
Notice pursuant to this Section 3.9 must be given;

<PAGE>

(3) the Change in Control Purchase Date;

(4) the Change in Control Purchase Price;

(5) the name and address of the Paying Agent and the
Conversion Agent and the office or agency referred to in
Section 4.5;

(6) the Conversion Rate and any adjustments thereto;

(7) that Securities as to which a Change in Control
Purchase Notice has been given may be converted into Common
Stock only if the Change in Control Purchase Notice has been
withdrawn in accordance with the terms of this Indenture;

(8) that Securities must be surrendered to the Paying
Agent or the office or agency referred to in Section 4.5 to
collect payment;

(9) that the Purchase Price for any Security as to
which a Purchase Notice has been duly given and not
withdrawn will be paid promptly following the later of the
Change in Control Purchase Date and the time of surrender of
such Security as described in (8);

(10) the procedures the Holder must follow to exercise
rights under this Section 3.9 and a brief description of
those rights;

(11) briefly, the conversion rights of the Securities;
and

(12) the procedures for withdrawing a Change in
Control Purchase Notice.

(c) A Holder may exercise its rights specified in Section
3.9(a) upon delivery of a written notice of purchase (a "CHANGE
IN CONTROL PURCHASE NOTICE") to the Paying Agent or to the office
or agency referred to in Section 4.5 at any time prior to the
close of business on the Change in Control Purchase Date,
stating:

(1) the certificate number of the Security which the
Holder will deliver to be purchased;

(2) the portion of the Principal Amount of the
Security which the Holder will deliver to be purchased,
which portion must be $1,000 or an integral multiple
thereof; and

<PAGE>

(3) that such Security shall be purchased on the
Change in Control Purchase Date pursuant to the terms and
conditions specified in paragraph 6 of the Securities.

The delivery of the Security, by hand or by registered mail
prior to, on or after the Change in Control Purchase Date
(together with all necessary endorsements), to the Paying Agent
at the offices of the Paying Agent or to the office or agency
referred to in Section 4.5 shall be a condition to the receipt by
the Holder of the Change in Control Purchase Price therefor;
PROVIDED, HOWEVER, that such Change in Control Purchase Price
shall be so paid pursuant to this Section 3.9 only if the
Security so delivered to the Paying Agent or such office or
agency shall conform in all respects to the description thereof
set forth in the related Change in Control Purchase Notice.

The Company shall purchase from the Holder thereof, pursuant
to this Section 3.9, a portion of a Security if the Principal
Amount of such portion is $1,000 or an integral multiple of
$1,000. Provisions of this Indenture that apply to the purchase
of all of a Security also apply to the purchase of such portion
of such Security.

Any purchase by the Company contemplated pursuant to the
provisions of this Section 3.9 shall be consummated by the
delivery of the consideration to be received by the Holder
promptly following the later of the Change in Control Purchase
Date and the date such Securities are surrendered to the Paying
Agent or at the office or agency referred to in Section 4.5.

Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent or to the office or agency
referred to in Section 4.5 the Change in Control Purchase Notice
contemplated by this Section 3.9(c) shall have the right to
withdraw such Change in Control Purchase Notice at any time prior
to or on the Change in Control Purchase Date by delivery of a
written notice of withdrawal to the Paying Agent or to such
office or agency in accordance with Section 3.10.

The Paying Agent shall promptly notify the Company of the
receipt by it of any Change in Control Purchase Notice or written
withdrawal thereof.

SECTION 3.10. EFFECT OF PURCHASE NOTICE OR CHANGE IN
CONTROL PURCHASE NOTICE. Upon receipt by the Paying Agent of the
Purchase Notice or Change in Control Purchase Notice specified in
Section 3.8(a) or Section 3.9(c), as applicable, the Holder of
the Security in respect of which such Purchase Notice or Change
in Control Purchase Notice, as the case may be, was given shall
(unless such Purchase Notice or Change in Control Purchase Notice
is withdrawn as specified in the following two paragraphs)

<PAGE>

thereafter be entitled to receive solely the Purchase Price or
Change in Control Purchase Price, as the case may be, with
respect to such Security. Such Purchase Price or Change in
Control Purchase Price shall be paid to such Holder promptly
following the later of (x) the Business Day following the
Purchase Date or the Change in Control Purchase Date, as the case
may be, with respect to such Security (provided the conditions in
Section 3.8(a) or Section 3.9(c), as applicable, have been
satisfied) and (y) the time of delivery of such Security to the
Paying Agent or to the office or agency referred to in Section
4.5 by the Holder thereof in the manner required by Section
3.8(a) and (g) or Section 3.9(c), as applicable. Securities in
respect of which a Purchase Notice or Change in Control Purchase
Notice, as the case may be, has been given by the Holder thereof
may not be converted into shares of Common Stock on or after the
date of the delivery of such Purchase Notice or Change in Control
Purchase Notice, as the case may be, unless such Purchase Notice
or Change in Control Purchase Notice, as the case may be, has
first been validly withdrawn as specified in the following two
paragraphs.

A Purchase Notice or Change in Control Purchase Notice, as
the case may be, may be withdrawn by means of a written notice of
withdrawal delivered to the office of the Paying Agent or to the
office or agency referred to in Section 4.5 at any time on or
prior to the Purchase Date or the Change in Control Purchase
Date, as the case may be, specifying:

(1) the certificate number of the Security in respect
of which such notice of withdrawal is being submitted;

(2) the Principal Amount of the Security with respect
to which such notice of withdrawal is being submitted; and

(3) the Principal Amount, if any, of such Security
which remains subject to the original Purchase Notice or
Change in Control Purchase Notice, as the case may be, and
which has been or will be delivered for purchase by the
Company.

A written notice of withdrawal of a Purchase Notice may be
in the form set forth in the preceding paragraph or may be in the
form of (i) a conditional withdrawal contained in a Purchase
Notice pursuant to the terms of Section 3.8(a)(1)(D) or (ii) a
conditional withdrawal containing the information set forth in
Section 3.8(a)(1)(D) and the preceding paragraph and contained in
a written notice of withdrawal delivered to the Paying Agent as
set forth in the preceding paragraph.

There shall be no purchase of any Securities pursuant to
Sections 3.8 (other than through the issuance of Common Stock) or

<PAGE>

3.9 if there has occurred (prior to, on or after, as the case may
be, the giving, by the Holders of such Securities, of the
required Purchase Notice or Change in Control Purchase Notice, as
the case may be) and is continuing an Event of Default (other
than a default in the payment of the Purchase Price or Change in
Control Purchase Price, as the case may be, with respect to such
Securities).

SECTION 3.11. DEPOSIT OF PURCHASE PRICE OR CHANGE IN
CONTROL PURCHASE PRICE. Prior to 3:00 p.m. (local time in The
City of New York) on the Business Day following the Purchase Date
or the Change in Control Purchase Date, as the case may be, the
Company shall deposit with the Trustee or with the Paying Agent
(or, if the Company or a Subsidiary or an Affiliate of either of
them is acting as Paying Agent, shall segregate and hold in trust
as provided in Section 2.4) an amount of cash in immediately
available funds or securities, if expressly permitted hereunder,
sufficient to pay the aggregate Purchase Price or Change in
Control Purchase Price, as the case may be, of all the Securities
or portions thereof which are to be purchased.

SECTION 3.12. SECURITIES PURCHASED IN PART. Any Security
which is to be purchased only in part shall be surrendered at the
office of the Paying Agent or the office or agency referred to in
Section 4.5 (with, if the Company or the Trustee so requires, due
endorsement, or a written instrument of transfer in form
satisfactory to the Company and the Trustee executed by the
Holder or such 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 portion of the Principal Amount of the
Security so surrendered which is not purchased.

SECTION 3.13. COVENANT TO COMPLY WITH SECURITIES LAWS UPON
PURCHASE OF SECURITIES. In connection with any offer to purchase
or purchase of Securities under Section 3.8 or 3.9 hereof, the
Company shall (i) comply with Rule 13e-4, if applicable, (ii)
file the related Schedule 13E-4 (or any successor schedule, form
or report) under the Exchange Act, if applicable, and (iii)
otherwise comply with all Federal and state securities laws
regulating the offer and delivery of shares of Common Stock upon
purchase of the Securities (including positions of the SEC under
applicable no-action letters) so as to permit the rights and
obligations under Sections 3.8 and 3.9 to be exercised in the
time and in the manner specified in Sections 3.8 and 3.9.

SECTION 3.14. REPAYMENT TO THE COMPANY. The Trustee and
the Paying Agent shall return to the Company any cash or shares
of Common Stock, together with interest on such cash, if any, or

<PAGE>

dividends on such shares of Common Stock, if any, (subject to the
provisions of Section 7.1(f)) held by them for the payment of a
Purchase Price or Change in Control Purchase Price, as the case
may be, of the Securities that remain unclaimed as provided in
paragraph 13 of the Securities; PROVIDED, HOWEVER, that to the
extent that the aggregate amount of cash or shares of Common
Stock deposited by the Company pursuant to Section 3.11 exceeds
the aggregate Purchase Price or Change in Control Purchase Price,
as the case may be, of the Securities or portions thereof to be
purchased, then promptly after the Business Day following the
Purchase Date or Change in Control Purchase Date, as the case may
be, the Trustee shall return any such excess to the Company
together with interest or dividends, if any, thereon (subject to
the provision of Section 7.1(f)).

ARTICLE 4

COVENANTS

SECTION 4.1. PAYMENT OF SECURITIES. The Company shall
promptly make all payments in respect of the Securities on the
dates and in the manner provided in the Securities or pursuant to
this Indenture. Principal Amount, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price, Change in
Control Purchase Price and interest, if any, shall be considered
paid on the applicable date due if on such date the Trustee or
the Paying Agent holds, in accordance with this Indenture, cash
or securities, if expressly permitted hereunder, sufficient to
pay all such amounts then due.

The Company shall, to the extent permitted by law, pay
interest on overdue amounts at the per annum rate of interest set
forth in paragraph 1 of the Securities, which interest on overdue
amounts shall accrue from the date such amounts were originally
due and payable.

SECTION 4.2. SEC REPORTS. The Company shall file with the
Trustee, within 15 days after it files such annual and quarterly
reports, information, documents and other reports with the SEC,
copies of its annual and quarterly 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 (or
any such successor provisions thereto). In the event the Company
is at any time no longer subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act (or any such successor
provisions), it shall continue to provide the Trustee with
reports containing substantially the same information as would
have been required to be filed with the SEC had the Company

<PAGE>

continued to have been subject to such reporting requirements,
and the Trustee shall make any such reports available to
Securityholders upon request. In such event, such reports shall
be provided at the times the Company would have been required to
provide reports had it continued to have been subject to such
reporting requirements. The Company also shall comply with the
other provisions of TIA Section 314(a).

SECTION 4.3. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULTS.
(a) The Company shall deliver to the Trustee within 120 days
after the end of each fiscal year of the Company (beginning with
the fiscal year ending on December 3l, 1994) an Officers'
Certificate stating whether or not the signers know of any
Default that occurred during such period. If they do, such
Officers' Certificate shall describe the Default and its status.

(b) The Company shall file with the Trustee written notice
of the occurrence of any Default or Event of Default within five
Business Days of its becoming aware of such Default or Event of
Default.

SECTION 4.4. FURTHER INSTRUMENTS AND ACTS. Upon request
of the Trustee, the Company will execute and deliver such further
instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purposes of
this Indenture.

SECTION 4.5. MAINTENANCE OF OFFICE OR AGENCY. The Company
will maintain in the Borough of Manhattan, The City of New York,
in such location as may be required by the rules of any
securities exchange or quotation system on which the Securities
may from time to time be listed, an office or agency where
Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer,
exchange, purchase, redemption or conversion and where notices
and demands to or upon the Company in respect of the Securities
and this Indenture may be served. The corporate trust office of
the Trustee in The City of New York, at which at any particular
time its corporate trust business shall be administered, which
office on the date hereof is located at One New York Plaza, 14th
Floor, New York, N.Y. 10081, shall be such office or agency for
all of the aforesaid purposes unless the Company shall maintain
some other office or agency for such purposes and shall give prompt
written notice to the Trustee and the Holders of the location, and
any change of location, of such other office or agency. If at any
time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be
made or served at the address of the Trustee set forth in Section
12.2.

<PAGE>

The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in The
City of New York, for such purposes.

ARTICLE 5

SUCCESSOR CORPORATION

SECTION 5.1 WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. The Company,
in a single transaction or through a series of related transactions, shall not
consolidate with or merge with or into any other person or transfer (by
lease, assignment, sale or otherwise) all or substantially all of its
properties and assets to another person or group of affiliated persons,
unless:

(a) either (1) the Company shall be the continuing corporation or
(2) the person (if other than the Company) formed by such consolidation
or into which the Company is merged or to which all or substantially all
of the properties and assets of the Company are transferred (i) shall be
a corporation, partnership or trust organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia and (ii) shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all of the obligations of the Company under the Securities
and this Indenture;

(b) immediately after giving effect to such transaction, and the
assumption contemplated by clause (a) above, no Default or Event of
Default shall have occurred 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 or transfer 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 satisfied.

For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise) of the properties and assets of one or more Subsidiaries (other
than to the Company or another wholly owned Subsidiary), which, if such
assets were owned by the Company, would constitute all or substantially all
of the

<PAGE>

properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.

The successor person formed by such consolidation or into which the
Company is merged or the successor person 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 had been named as the Company herein; and
thereafter, except in the case of (i) a lease of its properties and assets
substantially as an entirety and (ii) obligations the Company may have under
a supplemental indenture pursuant to Section 11.14, the Company shall be
discharged and released from all obligations and covenants under this
Indenture and the Securities. The Trustee shall enter into a supplemental
indenture to evidence the succession and substitution of such successor
person and such discharge and release of the Company.

ARTICLE 6

DEFAULTS AND REMEDIES

SECTION 6.1. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" occurs if:

(1) the Company defaults in the payment of the Principal Amount,
Issue Price, accrued Original Issue Discount, Redemption Price, Purchase
Price or Change in Control Purchase Price on any Security when the same
becomes due and payable at its Stated Maturity, upon redemption, upon
declaration, when due for purchase by the Company or otherwise, whether
or not such payment shall be prohibited by Article 10;

(2) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause (1)
above) and such failure continues for 60 days after receipt by the
Company of a Notice of Default;

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

(A) commences a voluntary case or proceeding;

(B) consents to the entry of an order for relief against it
in an involuntary case or proceeding or the commencement of any
case against it;

<PAGE>

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

(E) files a petition in bankruptcy or answer or consent
seeking reorganization or relief; or

(F) consents to the filing of such petition or the
appointment of or taking possession by a Custodian;

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

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

(B) appoints a Custodian of the Company or for any
substantial part of its property; or

and the order or decree remains unstayed and in effect for 60 days;

(5) the Company fails to deliver shares of Common Stock or pay
cash in lieu thereof when such Common Stock or cash is required to be
paid, as the case may be, following conversion of a Security; or

(6) a default under any mortgage, indenture, or instrument under
which there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by the Company or any Consolidated
Subsidiary, whether such indebtedness now exists or shall hereafter be
created, which default shall have resulted in such indebtedness, in an
aggregate principal amount exceeding $25,000,000, becoming or being
declared due and payable prior to the date on which it would otherwise
have become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled, or
there having been deposited in trust a sum of money sufficient to
discharge in full such indebtedness, within a period of 30 days after
there shall have been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25% in principal amount of the Securities, a written notice
specifying such default and requiring the

<PAGE>

Company to cause such indebtedness to be discharged, to cause there to
be deposited in trust a sum sufficient to discharge in full such
indebtedness or to cause such acceleration to be rescinded or annulled
and stating that such notice is a "Notice of Default" hereunder.

"BANKRUPTCY LAW" means Title 11, United States Code, or any similar
Federal or state law for the relief of debtors.

"CUSTODIAN" means any receiver, trustee, assignee, liquidator, custodian
or similar official under any Bankruptcy Law.

A Default under clause (2) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
Principal Amount of the Securities at the time outstanding notify the Company
and the Trustee, of the Default and the Company does not cure such Default
within the time specified in clause (2) above after receipt of such notice.
Any such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default."

The Company shall deliver to the Trustee, within 30 days after it
becomes aware of the occurrence thereof, written notice of any event which
with the giving of notice and the lapse of time or both would become an Event
of Default under clause (2), its status and what action the Company is taking
or proposes to take with respect thereto.

SECTION 6.2. ACCELERATION. If an Event of Default (other than an
Event of Default specified in Section 6.1(3)or (4)) occurs and is continuing,
the Trustee by notice to the Company, or the Holders of at least 25% in
aggregate Principal Amount of the Securities at the time outstanding by
notice to the Company and the Trustee, may declare the Issue Price and
accrued Original Issue Discount to the date of declaration on all the
Securities to be immediately due and payable, whereupon, such Issue Price and
accrued Original Issue Discount shall be due and payable immediately,
provided that, if an Event of Default specified in Section 6.1(3) or (4)
occurs and is continuing, the Issue Price and accrued Original Issue Discount
on all the Securities to the date of the occurrence of such Event of Default
shall become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Securityholders, all of which are
hereby waived by the Company. The Holders of a majority in aggregate
Principal Amount of the Securities at the time outstanding, by notice to the
Trustee (and without notice to any other Securityholder) may rescind an
acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured
or waived except nonpayment of the Issue Price and

<PAGE>

accrued Original Issue Discount that have become due solely as a result of
acceleration and if all amounts due to the Trustee under Section 7.7 have
been paid. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.

SECTION 6.3. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the
payment of the Issue Price and accrued Original Issue Discount on the
Securities or to enforce the performance of any provision of the Securities
or this Indenture.

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

SECTION 6.4. WAIVER OF PAST DEFAULTS. The Holders of a majority in
aggregate Principal Amount of the Securities at the time outstanding, by
notice to the Trustee (and without notice to any other Securityholder), may
waive an existing Default and its consequences except (a) an Event of Default
described in Section 6.1(1) or (5), (b) a Default in respect of a provision
that under Section 9.2 cannot be amended without the consent of each
Securityholder affected or (c) a Default under Article 11. When a Default is
waived, it is deemed cured and shall cease to exist, but no such waiver shall
extend to any subsequent or other Default or impair any consequent right,

SECTION 6.5. CONTROL BY MAJORITY. The Holders of a majority in
aggregate Principal Amount of the Securities at the time outstanding may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture or that the Trustee determines in good
faith is unduly prejudicial to the rights of other Securityholders or would
involve the Trustee in personal liability unless the Trustee shall have been
provided with reasonable security or indemnity against such liability
satisfactory to the Trustee.

SECTION 6.6. LIMITATION ON SUITS. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:

<PAGE>

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

(2) the Holders of at least 25% in aggregate Principal Amount of
the Securities at the time outstanding make a written request to the
Trustee to pursue the remedy;

(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense
satisfactory to the Trustee;

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

(5) the Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.

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

SECTION 6.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment
of the Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or
interest, if any, in respect of the Securities held by such Holder, on or
after the respective due dates expressed in the Securities or any Redemption
Date, and to convert the Securities in accordance with Article 11 (including
the right to receive cash in lieu of Common Stock upon conversion if the
Company has elected to pay cash with respect thereto), or to bring suit for
the enforcement of any such payment on or after such respective dates or the
right to convert, shall not be impaired or affected adversely without the
consent of each such Holder.

SECTION 6.8. COLLECTION SUIT BY TRUSTEE. If an Event of Default
described in Section 6.1(1) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the
Company for the whole amount owing with respect to the Securities and the
amounts provided for in Section 7.7.

SECTION 6.9. 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 any other obligor upon the Securities
or the property of the Company or of

<PAGE>

such other obligor or their creditors, the Trustee (irrespective of whether
the Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or
interest, if any, in respect 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 any such amount) shall be entitled and empowered, by intervention in such
proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the
Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or
interest, if any, 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 allowed in such judicial proceeding; and

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

and any Custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 7.7.

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

SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant
to this Article 6, it shall pay out the money in the following order:

FIRST: to the Trustee for amounts due under Section 7.7;

SECOND: to holders of Senior Indebtedness to the extent required
by Article 10;

<PAGE>

THIRD: to Securityholders for amounts due and unpaid on the
Securities for the Principal Amount, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price, Change in Control Purchase Price
or interest, if any, as the case may be, ratably, without preference or
priority of any kind, according to such amounts due and payable on the
Securities; and

FOURTH: the balance, if any, to the Company.

The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section 6.10. At least 15 days before such
record date, the Company shall mail to each Securityholder and the Trustee a
notice that states the record date, the payment date and amount to be paid.

SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the
Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant (other than the
Trustee) in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit initiated by the
Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of
more than 10% in aggregate Principal Amount of the Securities at the time
outstanding.

SECTION 6.12. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company
covenants (to the extent it may lawfully do so) that it shall not at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury or other law,
wherever enacted, now or at any time hereafter in force, that would prohibit
or forgive the Company from paying all or any portion of the Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price or Change in Control Purchase Price in respect of the
Securities, or any interest on any such amounts, as contemplated herein, or
that may affect the covenants or the performance of this Indenture or the
Securities; 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.

<PAGE>

ARTICLE 7

TRUSTEE

SECTION 7.1. DUTIES OF TRUSTEE. (a) If an Event of
Default has occurred and is continuing, the Trustee shall
exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a
prudent man would exercise or use under the circumstances in the
conduct of his own affairs.

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

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

(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this
Indenture. However, in the case of any such certificate or
opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall
examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.

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

(1) this paragraph (c) does not limit the effect of
paragraph (b) of this Section 7.1;

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

(3) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to
Section 6.5.

(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c) and
(e) of this Section 7.1.

(e) The Trustee may refuse to perform any duty or exercise
any right or power hereunder or extend or risk its own funds or

<PAGE>

otherwise incur any financial liability unless it receives
indemnity satisfactory to it against any loss, liability or
expense.

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

SECTION 7.2. RIGHTS OF TRUSTEE. (a) The Trustee may rely
on any document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.

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

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

(d) Subject to the provisions of Section 7.1(c), the
Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within
its rights or powers.

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

(f) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, 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.

<PAGE>

SECTION 7.3. 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
its Affiliates with the same rights it would have if it were not
Trustee. Any Paying Agent, Registrar, Conversion Agent or co-
registrar may do the same with like rights. However, the Trustee
must comply with Sections 7.10 and 7.11.

SECTION 7.4. TRUSTEE'S DISCLAIMER. The Trustee makes no
representation as to the validity or adequacy of this Indenture
or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, it shall not be
responsible for any statement in the registration statement for
the Securities under the Securities Act or in the Indenture or
the Securities (other than its certificate of authentication), or
the determination as to which beneficial owners are entitled to
receive any notices hereunder.

SECTION 7.5. NOTICE OF DEFAULTS. If a Default occurs and
is continuing and if it is known to the Trustee, the Trustee
shall give to each Securityholder notice of the Default within 90
days after it occurs. Except in the case of a Default described
in Section 6.1(1), the Trustee may withhold the notice if and so
long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of
Securityholders.

SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS. Within 60
days after each June 15 beginning with the June 15 following the
date of this Indenture, the Trustee shall mail to each
Securityholder a brief report dated as of such June 15 that
complies with TIA Section 313(a). The Trustee also shall comply
with TIA Section 313(b).

A copy of each report at the time of its mailing to
Securityholders shall be provided to the Company and shall be
filed with the SEC and each stock exchange on which the
Securities are listed. The Company agrees promptly to notify the
Trustee whenever the Securities become listed on any stock
exchange and of any delisting thereof.

SECTION 7.7. COMPENSATION AND INDEMNITY. The Company
agrees:

(a) to pay to the Trustee from time to time such
compensation as shall have been agreed to in writing between
the Company and the Trustee for all services rendered by it
hereunder (which compensation shall not (to the extent
permitted by law) be limited by any provision of law in
regard to the compensation of a trustee of an express
trust);

<PAGE>

(b) to reimburse the Trustee upon its request and, if
required by the Company, submission of reasonable
documentation for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable
compensation and the expenses, advances and disbursements of
its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its
negligence or bad faith; and

(c) to indemnify each of the Trustee or any
predecessor Trustee for, and to hold it harmless against,
any and all loss, liability, damage, claim or expense,
including taxes (other than taxes based upon, measured or
determined by the income of the Trustee), incurred without
negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this
trust, including the reasonable costs and expenses of
defending itself against any claim or liability in
connection with the exercise or performance of any of its
powers or duties hereunder.

The Trustee shall give the Company prompt notice of any
claim or liability for which the Trustee might be entitled to
indemnification under subparagraph (c) of this Section 7.7. To
secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Securities on all money or
property held or collected by the Trustee.

The Company's payment obligations pursuant to this Section
7.7 shall survive the discharge of this Indenture. When the
Trustee incurs expenses after the occurrence of a Default
specified in Section 6.1(3) or (4), the expenses are intended to
constitute expenses of administration under the Bankruptcy Law.
The provisions of this Section shall survive the termination of
this Indenture.

SECTION 7.8. REPLACEMENT OF TRUSTEE. The Trustee may
resign by so notifying the Company; PROVIDED, HOWEVER, no such
resignation shall be effective until a successor Trustee has
accepted its appointment pursuant to this Section 7.8. The
Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding may remove the Trustee by so
notifying the Trustee and may appoint a successor Trustee
(subject to the consent of the Company, such consent not to be
unreasonably withheld). The Company shall remove the Trustee if:

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

(2) the Trustee is adjudged bankrupt or insolvent;

<PAGE>

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

(4) the Trustee otherwise becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall
promptly appoint, by resolution of its Board of Directors, 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 me effective, and the successor Trustee shall have all
the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided for in Section
7.7.

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

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

SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER. Except as
otherwise provided in Section 7.8(4), if the Trustee consolidates
with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another
corporation, the resulting, surviving or transferee corporation
without any further act shall be the successor Trustee.

SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee
shall at all times satisfy the requirements of TIA Section
310(a)(1). The Trustee shall have a combined capital and surplus
of at least $100,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply
with TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9). In
determining whether the Trustee has conflicting interests as
defined in TIA Section 310(b)(1), the provisions contained in the
proviso to TIA Section 310(b)(1) shall be deemed incorporated
herein.

<PAGE>

SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY. The Trustee shall comply with TIA Section 311(a),
excluding any creditor relationship listed in TIA Section 311(b).
A Trustee who has resigned or been removed shall be subject to
TIA Section 311(a) to the extent indicated therein.

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.1. DISCHARGE OF LIABILITY ON SECURITIES. When
(i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section
2.7) for cancellation or (ii) all outstanding Securities have
become due and payable and the Company deposits with the Trustee
cash or, if expressly permitted by the terms hereof, securities
sufficient to pay at Stated Maturity the Principal Amount of all
outstanding Securities (other than Securities replaced pursuant
to Section 2.7), and if in either case the Company pays all other
sums payable hereunder by the Company (including, without
limitation, sums payable by delivery of shares of Common Stock
pursuant to Section 3.8), then this Indenture shall, subject to
Section 7.7, cease to be of further effect. The Trustee shall
join in the execution of a document prepared by the Company
acknowledging satisfaction and discharge of this Indenture on
demand of the Company accompanied by an Officers' Certificate and
Opinion of Counsel and at the cost and expense of the Company.

SECTION 8.2. REPAYMENT TO THE COMPANY. The Trustee and
the Paying Agent shall return to the Company upon written request
any money or securities held by them for the payment of any
amount with respect to the Securities that remains unclaimed for
two years; PROVIDED, HOWEVER, that the Trustee or such Paying
Agent, before being required to make any such return, may, at the
expense of the Company, cause to be published once in THE WALL
STREET JOURNAL or another daily newspaper of national circulation
or mail to each such Holder notice that such money or securities
remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such mailing, any
unclaimed money or securities then remaining will be returned to
the Company. After return to the Company, Holders entitled to
the money or securities must look to the Company for payment as
general creditors unless an applicable abandoned property law
designates another person.

<PAGE>

ARTICLE 9

AMENDMENTS

SECTION 9.1. WITHOUT CONSENT OF HOLDERS. The Company and
the Trustee may amend this Indenture or the Securities without
the consent of any Securityholder:

(1) to cure any ambiguity, omission, defect or
inconsistency; PROVIDED, HOWEVER, that such amendment does
not materially adversely affect the rights of any
Securityholder;

(2) to comply with Article 5 or Section 11.14;

(3) to provide for uncertificated Securities in
addition to certificated Securities so long as such
uncertificated Securities are in registered form for
purposes of the Internal Revenue Code of 1986, as amended;

(4) to eliminate the Company's option to pay cash in
lieu of delivering shares of Common Stock upon conversion of
Securities (other than cash in lieu of fractional shares),
except with respect to elections already made; or

(5) to make any change that does not adversely affect
the rights of any Securityholder; or

(6) to make any change to comply with the TIA, or any
amendment thereafter, or any requirement of the SEC in
connection with the qualification of this Indenture under
the TIA or any amendment thereof.

SECTION 9.2. WITH CONSENT OF HOLDERS. With the written
consent of the Holders of at least a majority in aggregate
Principal Amount of the Securities at the time outstanding, the
Company and the Trustee may amend this Indenture or the
Securities. However, without the consent of each Securityholder
affected, an amendment or supplement to this Indenture or the
Securities may not:

(1) make any change to the Principal Amount of
Securities whose Holders must consent to an amendment;

(2) make any change to the rate of accrual in
connection with Original Issue Discount, reduce the rate of
interest referred to in paragraph 1 of the Securities or
extend the time for payment of accrued Original Issue
Discount or interest, if any, on any Security;

<PAGE>

(3) reduce the Principal Amount or the Issue Price of
or extend the Stated Maturity of any Security;

(4) reduce the amount of cash payable in respect of
conversion upon the Company's election to pay cash with
respect thereto, the Redemption Price, Purchase Price or
Change in Control Purchase Price of any Security or extend
the date on which the Purchase Price or Change in Control
Purchase Price of any Security is payable;

(5) make any Security payable in money or securities
other than that stated in the Security;

(6) make any change in Article 10 that adversely
affects the rights of any Securityholder;

(7) make any change in Section 6.4 or this Section
9.2, except to increase any percentage referred to therein,
or make any change in Section 6.7;

(8) make any change that adversely affects the right
to convert any Security (including the right to receive cash
in lieu of Common Stock except as set forth in Section
9.1(4));

(9) make any change that adversely affects the right
to require the Company to purchase the Securities in
accordance with the terms thereof and this Indenture
(including the right to receive cash if the Company has
elected to pay cash upon such purchase); or

(10) make any change to the provisions of this
Indenture relating to the purchase of Securities at the
option of the Holder pursuant to Section 3.8 or 3.9 which
change would result in a violation of applicable federal or
state securities laws (including positions of the SEC under
applicable no-action letters), whether as a result of the
exercise or performance of any rights or obligations under
such provisions or otherwise.

It shall not be necessary for the consent of the Holders
under this Section 9.2 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent
approves the substance thereof.

An amendment under this Section 9.2 or Section 9.1 may not
make any change that adversely affects the rights under Article
10 of any holder of Senior Indebtedness then outstanding unless
the requisite holders of such Senior Indebtedness consent to such
change pursuant to the terms of such Senior Indebtedness.

<PAGE>

After an amendment under this Section 9.2 becomes effective,
the Company shall mail to each Holder a notice briefly describing
the amendment.

SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article shall
comply with the TIA as then in effect.

SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS, WAIVERS
AND ACTIONS. Until an amendment or waiver becomes effective,
consent to it or any other action by a Holder of a Security
hereunder is a continuing consent by the Holder and every
subsequent Holder of that Security or portion of the Security
that evidences the same obligation as the consenting Holder's
Security, even if notation of the consent, waiver or action is
not made on the Security. However, any such Holder or subsequent
Holder may revoke the consent, waiver or action as to such
Holder's Security or portion of the Security if the Trustee
receives the notice of revocation before the date the amendment,
waiver or action becomes effective. After an amendment, waiver
or action becomes effective, it shall bind every Securityholder,
except as provided in Section 9.2.

SECTION 9.5. NOTATION ON OR EXCHANGE OF SECURITIES. If an
amendment changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security
regarding the changed terms and return it to the Holder.
Alternatively, 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.

SECTION 9.6. TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES. The
Trustee shall sign any supplemental indenture authorized pursuant
to this Article 9 if the amendment does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it
does, the Trustee may, but need not, sign it. In signing such
amendment the Trustee shall be entitled to receive, and (subject
to the provisions of Section 7.1) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this
Indenture.

SECTION 9.7. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the
execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for
all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound
thereby.

<PAGE>

ARTICLE 10

SUBORDINATION

SECTION 10.1. SECURITIES SUBORDINATE TO SENIOR
INDEBTEDNESS. The Company covenants and agrees, and each Holder
of a Security, by his acceptance thereof, likewise covenants and
agrees, that, to the extent and in the manner hereinafter set
forth in this Article, the indebtedness represented by the
Securities and the payment of the Principal Amount, Issue Price,
accrued Original Issue Discount, Redemption Price, cash in
respect of Purchase Price, Change in Control Purchase Price and
interest, if any, in respect of each and all of the Securities
are hereby expressly made subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness.

SECTION 10.2. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION,
ETC. Upon any distribution of assets of the Company in the event
of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, relative to the Company or
to its creditors, as such, or to its assets, or (b) any
liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit
of creditors or any other marshalling of assets and liabilities
of the Company, then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full of all
amounts due or to become due on or in respect of all Senior
Indebtedness, or provision shall be made for such payment in
money or money's worth, before the Holders of the Securities are
entitled to receive any payment on account of the Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, cash in respect of the Purchase Price, Change in Control
Purchase Price or interest, if any, in respect of the Securities,
and to that end the holders of Senior Indebtedness shall be
entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in
cash, property or securities, which may be payable or deliverable
in respect of the Securities in any such case, proceeding,
dissolution, liquidation or other winding up or event, including
any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of
the Company being subordinated to the payment of the Securities.

In the event that, notwithstanding the foregoing provisions
of this Section, the Trustee or the Holder of any Security shall
have received any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may
be payable or deliverable by reason of the payment of any other

<PAGE>

indebtedness of the Company being subordinated to the payment of
the Securities, before all Senior Indebtedness is paid in full or
payment thereof provided for, and if such fact shall, at or prior
to the time of such payment or distribution, have been made known
to the Trustee or, as the case may be, such Holder, then in such
event such payment or distribution shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, Custodian, assignee, agent or other Person
making payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.

The consolidation of the Company with, or the merger of the
Company into, another person or the liquidation or dissolution of
the Company following the conveyance or transfer of its
properties and assets substantially as an entirety to another
person upon the terms and conditions set forth in Article 5 shall
not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or
marshalling of assets and liabilities of the Company for the
purposes of this Section if the person formed by such
consolidation or into which the Company is merged or the person
which acquires by conveyance or transfer such properties and
assets substantially as an entirety, as the case may be, shall as
part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Article 5.

SECTION 10.3. PRIOR PAYMENT OF SENIOR INDEBTEDNESS UPON
ACCELERATION OF SECURITIES. In the event that any Securities are
declared due and payable before their Stated Maturity, then and
in such event the holders of Senior Indebtedness outstanding at
the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due or to
become due on or in respect of all Senior Indebtedness, or
provision shall be made for such payment in money or money's
worth, before the Holders of the Securities are entitled to
receive any payment (including any payment which may be payable
by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of the Securities) by the
Company on account of the Principal Amount, Issue Price, accrued
Original Issue Discount, Redemption Price, Purchase Price, Change
in Control Purchase Price or interest, if any, in respect of the
Securities or on account of the purchase or other acquisition of
Securities.

<PAGE>

payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be
paid over and delivered forthwith to the Company.

The provisions of this Section shall not apply to any
payment with respect to which Section 10.2 would be applicable.

SECTION 10.4. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN
DEFAULT. In the event and during the continuation of any default
in the payment of principal of (or premium, if any) or interest
on any Senior Indebtedness beyond any applicable grace period
with respect thereto, or in the event that any event of default
with respect to any Senior Indebtedness shall have occurred and
be continuing, permitting the holders of such Senior Indebtedness
(or a trustee on behalf of the holders thereof) to declare such
Senior Indebtedness due and payable prior to the date on which it
would otherwise have become due and payable, unless and until
such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been
rescinded or annulled, or in the event any judicial proceeding
shall be pending with respect to any such default, then no
payment (including any payment which may be payable by reason of
the payment of any other indebtedness of the Company being
subordinated to the payment of the Securities) of Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Change in Control Purchase Price or interest, if any, in
respect of the Securities or on account of the purchase or other
acquisition of Securities shall be made, nor may the Company pay
cash with respect to the Purchase Price or upon conversion of any
Securities (other than cash in lieu of fractional shares).

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

The provisions of this Section shall not apply to any
payment with respect to which Section 10.2 would be applicable.

SECTION 10.5. PAYMENT PERMITTED IF NO DEFAULT. Nothing
contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time
except during the pendency of any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of
creditors or other marshalling of assets and liabilities of the
Company referred to in Section 10.2 or under the conditions
described in Section 10.3 or 10.4, from making payments at any
time of Principal Amount, Issue Price, accrued Original Issue

<PAGE>

Discount, Redemption Price, Purchase Price, Change in Control
Purchase Price or interest, if any, as the case may be, in
respect of the Securities, or (b) the application by the Trustee
of any money deposited with it hereunder to the payment of or on
account of the Principal Amount, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price, Change in
Control Purchase Price or interest, if any, as the case may be,
in respect of the Securities or the retention of such payment by
the Holders of the Securities, if, at the time of such
application by the Trustee, the Trustee did not have actual
knowledge that such payment would have been prohibited by the
provisions of this Article.

SECTION 10.6. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS. Subject to payment in full of all Senior
Indebtedness, the holders of the Securities shall be subrogated
to the extent of the payments or distributions made to the
holders of such Senior Indebtedness pursuant to the provisions of
this Article (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is
subordinated to indebtedness of the Company to substantially the
same extent as the Securities are subordinated and is entitled to
like rights of subrogation) to the rights of the holders of such
Senior Indebtedness to receive payments or distributions of cash,
property and securities applicable to the Senior Indebtedness
until the Principal Amount, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price, Change in Control
Purchase Price or interest, if any, as the case may be, in
respect of the Securities shall be paid in full. For purposes of
such subrogation, no payments or distributions to the holders of
the Senior Indebtedness of any cash, property or securities to
which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the
holders of Senior Indebtedness by Holders of the Securities or
the Trustee, shall, as among the Company, its creditors other
than holders of Senior Indebtedness and the Holders of the
Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.

SECTION 10.7. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
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
Indebtedness, on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the
Holders of the Securities, the obligation of the Company, which
is absolute and unconditional (and which, subject to the rights
under this Article of the holders of Senior Indebtedness, is

<PAGE>

intended to rank equally with all other general obligations of
the Company), to pay to the Holders of the Securities the
Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase
Price or interest, if any, as the case may be, in respect of the
Securities as and when the same shall become due and payable in
accordance with the terms of the Securities and this Indenture;
or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than
the holders of Senior Indebtedness; or (c) 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 Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.

SECTION 10.8. TRUSTEE TO EFFECTUATE SUBORDINATION. Each
Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided
in this Article and appoints the Trustee his attorney-in-fact for
any and all such purposes.

SECTION 10.9. NO WAIVER OF SUBORDINATION PROVISIONS. No
right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on
the part of the Company or by any act or failure to act, in good
faith, by any such holder, or by any non-compliance by the
Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder
may have or be otherwise charged with.

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

<PAGE>

SECTION 10.10. NOTICE TO TRUSTEE. The Company shall give
prompt written notice to the Trustee of any fact known to the
Company which would prohibit the making of any payment to or by
the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any
payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof
from the Company or a holder of Senior Indebtedness or from any
trustee therefor; and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Section 7.1,
shall be entitled in all respects to assume that no such facts
exist.

Subject to the provision of Section 7.1, the Trustee shall
be entitled to rely on the delivery to it of a written notice by
a person representing himself to be a holder of Senior
Indebtedness (or a trustee therefor) to establish that such
notice has been given by a holder of Senior Indebtedness (or a
trustee therefor). In the event that the Trustee determines in
good faith that further evidence required with respect to the
right of any person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this
Article, the Trustee may request such person to furnish evidence
to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such person under
this Article, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such
payment.

SECTION 10.11. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT. Upon any payment or distribution of assets of
the Company referred to in this Article, the Trustee, subject to
the provisions of Section 7.1, and the Holders of the Securities
shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending,
or a certificate of the trustee in bankruptcy, liquidating
trustee, Custodian, receiver, assignee for the benefit of
creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the persons entitled
to participate in such payment or distribution, the holders of
the Senior Indebtedness and other indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid

<PAGE>

or distributed thereon and all other facts pertinent thereto or
to this Article.

SECTION 10.12. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall in good faith
mistakenly pay over or distribute to Holders of Securities or to
the Company or to any other person cash, property or securities
to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article or otherwise.

SECTION 10.13. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR
INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in
its individual capacity shall be entitled to all the rights set
forth in this Article with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any
other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such
holder.

Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.7.

SECTION 10.14. ARTICLE APPLICABLE TO PAYING AGENTS. In
case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder,
the term "Trustee" as used in this Article shall in such case
(unless the context otherwise requires) be construed as extending
to and including such Paying Agent within its meaning as fully
for all intents and purposes as if such Paying Agent were named
in this Article in addition to or in place of the Trustee;
PROVIDED, HOWEVER, that Sections 10.10 and 10.12 shall not apply
to the Company or any Affiliate of the Company if it or such
Affiliate acts as Paying Agent.

SECTION 10.15. CERTAIN CONVERSIONS DEEMED PAYMENT. For the
purposes of this Article only, (1) the issuance and delivery of
junior securities upon conversion of Securities in accordance
with Article 11 shall not be deemed to constitute a payment or
distribution on account of the Principal Amount, Issue Price,
accrued Original Issue Discount, Redemption Price, Purchase
Price, Change in Control Purchase Price, or interest, if any, as
the case may be, in respect of Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment,
issuance or delivery of cash, property or securities (other than
junior securities) upon conversion of a Security shall be deemed
to constitute payment on account of principal of such Security.
For the purposes of this Section, the term "junior securities"
means (a) shares of any stock of any class of the Company and (b)
securities of the Company which are subordinated in right of

<PAGE>

payment to all Senior Indebtedness which may be outstanding at
the time of issuance or delivery of such securities to the same
extent as, or to a greater extent than, the Securities are so
subordinated as provided in this Article. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities
is intended to or shall impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the
Holders of the Securities, the right, which is absolute and
unconditional, of the Holder of any Security to convert such
Security in accordance with Article 11.

ARTICLE 11

CONVERSION

SECTION 11.1. CONVERSION PRIVILEGE. A Holder of a Security
may convert such Security into Common Stock at any time during
the period stated in paragraph 9 of the Securities. The number
of shares of Common Stock issuable upon conversion of a Security
per $1,000 of Principal Amount thereof (the "CONVERSION RATE")
shall be that set forth in paragraph 9 in the Securities, subject
to adjustment as herein set forth. The Holders' right to convert
Securities into Common Stock is subject to the Company's right to
elect to instead pay such Holder the amount of cash set forth in
the next succeeding sentence, in lieu of delivering such shares
of Common Stock; PROVIDED, HOWEVER, that if such payment of cash
is not allowed pursuant to the provisions of this Indenture or
otherwise, the Company shall deliver shares of Common Stock (and
cash in lieu of fractional shares of Common Stock) in accordance
with this Article 11, whether or not the Company has delivered
its notice of whether such Security shall be converted into
Common Stock or cash pursuant to Section 11.2. The amount of
cash to be paid per $1,000 Principal Amount of a Security upon
conversion shall be equal to the Sale Price of a share of Common
Stock on the Trading Day immediately prior to the related
Conversion Date multiplied by the Conversion Rate in effect on
such Trading Day.

The Company shall not pay cash in lieu of delivering shares
of Common Stock upon the conversion of any Security pursuant to
the terms of this Article 11 (other than cash in lieu of
fractional shares pursuant to Section 11.3) if there has occurred
(prior to, on or after, as the case may be, the Conversion Date
or the date on which the Company delivers its notice of whether
such Security shall be converted into Common Stock or cash
pursuant to Section 11.2) and is continuing an Event of Default
(other than a default in such payment on such Securities).

A Holder may convert a portion of the Principal Amount of a
Security if the portion is $1,000 or an integral multiple of

<PAGE>

$1,000. Provisions of this Indenture that apply to conversion of
all of a Security also apply to conversion of a portion of a
Security.

"AVERAGE SALE PRICE" means the average of the Sale Prices of
the Common Stock for the shorter of:

(i) 30 consecutive Trading Days ending on the last
full Trading Day prior to the Time of Determination with
respect to the rights, options, warrants or distribution in
respect of which the Average Sale Price is being calculated,
or

(ii) the period (x) commencing on the date next
succeeding the first public announcement of (a) the issuance
of rights, options or warrants or (b) the distribution, in
each case, in respect of which the Average Sale Price is
being calculated and (y) proceeding through the last full
trading day prior to the Time of Determination with respect
to the rights, warrants or distribution in respect of which
the Average Sale Price is being calculated, or

(iii) the period, if any, (x) commencing on the date
next succeeding the Ex-Dividend Time with respect to the
next preceding (a) issuance of rights, warrants, or options
or (b) distribution, in each case, for which an adjustment
is required by the provisions of Section 11.6(4), 11.7 or
11.8 and (y) proceeding through the last full Trading Day
prior to the Time of Determination with respect to the
rights, warrants, or options or distribution in respect of
which the Average Sale Price is being calculated.

If the Ex-Dividend Time (or in the case of a
subdivision, combination or reclassification, the effective
date with respect thereto) with respect to a dividend,
subdivision, combination or reclassification to which
Section 11.6(l), (2), (3) or (5) applies occurs during the
period applicable for calculating "Average Sale Price"
pursuant to the definition in the preceding sentence,
"Average Sale Price" shall be calculated for such period in
a manner determined by the Board of Directors to reflect the
impact of such dividend, subdivision, combination or
reclassification on the Sale Price of the Common Stock
during such period.

"TIME OF DETERMINATION" means the time and date of the
earlier of (i) the determination of stockholders entitled to
receive rights, warrants, or options or a distribution, in each
case, to which Sections 11.6(4), 11.7 and 11.8 apply and (ii) the
time ("EX-DIVIDEND TIME") immediately prior to the commencement
of "ex-dividend" trading for such rights, options, warrants or

<PAGE>

distribution on the New York Stock Exchange or such other
national or regional exchange or market on which the Common Stock
is then listed or quoted.

SECTION 11.2. CONVERSION PROCEDURE. To convert a Security
a Holder must satisfy the requirements in paragraph 9 of the
Securities. The date on which the Holder satisfies all those
requirements is the conversion date (the "CONVERSION DATE").
Within two Business Days following the Conversion Date, the
Company shall deliver to the Holder, through the Conversion
Agent, written notice of whether such Security shall be converted
into Common Stock or cash. If the Company shall have notified
the Holder that such Security shall be converted into Common
Stock, the Company shall deliver to the Holder no later than the
seventh Business Day following the Conversion Date, through the
Conversion Agent, a certificate for the number of full shares of
Common Stock issuable upon the conversion and cash in lieu of any
fractional share determined pursuant to Section 11.3. Except as
provided in Section 11.1, if the Company shall have notified the
Holder that such Security shall be converted into cash, the
Company shall deliver to the Holder surrendering such Security
the amount of cash payable upon such conversion on the fifth
Business Day following such Conversion Date. Except as provided
in Section 11.1, the Company may not change its election with
respect to the consideration to be delivered upon conversion of a
Security once the Company has notified the Holder in accordance
with this paragraph.

The person in whose name the certificate is registered shall
be treated as a stockholder of record on and after the Conversion
Date; PROVIDED, HOWEVER, that no surrender of a Security on any
date when the stock transfer books of the Company shall be closed
shall be effective to constitute the person or persons entitled
to receive the shares of Common Stock upon such conversion as the
record holder or holders of such shares of Common Stock on such
date, but such surrender shall be effective to constitute the
person or persons entitled to receive such shares of Common Stock
as the record holder or holders thereof for all purposes at the
close of business on the next succeeding day on which such stock
transfer books are open; PROVIDED, HOWEVER, that such conversion
shall be at the Conversion Rate in effect on the date that such
Security shall have been surrendered for conversion, as if the
stock transfer books of the Company had not been closed. Upon
conversion of a Security, such person shall no longer be a Holder
of such Security.

Holders may surrender a Security for conversion by means of
book entry delivery in accordance with paragraph 9 of the
Securities and the regulations of the applicable book entry
facility.

<PAGE>

No payment or adjustment will be made for dividends on any
Common Stock except as provided in this Article 11. On
conversion of a Security, that portion of accrued Original Issue
Discount attributable to the period from the Issue Date of the
Security to the Conversion Date with respect to the converted
Security shall not be cancelled, extinguished or forfeited, but
rather shall be deemed to be paid in full to the Holder thereof
through delivery of the Common Stock (together with the cash
payment, if any, in lieu of fractional shares) or of cash, as the
case may be, in exchange for the Security being converted
pursuant to the provisions hereof.

If the Holder converts more than one Security at the same
time, the number of shares of Common Stock issuable or the amount
of cash to be paid, as the case may be, upon the conversion shall
be computed based on the total Principal Amount of the Securities
converted.

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

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

SECTION 11.3. FRACTIONAL SHARES. The Company will not
issue a fractional share of Common Stock upon conversion of a
Security. Instead, the Company will deliver cash for the current
market value of the fractional share. The current market value
of a fractional share shall be determined to the nearest 1/1000th
of a share by multiplying the Sale Price, on the last Trading Day
prior to the Conversion Date, of a full share by the fractional
amount and rounding the product to the nearest whole cent.

SECTION 11.4. TAXES ON CONVERSION. If a Holder converts a
Security, the Company shall pay any documentary, stamp or similar
issue or transfer tax due on the issue of shares of Common Stock
upon such conversion. However, the Holder shall pay any such tax
which is due because the Holder requests the shares to be issued
in a name other than the Holder's name. The Conversion Agent may
refuse to deliver the certificates representing the Common Stock
being issued in a name other than the Holder's name until the
Conversion Agent receives a sum sufficient to pay any tax which
will be due because the shares are to be issued in a name other
than the Holder's name. Nothing herein shall preclude any tax
withholding required by law or regulations.

<PAGE>

SECTION 11.5. COMPANY TO PROVIDE STOCK. The Company shall,
prior to issuance of any Securities hereunder, and from time to
time as may be necessary, reserve out of its authorized but
unissued Common Stock a sufficient number of shares of Common
Stock to permit the conversion of the Securities for shares of
Common Stock.

All shares of Common Stock delivered upon conversion of the
Securities shall be newly issued shares or treasury shares, shall
be duly and validly issued and fully paid and nonassessable and
shall be free from preemptive rights and free of any lien or
adverse claim.

The Company will endeavor promptly to comply with all
federal and state securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of Securities,
if any, and will list or cause to have quoted such shares of
Common Stock on each national securities exchange or in the over-
the-counter market or such other market on which the Common Stock
is then listed or quoted.

SECTION 11.6. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If,
after the Issue Date, the Company:

(1) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;

(2) subdivides its outstanding shares of Common Stock
into a greater number of shares;

(3) combines its outstanding shares of Common Stock
into a smaller number of shares;

(4) pays a dividend or makes a distribution on its
Common Stock in shares of its Capital Stock (other than
Common Stock or rights, warrants or options for its Capital
Stock); or

(5) issues by reclassification of its Common Stock any
shares of its Capital Stock (other than rights, warrants or
options for its Capital Stock),

then the conversion privilege and the Conversion Rate in effect
immediately prior to such action shall be adjusted so that the
Holder of a Security thereafter converted may receive the number
of shares or other units of Capital Stock of the Company which
such Holder would have owned immediately following such action if
such Holder had converted the Security immediately prior to such
action.

<PAGE>

The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and
immediately after the effective date in the case of a
subdivision, combination or reclassification.

If after an adjustment a Holder of a Security upon
conversion of such Security may receive shares or other units of
two or more classes or series of Capital Stock of the Company,
the Conversion Rate shall thereafter be subject to adjustment
upon the occurrence of an action taken with respect to any such
class or series of Capital Stock as is contemplated by this
Article 11 with respect to the Common Stock, on terms comparable
to those applicable to Common Stock in this Article 11.

SECTION 11.7. ADJUSTMENT FOR RIGHTS ISSUE. If, after the
Issue Date, the Company distributes any rights, warrants or
options to all holders of its Common Stock entitling them, for a
period expiring within 60 days after the record date for such
distribution, to purchase shares of Common Stock at a price per
share less than the Sale Price as of the Time of Determination,
the Conversion Rate shall be adjusted in accordance with the
formula:

O + N
--------------
R' = O + R x
O + (N x P)
-------
M
where:

R' = the adjusted Conversion Rate.

R = the current Conversion Rate.

O = the number of shares of Common Stock outstanding on the
record date for the distribution to which this Section
11.7 is being applied.

N = the number of additional shares of Common Stock offered
pursuant to the distribution.

P = the offering price per share of such additional shares.

M = the Average Sale Price, MINUS, in the case of (i) a
distribution to which Section 11.6(4) applies or (ii) a
distribution to which Section 11.8 applies, for which,
in each case, (x) the record date shall occur on or
before the record date for the distribution to which
this Section 11.7 applies and (y) the Ex-Dividend Time
shall occur on or after the date of the Time of
Determination for the distribution to which this
Section 11.7 applies, the fair market value (on the

<PAGE>

record date for the distribution to which this Section
11.7 applies) of (1) the Capital Stock of the Company
distributed in respect of each share of Common Stock in
such Section 11.6(4) distribution, and (2) the assets
of the Company or debt securities or any rights,
warrants or options to purchase securities of the
Company distributed in respect of each share of Common
Stock in such Section 11.8 distribution.

The Board of Directors shall determine fair market values for the
purposes of this Section 11.7.

The adjustment shall become effective immediately after the
record date for the determination of shareholders entitled to
receive the rights, warrants or options to which this Section
11.7 applies.

No adjustment shall be made under this Section 11.7 if the
application of the formula stated above in this Section 11.7
would result in value of R' that is equal to or less than the
value of R.

SECTION 11.8. ADJUSTMENT FOR OTHER DISTRIBUTIONS. If,
after the Issue Date, the Company distributes to all holders of
its Common Stock any of its assets or debt securities or any
rights, warrants or options to purchase securities of the Company
(including securities or cash, but excluding (x) distributions of
Capital Stock referred to in Section 11.6 and distributions of
rights, warrants or options referred to in Section 11.7 and (y)
cash dividends or other cash distributions that are paid out of
consolidated current net earnings or earnings retained in the
business as shown on the books of the Company unless such cash
dividends or other cash distributions are Extraordinary Cash
Dividends (as defined below)) the Conversion Rate shall be
adjusted, subject to the provisions of the last paragraph of this
Section 11.8, in accordance with the formula:

M
-------
R' = R x
M-F

where:

R' = the adjusted Conversion Rate.

R = the current Conversion Rate.

M = the Average Sale Price, MINUS, in the case of a
distribution to which Section 11.6(4) applies, for
which (i) the record date shall occur on or before the

<PAGE>

record date for the distribution to which this Section
11.8 applies and (ii) the Ex-Dividend Time shall occur
on or after the date of the Time of Determination for
the distribution to which this Section 11.8 applies,
the fair market value (on the record date for the
distribution to which this Section 11.8 applies) of any
Capital Stock of the Company distributed in respect of
each share of Common Stock in such Section 11.6(4)
distribution.

F = the fair market value (on the record date for the
distribution to which this Section 11.8 applies) of the
assets, securities, rights, warrants or options to be
distributed in respect of each share of Common Stock in
the distribution to which this Section 11.8 is being
applied (including, in the case of cash dividends or
other cash distributions giving rise to an adjustment,
all such cash distributed concurrently).

The Board of Directors shall determine fair market values for the
purpose of this Section 11.8.

The adjustment shall become effective immediately after the
record date for the determination of shareholders entitled to
receive the distribution to which this Section 11.8 applies.

For purposes of this Section 11.8, the term "EXTRAORDINARY
CASH DIVIDEND" shall mean any cash dividend with respect to the
Common Stock the amount of which, together with the aggregate
amount of cash dividends on the Common Stock to be aggregated
with such cash dividend in accordance with the provisions of this
paragraph, equals or exceeds the threshold percentages set forth
in items (i) or (ii) below:

(i) If, upon the date prior to the Ex-Dividend Time
with respect to a cash dividend on the Common Stock, the
aggregate amount of such cash dividend together with the
amounts of all cash dividends on the Common Stock with Ex-
Dividend Times occurring in the eighty-five (85) consecutive
day period ending on the date prior to the Ex-Dividend Time,
with respect to the cash dividend to which this provision is
being applied equals or exceeds twelve and one-half percent
(12.5%) of the average of the Sale Prices during the period
beginning on the date after the first such Ex-Dividend Time
in such period and ending on the date prior to the Ex-
Dividend Time with respect to the cash dividend to which
this provision is being applied (except that if no other
cash dividend has had an Ex-Dividend Time occurring in such
period, the period for calculating the average of the Sale
Prices shall be the period commencing eighty-five (85) days
prior to the date prior to the Ex-Dividend Time with respect

<PAGE>

to the cash dividend to which this provision is being
applied), such cash dividend together with each other cash
dividend with an Ex-Dividend Time occurring in such eighty-
five (85) day period shall be deemed to be an Extraordinary
Cash Dividend and for purposes of applying the formula set
forth above in this Section 11.8, the value of "F" shall be
equal to (w) the aggregate amount of such cash dividend
together with the amounts of the other cash dividends with
Ex-Dividend Times occurring in such period MINUS (x) the
aggregate amount of such other cash dividends with Ex-
Dividend Times occurring in such period for which a prior
adjustment in the Conversion Rate was previously made under
this Section 11.8.

(ii) If upon the date prior to the Ex-Dividend Time
with respect to a cash dividend on the Common Stock, the
aggregate amount of such cash dividend together with the
amounts of all cash dividends on the Common Stock with Ex-
Dividend Times occurring in the three-hundred-sixty-five
(365) consecutive day period ending on the date prior to the
Ex-Dividend Time with respect to the cash dividend to which
this provision is being applied equals or exceeds twenty-
five percent (25%) of the average of the Sale Prices during
the period beginning on the date after the first such Ex-
Dividend Time in such period and ending on the date prior to
the Ex-Dividend Time with respect to the cash dividend to
which this provision is being applied (except that if no
other cash dividend has had an Ex-Dividend Time occurring in
such period, the period for calculating the average of the
Sale Prices shall be the period commencing three-hundred-
sixty-five (365) days prior to the date prior to the Ex-
Dividend Time with respect to the cash dividend to which
this provision is being applied), such cash dividend
together with each other cash dividend with an Ex-Dividend
Time occurring in such three-hundred-sixty-five (365) day
period shall be deemed to be an Extraordinary Cash Dividend
and for purposes of applying the formula set forth above in
this Section 11.8, the value of "F" shall be equal to (y)
the aggregate amount of such cash dividend together with
amounts of the other cash dividends with Ex-Dividend Times
occurring in such period MINUS (z) the aggregate amount of
such other cash dividends with Ex-Dividend Times occurring
in such period for which a prior adjustment in the
Conversion Rate was previously made under this Section 11.8.

In the event that, with respect to any distribution to which
this Section 11.8 would otherwise apply, the difference "M-F" as
defined in the above formula is less than $1.00 or "F" is greater
than "M", then the adjustment provided by this Section 11.8 shall
not be made and in lieu thereof the provisions of Section 11.14
shall apply to such distribution.

<PAGE>

SECTION 11.9. WHEN ADJUSTMENT MAY BE DEFERRED. No
adjustment in the Conversion Rate need be made unless the
adjustment would require an increase or decrease of at least 1%
in the Conversion Rate. Any adjustments that are not made shall
be carried forward and taken into account in any subsequent
adjustment.

All calculations under this Article 11 shall be made to the
nearest cent or to the nearest 1/1,000th of a share, as the case
may be, with one-half of a cent and 5/10,000 of a share being
rounded upwards.

SECTION 11.10. WHEN NO ADJUSTMENT REQUIRED. No adjustment
need be made for a transaction referred to in Section 11.6, 11.7,
11.8 or 11.14 if Securityholders are to participate in the
transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the
basis and notice on which holders of Common Stock participate in
the transaction.

No adjustment need be made for rights to purchase Common
Stock pursuant to a Company plan for reinvestment of dividends or
interest.

No adjustment need be made for a change in the par value or
no par value of the Common Stock.

To the extent the Securities become convertible into cash
pursuant to the terms of Section 11.6, 11.7, 11.8 or 11.14, no
adjustment need be made thereafter as to the cash. Interest will
not accrue on the cash.

SECTION 11.11. NOTICE OF ADJUSTMENT. Whenever the
Conversion Rate is adjusted, the Company shall promptly mail to
Securityholders a notice of the adjustment. The Company shall
file with the Trustee and the Conversion Agent such notice and a
certificate from the Company's independent public accountants
briefly stating the facts requiring the adjustment and the manner
of computing it. The certificate shall be conclusive evidence
that the adjustment is correct. Neither the Trustee nor any
Conversion Agent shall be under any duty or responsibility with
respect to any such certificate except to exhibit the same to any
Holder desiring inspection thereof.

SECTION 11.12. VOLUNTARY INCREASE. The Company from time
to time may increase the Conversion Rate by any amount and for
any period of time (PROVIDED, that such period is not less than
20 Business Days). Whenever the Conversion Rate is increased,
the Company shall mail to Securityholders and file with the
Trustee and the Conversion Agent a notice of the increase. The
Company shall mail the notice at least 15 days before the date

<PAGE>

the increased Conversion Rate takes effect. The notice shall
state the increased Conversion Rate and the period it will be in
effect.

A voluntary increase of the Conversion Rate does not change
or adjust the Conversion Rate otherwise in effect for purposes of
Sections 11.6, 11.7 or 11.8.

SECTION 11.13. NOTICE OF CERTAIN TRANSACTIONS. If:

(1) the Company takes any action that would require an
adjustment in the Conversion Rate pursuant to Section 11.6,
11.7 or 11.8 (unless no adjustment is to occur pursuant to
Section 11.10); or

(2) the Company takes any action that would require a
supplemental indenture pursuant to Section 11.14; or

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

then the Company shall mail to Securityholders and file with the
Trustee and the Conversion Agent a notice stating the proposed
record date for a dividend or distribution of the proposed
effective date of a subdivision, combination, reclassification,
consolidation, merger, binding share exchange, transfer,
liquidation or dissolution. The Company shall file and mail the
notice at least 15 days before such date. Failure to file or
mail the notice or any defect in it shall not affect the validity
of the transaction.

SECTION 11.14. REORGANIZATION OF COMPANY; SPECIAL
DISTRIBUTIONS. If the Company is a party to a transaction
subject to Section 5.1 (other than a sale of all or substantially
all of the assets of the Company in a transaction in which the
holders of Common Stock immediately prior to such transaction do
not receive securities, cash or other assets of the Company or
any other person) or a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock, the person
obligated to deliver securities, cash or other assets upon
conversion of Securities shall enter into a supplemental
indenture. If the issuer of securities deliverable upon
conversion of Securities is an Affiliate of the successor
Company, that issuer shall join in the supplemental indenture.

The supplemental indenture shall provide that the Holder of
a Security may convert it into the kind and amount of securities,
cash or other assets which such Holder would have received
immediately after the consolidation, merger, binding share
exchange or transfer if such Holder had converted the Security
immediately before the effective date of the transaction,

<PAGE>

assuming (to the extent applicable) that such Holder (i) was not
a constituent person or an Affiliate of a constituent person to
such transaction; (ii) made no election with respect thereto; and
(iii) was treated alike with the plurality of non-electing
Holders. The supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Article 11.
The successor Company shall mail to Securityholders a notice
briefly describing the supplemental indenture.

If this Section applies, neither Section 11.6 nor 11.7
applies.

If the Company makes a distribution to all holders of its
Common Stock of any of its assets, or debt securities or any
rights, warrants or options to purchase securities of the Company
that, but for the provisions of the last paragraph of Section
11.8, would otherwise result in an adjustment in the Conversion
Rate pursuant to the provisions of Section 11.8, then, from and
after the record date for determining the holders of Common Stock
entitled to receive the distribution, a Holder of a Security that
converts such Security in accordance with the provisions of this
Indenture shall upon such conversion be entitled to receive, in
addition to the shares of Common Stock into which the Security is
convertible, the kind and amount of assets, debt securities or
rights, warrants or options comprising the distribution that such
Holder would have received if such Holder had converted the
Security immediately prior to the record date for determining the
holders of Common Stock entitled to receive the distribution.

SECTION 11.15. COMPANY DETERMINATION FINAL. Any
determination that the Company or the Board of Directors must
make pursuant to Section 11.3, 11.6, 11.7, 11.8, 11.9, 11.10,
11.14 or 11.17 is conclusive.

SECTION 11.16. TRUSTEE'S ADJUSTMENT DISCLAIMER. The
Trustee has no duty to determine when an adjustment under this
Article 11 should be made, how it should be made or what it
should be. The Trustee has no duty to determine whether a
supplemental indenture under Section 11.14 need be entered into
or whether any provisions of any supplemental indenture are
correct. The Trustee shall not be accountable for and makes no
representation as to the validity or value of any securities or
assets issued upon conversion of Securities. The Trustee shall
not be responsible for the Company's failure to comply with this
Article 11. Each Conversion Agent (other than the Company or an
Affiliate of the Company) shall have the same protection under
this Section 11.16 as the Trustee.

<PAGE>

SECTION 11.17. SIMULTANEOUS ADJUSTMENTS. If this Article
11 requires adjustments to the Conversion Rate under more than
one of Sections 11.6, 11.7 or 11.8, and the record dates for the
distributions giving rise to such adjustments shall occur on the
same date, then such adjustments shall be made by applying,
first, the provisions of Section 11.6, second, the provisions of
Section 11.8 and, third, the provisions of Section 11.7.

SECTION 11.18. SUCCESSIVE ADJUSTMENTS. After an adjustment
to the Conversion Rate under this Article 11, any subsequent
event requiring an adjustment under this Article 11 shall cause
an adjustment to the Conversion Rate as so adjusted.

ARTICLE 12

MISCELLANEOUS

SECTION 12.1. TRUST INDENTURE ACT CONTROLS. If any
provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.

SECTION 12.2. NOTICES. Any notice or communication shall
be in writing and delivered in person or mailed by first-class
mail, postage prepaid, addressed as follows:

if to the Company:

ALZA Corporation
950 Page Mill Road
Palo Alto, California 94303
Attention: Vice President, Legal

if to the Trustee:

The Chase Manhattan Bank, N.A.
One New York Plaza, 14th Floor
New York, NY 10081
Attention: Corporate Trust Administration
Division

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 given to a Securityholder shall
be mailed by first-class mail to the Securityholder at the
Securityholder's address as it appears on the registration books
of the Registrar and shall be sufficiently given if so mailed
within the time prescribed.

<PAGE>

Failure to mail a notice or communication to a
Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders. If a notice
or communication is mailed in the manner provided above, it is
duly given, whether or not received by the addressee.

If the Company mails a notice or communication to the
Securityholders, it shall mail a copy to the Trustee and each
Registrar, Paying Agent, Conversion Agent or co-registrar.

SECTION 12.3. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b)
with other Securityholders with respect to their rights under
this Indenture or the Securities. The Company, the Trustee, the
Registrar, the Paying Agent, the Conversion Agent and anyone else
shall have the protection of TIA Section 312(c).

SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT. Upon any request or application by the Company to the
Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee:

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

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

SECTION 12.5. STATEMENTS REQUIRED IN CERTIFICATE OR
OPINION. Each Officers' Certificate or Opinion of Counsel with
respect to compliance with a covenant or condition provided for
in this Indenture shall include:

(1) a statement that each person making such Officers
Certificate or Opinion of Counsel has read such covenant or
condition;

(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such Officers' Certificate or
Opinion of Counsel are based;

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

<PAGE>

(4) a statement that, in the opinion of such person,
such covenant or condition has been complied with.

SECTION 12.6. SEPARABILITY CLAUSE. In case any provision
in this Indenture or in the Securities shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or
impaired thereby.

SECTION 12.7. RULES BY TRUSTEE, PAYING AGENT, CONVERSION
AGENT AND REGISTRAR. The Trustee may make reasonable rules for
action by or a meeting of the Securityholders. The Registrar,
Conversion Agent and the Paying Agent may make reasonable rules
for their functions.

SECTION 12.8. LEGAL HOLIDAYS. A "Legal Holiday" is any day
other than a Business Day. If any specified date (including a
date for giving notice) is a Legal Holiday, the action shall be
taken on the next succeeding day that is not a Legal Holiday, and
to the extent applicable no Original Issue Discount or interest,
if any, shall accrue for the intervening period.

SECTION 12.9. GOVERNING LAW. THIS INDENTURE AND THE
SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.

SECTION 12.10. NO RECOURSE AGAINST OTHERS. A director,
officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under
the Securities or this Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation.
By accepting a Security, each Securityholder shall waive and
release all such liability. The waiver and release shall be part
of the consideration for the issue of the Securities.

SECTION 12.11. SUCCESSORS. All agreements of the Company
in this Indenture and the Securities shall bind its successor.
All agreements of the Trustee in this Indenture shall bind its
successor.

SECTION 12.12. MULTIPLE ORIGINALS. The parties may sign
any number of copies of this Indenture. Each signed copy shall
be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.

<PAGE>

SIGNATURES

IN WITNESS WHEREOF, the undersigned, being duly authorized,
have executed this Indenture on behalf of the respective parties
hereto as of the date first above written.

ALZA CORPORATION

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

Attest:

--------------------------
Title:

[SEAL]

THE CHASE MANHATTAN BANK,
N.A., as Trustee

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

Attest:

--------------------------
Title:

[SEAL]

<PAGE>

EXHIBIT A

[FORM OF FACE OF LYON]

ALZA CORPORATION

LIQUID YIELD OPTION -TM- NOTE DUE 2014
(ZERO COUPON -- SUBORDINATED)

No.

Issue Date: June __, 1994
Issue Price: $______
Original Issue Discount: $______
(for each $1,000 Principal Amount)

ALZA Corporation, a Delaware corporation, promises to pay
to , or registered assigns, the
Principal Amount of Dollars on
June __, 2014.

This Security shall not bear interest except as specified on
the other side of this Security. Original Issue Discount will
accrue as specified on the other side of this Security. This
Security is convertible as specified on the other side of this
Security.

Additional provisions of this Security are set forth on the
other side of this Security.

ALZA CORPORATION

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

------------------------------
Secretary

[SEAL]

A-1

<PAGE>

TRUSTEE'S CERTIFICATE OF
AUTHENTICATION

Date of Authentication: THE CHASE MANHATTAN BANK,
N.A., as Trustee, certifies
that this is one of the
Securities referred to in the
within mentioned Indenture.

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

____________________

-TM-Trademark of Merrill Lynch & Co., Inc.

A-2

<PAGE>

[FORM OF REVERSE SIDE OF LYON -TM-]

LIQUID YIELD OPTION -TM- NOTE DUE 2014
(ZERO COUPON -- SUBORDINATED)

1. INTEREST

This Security shall not bear interest, except that if the
Principal Amount hereof or any portion of such Principal Amount
is not paid when due (whether upon acceleration pursuant to
Section 6.2 of the Indenture, upon the date set for payment of
the Redemption Price pursuant to paragraph 5 hereof, upon the
date set for payment of a Purchase Price or Change in Control
Purchase Price pursuant to paragraph 6 hereof or upon the Stated
Maturity of this Security) or if cash or shares of Common Stock
in respect of a conversion of this Security in accordance with
the terms of Article 11 of the Indenture is not paid or
delivered, as the case may be, when due, then in each such case
the overdue amount shall bear interest at the rate of ___% per
annum, compounded semiannually (to the extent that the payment of
such interest shall be legally enforceable), which interest shall
accrue from the date such overdue amount was due to the date
payment of such amount, including interest thereon, has been made
or duly provided for. All such interest shall be payable on
demand.

Original Issue Discount (the difference between the Issue
Price and the Principal Amount of the Security), in the period
during which a Security remains outstanding, shall accrue at ___%
per annum, on a semiannual bond equivalent basis using a 360-day
year composed of twelve 30-day months, commencing on the Issue
Date of this Security.

2. METHOD OF PAYMENT

Subject to the terms and conditions of the Indenture, ALZA
Corporation (the "Company") will make payments in respect of the
Securities to the persons who are registered Holders of
Securities at the close of business on the Business Day preceding
the Redemption Date or Stated Maturity, as the case may be, or at
the close of business on a Purchase Date or Change in Control
Purchase Date, as the case may be. Holders must surrender
Securities to a Paying Agent to collect such payments in respect
of the Securities. The Company will pay cash amounts in money of
The United States of America that at the time of payment is legal
tender for payment of public and private debts. However, the
____________________

-TM-Trademark of Merrill Lynch & Co., Inc.

A-3

<PAGE>

Company may make such cash payments by check payable in such
money.

3. PAYING AGENT, CONVERSION AGENT AND REGISTRAR

Initially, The Chase Manhattan Bank, N.A., a banking
association incorporated and existing under the laws of The
United States of America, as trustee (the "TRUSTEE"), will act as
Paying Agent, Conversion Agent and Registrar. The Company may
appoint and change any Paying Agent, Conversion Agent, Registrar
or co-registrar (with the consent of the Trustee), upon notice to
the Trustee and the Holders. The Company or any of its
Subsidiaries or any of their Affiliates may act as Paying Agent,
Conversion Agent, Registrar or co-registrar.

4. INDENTURE

The Company issued the Securities under an Indenture, dated
as of June 1, 1994 (the "Indenture"), between the Company and the
Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended, as in effect on the
date of the Indenture, except as provided in Section 9.3 of the
Indenture (the "TIA"). Capitalized terms used herein or on the
face hereof and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the
TIA for a statement of those terms.

The Securities are general unsecured obligations of the
Company limited to $___,000,000 aggregate Principal Amount
(subject to Sections 2.2 and 2.7 of the Indenture) plus
Securities not exceeding $___,___,000 aggregate Principal Amount
sold pursuant to the Over-allotment Option. The Indenture does
not limit other indebtedness of the Company, secured or
unsecured, including Senior Indebtedness.

5. REDEMPTION AT THE OPTION OF THE COMPANY

No sinking fund is provided for the Securities. The
Securities are redeemable as a whole, or from time to time in
part, at any time at the option of the Company at the Redemption
Prices set forth below, PROVIDED, that the Securities are not
redeemable prior to June __, 1999.

The table below shows the Redemption Prices of a Security
per $1,000 Principal Amount on the dates shown below and at
Stated Maturity, which prices reflect accrued Original Issue
Discount calculated to each such date. The Redemption Price of a
Security redeemed between such dates would include an additional
amount reflecting the additional Original Issue Discount accrued

A-4

<PAGE>

from and including the next preceding date in the table to but
excluding the date of such redemption.

(1) (2) (3)
ACCRUED
ORIGINAL
LYON ISSUE REDEMPTION
ISSUE DISCOUNT PRICE
REDEMPTION DATE PRICE AT % (1) + (2)
--------------- ----- -------- ----------
<S> <C> <C> <C>
June __, 1999 . . . . . . . . . . . $
June __, 2000 . . . . . . . . . . .
June __, 2001 . . . . . . . . . . .
June __, 2002 . . . . . . . . . . .
June __, 2003 . . . . . . . . . . .
June __, 2004 . . . . . . . . . . .
June __, 2005 . . . . . . . . . . .
June __, 2006 . . . . . . . . . . .
June __, 2007 . . . . . . . . . . .
June __, 2008 . . . . . . . . . . .
June __, 2009 . . . . . . . . . . .
June __, 2010 . . . . . . . . . . .
June __, 2011 . . . . . . . . . . .
June __, 2012 . . . . . . . . . . .
June __, 2013 . . . . . . . . . . .
At Stated Maturity . . . . . . . . 1,000.00

</TABLE>

6. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER

Subject to the terms and conditions of the Indenture, the
Company shall become obligated to purchase, at the option of the
Holder, the Securities held by such Holder on the following
Purchase Dates and at the following Purchase Prices per $1,000
Principal Amount, upon delivery of a Purchase Notice containing
the information set forth in the Indenture, at any time from the
opening of business on the date that is 20 Business Days prior to
such Purchase Date until the close of business on such Purchase
Date and upon delivery of the Securities to the Paying Agent by
the Holder as set forth in the Indenture. Such Purchase Price
may be paid, at the option of the Company, in cash or by the
issuance and delivery of shares of Common Stock of the Company,
or in any combination thereof.

PURCHASE DATE PURCHASE PRICE
------------- --------------
<S> <C>
June __, 1999 $
June __, 2004
June __, 2009
</TABLE>

Subject to the terms and conditions of the Indenture, if any
Change in Control occurs on or prior to June __, 1999, the
Company shall, at the option of the Holders, purchase all

A-5

<PAGE>

Securities for which a Change in Control Purchase Notice shall
have been delivered as provided in the Indenture and not
withdrawn, on the date that is 35 Business Days after the
occurrence of such Change in Control, for a Change in Control
Purchase Price equal to the Issue Price plus accrued Original
Issue Discount to the Change in Control Purchase Date, which
Change in Control Purchase Price shall be paid in cash.

Holders have the right to withdraw any Purchase Notice or
Change in Control Purchase Notice, as the case may be, by
delivering to the Paying Agent a written notice of withdrawal in
accordance with the provisions of the Indenture.

If cash (or securities if expressly permitted under the
Indenture) sufficient to pay the Purchase Price or Change in
Control Purchase Price, as the case may be, of all Securities or
portions thereof to be purchased as of the Purchase Date or the
Change in Control Purchase Date, as the case may be, is deposited
with the Paying Agent on the Business Day following the Purchase
Date or the Change in Control Purchase Date, as the case may be,
Original Issue Discount ceases to accrue on such Securities (or
portions thereof) on and after such date, and the Holders thereof
shall have no other rights as such (other than the right to
receive the Purchase Price or Change in Control Purchase Price,
as the case may be, upon surrender of such Security).

7. NOTICE OF REDEMPTION

Notice of redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at the Holder's registered address. If
money sufficient to pay the Redemption Price of all Securities
(or portions thereof) to be redeemed on the Redemption Date is
deposited with the Paying Agent prior to or on the Redemption
Date, on and after such date Original Issue Discount ceases to
accrue on such Securities or portions thereof. Securities in
denominations larger than $1,000 of Principal Amount may be
redeemed in part but only in integral multiples of $1,000 of
Principal Amount.

8. SUBORDINATION

The Securities are subordinated to all existing and future
Senior Indebtedness. To the extent provided in the Indenture,
Senior Indebtedness must be paid before the Securities may be
paid. The Indenture does not limit the present or future amount
of Senior Indebtedness the Company may have. The Company agrees,
and each securityholder by accepting a Security agrees, to the
subordination and authorizes the Trustee to give it effect and
appoints the Trustee as attorney-in-fact for such purpose.

A-6

<PAGE>

9. CONVERSION

Subject to the second and third succeeding sentences, a
Holder of a Security may convert it into Common Stock of the
Company at any time before the close of business on June __,
2014; PROVIDED, HOWEVER, that if a Security is called for
redemption, the Holder may convert it at any time before the
close of business on the Redemption Date. The number of shares
of Common Stock to be delivered upon conversion of a Security
into Common Stock per $1,000 of Principal Amount shall be equal
to the Conversion Rate. A Holders' right to convert Securities
into Common Stock is subject to the Company's right to elect to
pay such Holder surrendering a Security pursuant to Article 11 of
the Indenture an amount of cash as set forth in the next
succeeding sentence, in lieu of delivering such shares of Common
Stock. The amount of cash to be paid per $1,000 of Principal
Amount of a Security upon conversion of such Security shall be
equal to the Sale Price of a share of Common Stock on the Trading
Day immediately prior to the related Conversion Date multiplied
by the Conversion Rate in effect on such Trading Day. A Security
in respect of which a Holder has delivered a Purchase Notice or
Change in Control Purchase Notice exercising the option of such
Holder to require the Company to purchase such Security may be
converted only if the notice of exercise is withdrawn in
accordance with the terms of the Indenture.

The initial Conversion Rate is _____ shares of Common Stock
per $1,000 Principal Amount, subject to adjustment in certain
events described in the Indenture. The Company will deliver cash
or a check in lieu of any fractional share of Common Stock.

To convert a Security a Holder must (i) complete and
manually sign the conversion notice on the back of the Security
(or complete and manually sign a facsimile of such notice) and
deliver such notice to the Conversion Agent (or the office or
agency referred to in Section 4.5 of the Indenture) or, if
applicable, complete and deliver to The Depository Trust Company
("DTC", which term includes any successor thereto) the
appropriate instruction form for conversion pursuant to DTC's
book entry conversion program, (ii) surrender the Security to a
Conversion Agent by physical or book entry delivery (which is not
necessary in the case of conversion pursuant to DTC's book entry
conversion program), (iii) furnish appropriate endorsements and
transfer documents if required by the Conversion Agent, the
Company or the Trustee and (iv) pay any transfer or similar tax,
if required. Book entry delivery of a Security to a Conversion
Agent may be made by any financial institution that is a
participant in DTC; conversion through DTC's book entry
conversion program is available for any security that is held in
an account maintained at DTC by any such participant.

A-7

<PAGE>

A Holder may convert a portion of a Security if the
Principal Amount of such portion is $1,000 or an integral
multiple of $1,000. No payment or adjustment will be made for
dividends on the Common Stock except as provided in the
Indenture. On conversion of a Security, that portion of accrued
Original Issue Discount attributable to the period from the Issue
Date to the Conversion Date with respect to the converted
Security shall not be cancelled, extinguished or forfeited, but
rather shall be deemed paid in full to the Holder thereof through
the delivery of the Common Stock in exchange for the Security
being converted pursuant to the terms hereof.

The Conversion Rate will be adjusted for dividends or
distributions on Common Stock payable in Common Stock or other
Capital Stock; subdivisions, combinations or certain
reclassifications of Common Stock; distributions to all holders
of Common Stock of certain rights to purchase Common Stock for a
period expiring within 60 days at less than the Sale Price at the
Time of Determination; and distributions to such holders of
assets or debt securities of the Company or certain rights to
purchase securities of the Company (excluding certain cash
dividends or distributions). However, no adjustment need be made
if Securityholders may participate in the transaction or in
certain other cases. The Company from time to time may
voluntarily increase the Conversion Rate.

If the Company is a party to a consolidation, merger or
binding share exchange of the type specified in the Indenture, or
certain transfers of all or substantially all of its assets to
another person, or in certain other circumstances described in
the Indenture, the right to convert a Security into Common Stock
may be changed into a right to convert it into securities, cash
or other assets of the Company or another person.

10. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION

Any Securities called for redemption, unless surrendered for
conversion before the close of business on the Redemption Date,
may be deemed to be purchased from the Holders of such Securities
at an amount not less than the Redemption Price, by one or more
investment bankers or other purchasers who may agree with the
Company to purchase such Securities from the Holders and to make
payment for such Securities to the Trustee in trust for such
Holders.

11. DENOMINATIONS; TRANSFER; EXCHANGE

The Securities are in registered form, without coupons, in
denominations of $1,000 of Principal Amount and integral
multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may

A-8

<PAGE>

require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar
need not transfer or exchange any Securities selected for
redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any
Securities in respect of which a Purchase Notice or Change in
Control Purchase Notice has been given and not withdrawn (except,
in the case of a Security to be purchased in part, the portion of
the Security not to be purchased) or any Securities for a period
of 15 days before a selection of Securities to be redeemed.

12. PERSONS DEEMED OWNERS

The registered Holder of this Security may be treated as the
owner of this Security for all purposes.

13. UNCLAIMED MONEY OR SECURITIES

The Trustee and the Paying Agent shall return to the Company
upon written request any money or securities held by them for the
payment of any amount with respect to the Securities that remains
unclaimed for two years, PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such return,
may at the expense of the Company cause to be published once in
THE WALL STREET JOURNAL or another newspaper of national
circulation or mail to each such Holder notice that such money or
securities remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of
such publication or mailing, any unclaimed money or securities
then remaining will be returned to the Company. After return to
the Company, Holders entitled to the money or securities must
look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person.

14. AMENDMENT; WAIVER

Subject to certain exceptions set forth in the Indenture,
(i) the Indenture or the Securities may be amended with the
written consent of the Holders of at least a majority in
aggregate Principal Amount of the Securities at the time
outstanding and (ii) certain defaults or noncompliance with
certain provisions may be waived with the written consent of the
Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the
Indenture or the Securities to, among other things, cure any
ambiguity, defect or inconsistency, or to comply with Article 5
or Section 11.14 of the Indenture or to make any change that does
not adversely affect the rights of any Securityholder.

A-9

<PAGE>

15. DEFAULTS AND REMEDIES

Under the Indenture, Events of Default include (i) default
in payment of the Principal Amount, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price or Change in
Control Purchase Price, as the case may be, in respect of the
Securities when the same becomes due and payable; (ii) failure by
the Company to deliver shares of Common Stock or pay cash in lieu
thereof when such Common Stock or cash is required to be
delivered or paid, as the case may be, following conversion of a
Security; (iii) failure by the Company to comply with other
agreements in the Indenture or the Securities, subject to notice
and lapse of time; (iv) default under any mortgage, indenture or
instrument under which there maybe issued or by which there may
be secured or evidenced any indebtedness for money borrowed of
the Company, which default shall have resulted in such
indebtedness, in an aggregate principal amount exceeding
$25,000,000, becoming or being declared due and payable prior to
the date on which it would otherwise have become due and payable
without such indebtedness being discharged or such acceleration
having been rescinded or annulled, or there having been deposited
in trust a sum of money sufficient to discharge such indebtedness
within a period of 30 days after the giving of a Notice of
Default; or (v) certain events of bankruptcy or insolvency. If
an Event of Default occurs and is continuing, the Trustee, or the
Holders of at least 25% in aggregate Principal Amount of the
Securities at the time outstanding, may declare all the
Securities to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default which will result
in the Securities becoming due and payable immediately upon the
occurrence of such Events of Default.

Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Securities unless it
receives reasonable indemnity or security. Subject to certain
limitations, Holders of a majority in aggregate Principal Amount
of the Securities at the time outstanding may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold
from Securityholders notice of any continuing Default (except a
Default in payment of amounts specified in clause (i) above) if
it determines that withholding notice is in their interests.

16. TRUSTEE DEALINGS WITH THE COMPANY

Subject to certain limitations imposed by the TIA, the
Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may
otherwise deal with and collect obligations owed to it by the
Company or its Affiliates and may otherwise deal with the Company

A-10

<PAGE>

or its Affiliates with the same rights it would have if it were
not Trustee.

17. NO RECOURSE AGAINST OTHERS

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

18. AUTHENTICATION

This Security shall not be valid until an authorized
signatory of the Trustee manually signs the Certificate of
Authentication on the other side of this Security.

19. ABBREVIATIONS

Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in
common), TEN ENT (=tenants by the entireties), JT TEN (=joint
tenants with right of survivorship and not as tenants in common)
and CUST (=custodian), and UNIF TRANS MIN ACT (=Uniform Transfers
to Minors Act).

20. GOVERNING LAW

THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND TO BE PERFORMED WITHIN THE STATE
OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

_________________

The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture which has in
it the text of this Security in larger type. Requests may be
made to:

ALZA Corporation
950 Page Mill Road, P.O. Box 10950
Palo Alto, California 94303-0802
Attention: Corporate and Investor Relations

A-11

<PAGE>

ASSIGNMENT FORM CONVERSION NOTICE

To assign this Security, fill To convert this Security into
in the form below: Common Stock of the
Company, check the box:

I or we assign and transfer ----
this Security to : :
: :
----------------------- ----
: :
----------------------- To convert only part of this
Security, state the Principal
Amount at Maturity to be converted
(Insert assignee's soc. (which must be $1,000 or an
sec. or tax ID no.) integral multiple of $1,000):
-----------------------
------------------------------ :$ :
-----------------------
------------------------------
If you want the share
------------------------------ certificate made out in
another person's name, fill
------------------------------ in the form below:
(Print or type assignee's
name, address and zip code) -----------------------
: :
and irrevocably appoint -----------------------
agent (Insert other person's
--------------------- soc. sec. or tax ID no.)
to transfer this Security on
the books of the Company. ------------------------------
The agent may substitute
another to act for him. ------------------------------

------------------------------

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

- --------------------------------------------------------------------------

Date: Your Signature:
------------------ ------------------------

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

21/06821LTC.490

A-12

<PAGE>

May 13, 1994

10034-0082

ALZA Corporation
950 Page Mill Road
Palo Alto, California 94303-0802

REGISTRATION STATEMENT ON FORM S-3

Ladies and Gentlemen:

We have acted as counsel to ALZA Corporation, a Delaware corporation
(the "Company"), in connection with the Registration Statement on Form S-3 to be
filed with the Securities and Exchange Commission on or about May 17, 1994 (the
"Registration Statement"), relating to $ 948,750,000 principal amount at
maturity of Liquid Yield Option -TM- Notes due 2014 (the "LYONs"), including
the shares of Common Stock issuable upon conversion thereof (the "Shares") at
the initial Conversion Rate defined in the form of Indenture included as
Exhibit 4.2 to the Registration Statement (the "Indenture"), all as disclosed
in the Registration Statement.

We have assumed the authenticity of all records, documents and
instruments submitted to us as originals, the genuineness of all signatures, the
legal capacity of all natural persons and the conformity to the originals of all
records, documents and instruments submitted to us as copies. We have based our
opinion upon the following records, documents, instruments and certificates and
such additional certificates relating to factual matters as we have deemed
necessary or appropriate for our opinion:

(a) The Certificate of Incorporation of the Company, certified
by the Secretary of State of the State of Delaware as of
May 9, 1994 and certified to us by an officer of the
Company as being complete and in full force and effect as
of the date of this opinion;

<PAGE>

ALZA Corporation
May 13, 1994 Page 2

(b) The Bylaws of the Company certified to us by an officer of
the Company as being complete and in full force and effect
as of the date of this opinion;

(c) Certifications by officers of the Company (i) as to all of
the proceedings and actions of the Board of Directors of the
Company relating to the LYONs and the Shares, and (ii) as to
certain other factual matters;

(d) The Registration Statement;

(e) The Indenture; and

(f) Certification by an officer of The First National Bank of
Boston, transfer agent for the Company's Common Stock, as to
certain factual matters.

We have assumed that the number of Shares issuable upon exercise of
the LYONs at the Conversion Rate is less than 210,526,402, the number of shares
of Common Stock of the Company currently authorized but not outstanding or
otherwise reserved for issuance and that this number of shares of Common Stock
will be available for issuance at the time of conversion.

This opinion is limited to the General Corporation Law of the State of
Delaware, and we disclaim any opinion as to the laws of any other jurisdiction.
We further disclaim any opinion as to any statute, rule, regulation, ordinance,
order or other promulgation of any regional or local governmental body or as to
any related judicial or administrative opinion.

Based upon the foregoing and our examination of such questions of law
as we have deemed necessary or appropriate for the purpose of this opinion, and
assuming (i) that the full consideration for each LYON and each Share as stated
in the Indenture and the Registration Statement is paid, and (ii) that all
applicable securities laws are complied with, it is our opinion that, when
issued and sold by the Company, the LYONs and the Shares will be legally issued,
fully paid and nonassessable.

This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon
by any other person, firm, corporation or other entity without our prior written
consent. We disclaim any obligation to advise you of any change of law

<PAGE>

ALZA Corporation
May 13, 1994 Page 3

that occurs, or any facts of which we become aware, after the date of this
opinion.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

Very truly yours,

/s/ Heller, Ehrman, White & McAuliffe

<PAGE>

EXHIBIT 8.1

May 16, 1994

ALZA Corporation
950 Page Mill Road
Palo Alto, California 94303

Re: REGISTRATION STATEMENT ON FORM S-3

Ladies and Gentlemen:

We are acting as your special United States federal income tax counsel in
connection with the registration under the Securities Act of 1933, as amended,
of $948,750,000 aggregate principal amount at maturity of Liquid Yield Option -
TM- Notes due 2014 (Zero Coupon-Subordinated) (the "LYONs"-TM-) of ALZA
Corporation (the "Company"). In that capacity, we have examined the Registration
Statement on Form S-3 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission in connection with the proposed public
offering of the LYONs.

We hereby confirm our opinion set forth in the Prospectus in the second
full paragraph under the caption "Certain United States Federal Income Tax
Considerations." Furthermore, we are of the opinion that the information in the
Registration Statement under the caption "Certain United States Federal Income
Tax Considerations," while not purporting to discuss all tax matters relating to
the LYONs, to the extent that it constitutes a summary of United States federal
income tax matters relating to the LYONs, is correct in all material respects.

The foregoing is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations (including proposed Treasury Regulations)
promulgated thereunder, rulings, official pronouncements and judicial decisions,
all as in effect on the date hereof and all of which are subject to change or
different interpretations by the Internal Revenue Service or the courts.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to our firm as special United
States federal income tax counsel to the Company under the caption "Legal
Matters" in the Registration statement and the Prospectus which forms a part
thereof.

Very truly yours,

MAYER, BROWN & PLATT

- ------------------------
- -TM-Trademark of Merrill Lynch & Co., Inc.

<PAGE>

Exhibit 12.1

Computation of Ratios of Earnings
to Fixed Charges

<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
1994 1993 1993 1992 1991 1990 1989
------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest expense $ 3,712 $ 5,031 $ 19,204 $ 17,538 $ 16,156 $ 3,401 $ 2,904
Capitalized interest 10 349 1,879 1,325 1,801 2,993 2,762
Amortization of debt issue expense 19 87 318 321 345 157 148
Estimated interest portion of rent
expense 148 141 567 526 412 286 306
--------- --------- --------- --------- --------- --------- ---------
Fixed charges $ 3,889 $ 5,608 $ 21,968 $ 19,710 $ 18,714 $ 6,837 $ 6,120
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes, extraordinary item and
cumulative effect of accounting
change $ 25,602 $ 31,951 $ 65,953 $ 105,455 $(41,407) $ 39,133 $ 29,754
Fixed charges 3,889 5,608 21,968 19,710 18,714 6,837 6,120
Capitalized interest (10) (349) (1,879) (1,325) (1,801) (2,993) (2,762)
--------- --------- --------- --------- --------- --------- ---------
Earnings $ 29,481 $ 37,210 $ 86,042 $ 123,840 $(24,494) $ 42,977 $ 33,112
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------

Ratio of earnings to
fixed charges 7.6 6.6 3.9 6.3 -- 6.3 5.4
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

<PAGE>

Exhibit 23.1

CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of ALZA Corporation
for the registration of Liquid Yield Options Notes Due 2014 and to the
incorporation by reference therein of our reports dated February 22, 1994, with
respect to the consolidated financial statements of ALZA Corporation
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1993 and the related financial statement schedules included
therein, filed with the Securities and Exchange Commission.

ERNST & YOUNG

Palo Alto, California
May 16, 1994

<PAGE>

Exhibit 25.1

Secruities Act of 1933 File No. ______
(If application to determine eligibility of trustee
for delayed offering pursuant to Section 305 (b) (2))

- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

--------------------
FORM T-1

STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)__________

--------------------

THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
(Exact name of trustee as specified in its charter)
13-2633612
(I.R.S. Employer Identification Number)

1 CHASE MANHATTAN PLAZA, NEW YORK, NEW YORK
(Adress of principal executive offices)

10081
(Zip Code)

--------------

ALZA CORPORATION
(Exact name of obligor as specified in its charter)

DELAWARE
(State or other jurisdiction of incorporation or organization)

77-0142070
(I.R.S. Employer Identification No.)

950 PAGE MILL ROAD
P.O. BOX 10950
PALO ALTO, CA
(Adress of principal executive offices)

94303-0802
(Zip Code)

--------------------------
LIQUID YIELD OPTION NOTES DUE 2014
(ZERO COUPON-SUBORDINATED)

(TITLE OF THE INDENTURED SECURITIES)
-TM- TRADEMARK OF MERRILL LYNCH & CO., INC.

----------------------------------------------------------------------------

<PAGE>

ITEM 1. GENERAL INFORMATION

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to which
it is subject.

Comptroller of the Currency, Washington, D.C.

Board of Governors of The Federal Reserve System,
Washington, D.C.

(b) Whether it is authorized to exercise corporate trust powers.

Yes.

ITEM 2. AFFILIATIONS WITH THE OBLIGOR.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

The Trustee is not the obligor, nor is the Trustee directly or
indirectly controlling, controlled by, or under common control with
the obligor.

(See Note on Page 2.)

ITEM 16. LIST OF EXHIBITS.

List below all exhibits filed as a part of this statement of
eligibility.

*1.-- A copy of the articles of association of the trustee as now in

effect. (See Exhibit T-1 (Item 12), Registration No. 33-55626.)

*2.-- Copies of the respective authorizations of The Chase Manhattan
Bank (National Association) and The Chase Bank of New York
(National Association) to commence business and a copy of
approval of merger of said corporations, all of which documents
are still in effect. (See Exhibit T-1 (Item 12), Registration
No. 2-67437.)

*3.-- Copies of authorizations of The Chase Manhattan Bank (National
Association) to exercise corporate trust powers, both of which
documents are still in effect. (See Exhibit T-1 (Item 12),
Registration No. 2-67437.)

*4.-- A copy of the existing by-laws of the trustee. (See Exhibit T-1
(Item 12(a)), Registration No. 33-28806.)

*5.-- A copy of each indenture referred to in Item 4, if the obligor
is in default. (Not applicable).

*6.-- The consents of United States institutional trustees required by
Section 321(b) of the Act. (See Exhibit T-1, (Item 12),
Registration No. 22-19019.)

*7.-- A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.

- ----------------

*The Exhibits thus designated are incorporated herein by reference.
Following the description of such Exhibits is a reference to the copy of the
Exhibit heretofore filed with the Securities and Exhchange Commission, to which
there have been no amendments or changes.

--------------------
1.

<PAGE>

NOTE

Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base a responsive answer to Item 2 the answer
to said Item is based on incomplete information.

Item 2 may, however, be considered as correct unless amended by amendment
to this Form T-1.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, The Chase Manhattan Bank (National Association), a corporation
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, on the 9th
day May, 1994.

THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)

By /s/ Denise Long
---------------------------
Denise Long
Corporate Trust Officer

--------------------
2.

<PAGE>

EXHIBIT 7

REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of
THE CHASE MANHATTAN BANK, N.A.
of New York in the State of New York, at the close of business on December 31,
1993, published in response to call made by Comptroller of the Currency, under
title 12, United States Code, Section 161.

Charter Number 02370 Comptroller of the Currency Northeastern District
Statement of Resources and Liabilities

ASSETS Thousands
of Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . .$5,778,428
Interest-bearing balances. . . . . . . . . . . . . . . . . . . . . 5,431,174
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,439,029
Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds sold.. . . . . . . . . . . . . . . . . . . . . . . . 3,982,649
Securities purchased under agreements to resell. . . . . . . . . . . . . . 0
Loans and lease financing receivables:
Loans and leases. net of unearned income . . . . . . .$48,856,930
LESS: Allowance for loan and lease losses. . . . . . . .1,065,877
LESS: Allocated transfer risk reserve. . . . . . . . . 0
-----------
Loans and leases, net of unearned income, allowance, and reserve . .47,791,053
Assets held in trading accounts. . . . . . . . . . . . . . . . . . . 6,244,939
Premises and fixed assets (including capitalized leases) . . . . . . 1,617,111
Other real estate owned. . . . . . . . . . . . . . . . . . . . . . . 1,189,024
Investments in unconsolidated subsidiaries and
associated companies. . . . . . . . . . . . . . . . . . . . . . . . .67,637
Customers' liability to this bank on acceptances outstanding . . . . . 774,020
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 354,023
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,520,283
---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $84,189,415
-----------

LIABILITIES
Deposits:
In domestic offices. . . . . . . . . . . . . . . . . . . . . . . $34,624,513
Noninterest-bearing . . . . . . . . . . . . . . .$13,739,371
Interest-bearing. . . . . . . . . . . . . . . . . 20,885,142
-----------
In foreign offices, Edge and Agreement subsidiaries, and IBFs. . .30,660,808
Noninterest-bearing. . . . . . . . . . . . . . . . $2,473,222
Interest-bearing . . . . . . . . . . . . . . . . . 28,187,586
----------
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBF's:
Federal funds purchased. . . . . . . . . . . . . . . . . . . . . . 2,829,219
Securities sold under agreements to repurchase . . . . . . . . . . . 140,462
Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . . . .25,000
Other borrowed money . . . . . . . . . . . . . . . . . . . . . . . . 2,618,185
Mortgage indebtedness and obligations under capitalized leases . . . . .41,366
Bank's liability on acceptances, executed and outstanding. . . . . . . 780,289
Subordinated notes and debentures. . . . . . . . . . . . . . . . . . 2,360,000
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 3,697,556
---------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . $77,777,398
-----------
Limited-life preferred stock and related surplus . . . . . . . . . . . . . . 0

EQUITY CAPITAL

Perpetual preferred stock and related surplus. . . . . . . . . . . . . . . . 0
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $910,494
Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,382,506
Undivided profits and capital reserves . . . . . . . . . . . . . . . . 920,258
Net unrealized loss on marketable equity securities. . . . . . . . . 187,683
Cumulative foreign currency translation adjustments. . . . . . . . . . .11,076
-----------
TOTAL EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . 6,412,017
-----------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK, AND
EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . $84,189,415
-----------
-----------

</TABLE>

I, Lester J. Stephens, Jr., Senior Vice President and Controller of the above-
named bank do hereby declare that this Report of Condition is true and correct
to the best of my knowledge and belief.

(Signed) Lester J. Stephens, Jr.

We the undersigned directors, attest to the correctness of this statement of
resources and liabilities. We declare that it has been examined by us, and to
the best of our knowledge and belief has been prepared in conformance with the
instructions and is true and correct.

(Signed) Thomas G. Labrecque
(Signed) Arthur F. Ryan Directors
(Signed) Richard J. Boyle