S3 INC, 10-Q, 1996-11-13

S3 INC
10-Q, 1996-11-13
COMPUTER COMMUNICATIONS EQUIPMENT

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<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarter ended September 30, 1996 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 0-21126

S3 INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 77-0204341
---------------------------- ------------------------------------
[State or other jurisdiction [I.R.S. Employer Identification No.]
of incorporation or organization]

2770 San Tomas Expressway
Santa Clara, California 95051-0968
- ---------------------------------------- ----------
[Address of principal executive offices] [Zip Code]

Registrant's telephone number, including area code: (408) 980-5400

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
----- -----

The number of shares of the Registrant's Common Stock, $.0001 par value,
outstanding at November 8, 1996 was 48,083,827.

- --------------------------------------------------------------------------------
<PAGE> 2
S3 INCORPORATED
FORM 10-Q

INDEX

<TABLE>
<CAPTION>
<S> <C>
PAGE

PART I. CONSOLIDATED CONDENSED FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements:

Consolidated Condensed Balance Sheets
September 30, 1996 and December 31, 1995 3

Consolidated Condensed Statements of Operations
Three months and nine months ended
September 30, 1996 and 1995 4

Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 1996 and 1995 5

Notes to Unaudited Consolidated Condensed Financial Statements 6-8

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 22

Item 2. Changes in Securities Not Applicable

Item 3. Defaults Upon Senior Securities Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders Not Applicable

Item 5. Other Information Not Applicable

Item 6. Exhibits and Reports on Form 8-K 22

Signatures 23
</TABLE>

Page 2 of 23
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

S3 INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)

<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS ------------- ------------

<S> <C> <C>
Current assets:
Cash and equivalents $ 130,808 $ 69,289
Short-term investments 13,200 24,630
Accounts receivable (net of allowances of $2,026 in 1996
and $1,614 in 1995) 104,831 84,210
Inventories, net 52,865 43,293
Prepaid expenses and other 26,663 14,216
--------- ---------
Total current assets 328,367 235,638

Property and equipment, net 25,896 20,678
Production capacity rights 14,400 24,000
Investment in joint venture 63,346 36,425
Other assets 14,773 4,902
--------- ---------

Total $ 446,782 $ 321,643
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,008 $ 62,081
Notes payable 21,314 9,200
Accrued liabilities 15,956 13,461
Income taxes payable 8,640 6,276
--------- ---------
Total current liabilities 81,918 91,018

Notes payable 14,400 24,000
Other liabilities 4,862 761
--------- ---------
Total liabilities 101,180 115,779
--------- ---------

Convertible subordinated notes (Note 5) 103,500 --

Commitments and contingencies (Notes 4 and 6)

Stockholders' equity:
Common stock, $.0001 par value; 70,000,000 shares authorized;
47,802,328 and 46,797,327 shares outstanding in 1996 and 1995 159,865 156,474
Unrealized gain (loss) on short-term investments (27) 14
Retained earnings 82,264 49,376
--------- ---------
Total stockholders' equity 242,102 205,864
--------- ---------

Total $ 446,782 $ 321,643
========= =========
</TABLE>

See accompanying notes to consolidated condensed financial statements.
Page 3 of 23
<PAGE> 4
S3 INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------

<S> <C> <C> <C> <C>
Net sales $119,440 $ 84,793 $333,337 $212,773

Cost of sales 72,824 50,707 203,691 128,102
-------- -------- -------- --------

Gross margin 46,616 34,086 129,646 84,671

Operating expenses:
Research and development 15,897 11,292 45,675 27,129
Selling, marketing and administrative 12,858 8,785 35,359 23,099
-------- -------- -------- --------
Total operating expenses 28,755 20,077 81,034 50,228
-------- -------- -------- --------

Income from operations 17,861 14,009 48,612 34,443
Other income, net 277 1,643 1,986 3,360
-------- -------- -------- --------

Income before income taxes 18,138 15,652 50,598 37,803

Provision for income taxes 6,350 5,792 17,710 13,888
-------- -------- -------- --------
Net income $ 11,788 $ 9,860 $ 32,888 $ 23,915
======== ======== ======== ========

Net income per share:

Primary $ 0.23 $ 0.20 $ 0.65 $ 0.52
======== ======== ======== ========

Fully diluted $ 0.23 $ 0.20 $ 0.65 $ 0.52
======== ======== ======== ========

Common and equivalent shares used in
computing net income per share:

Primary 51,101 50,496 50,421 45,907
======== ======== ======== ========

Fully diluted 52,932 50,496 51,031 45,907
======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated condensed financial statements.

Page 4 of 23
<PAGE> 5
S3 INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Operating activities:
Net income $ 32,888 $ 23,915
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Deferred income taxes (994) 231
Depreciation and amortization 7,717 4,836
Provision for doubtful accounts receivable 412 458
Deferred rent (115) 27
Changes in assets and liabilities:
Accounts receivable (21,033) (41,869)
Inventories (9,572) (9,752)
Prepaid expenses and other (6,794) (329)
Production capacity rights (7,200) (1,200)
Accounts payable (26,073) 25,436
Accrued liabilities 6,925 7,046
Income taxes payable 2,364 7,726
------------- -------------
Net cash provided by (used for) operating activities (21,475) 16,525
------------- -------------
Investing activities:
Property and equipment purchases, net (12,515) (12,379)
Investment in real estate partnership (2,100) --
Sales/maturities of short-term investments, net 11,389 254
Investment in joint venture (26,921) (37,000)
Other assets -- (2,891)
------------- -------------
Net cash used for investing activities (30,147) (52,016)
------------- -------------
Financing activities:
Sale of common stock, net 3,391 92,694
Sale of convertible subordinated notes 103,500 --
Debt issuance costs (3,250) --
Borrowings on equipment financing 6,500 --
Borrowings of notes payable, net 3,000 --
------------- -------------
Net cash provided by financing activities 113,141 92,694
------------- -------------
Net increase in cash and equivalents 61,519 57,203
Cash and equivalents at beginning of period 69,289 25,772
------------- -------------
Cash and equivalents at end of period $ 130,808 $ 82,975
============= =============
</TABLE>

See accompanying notes to consolidated condensed financial statements.

Page 5 of 23
<PAGE> 6
S3 INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. Basis of Presentation:

The consolidated condensed financial statements have been prepared by
S3 Incorporated, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and include the accounts of S3 Incorporated
and its wholly owned subsidiaries ("S3" or collectively the "Company"). Certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
the Company, the financial statements reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position at September 30, 1996 and December 31, 1995, and the
operating results and cash flows for the three and nine months ended September
30, 1996 and 1995. These financial statements and notes should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 1995, included in the Company's Form 10-K filed
with the Securities and Exchange Commission.

The results of operations for the three months and nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.

2. Inventories:

Inventories consist of work in process and finished goods and are
stated at the lower of cost (first-in, first out) or market.

September 30, December 31,
Inventories consist of: 1996 1995
-------------------------------
(in thousands)

<S> <C> <C>
Work in process $25,066 $23,469
Finished goods 27,799 19,824
-------------------------------
Total $52,865 $43,293
===============================
</TABLE>

3. Net Income Per Share:

Net income per share is computed using the weighted average number of
common shares and dilutive common equivalent shares outstanding. For primary
earnings per share, common equivalent shares include stock options and shares
subscribed under the employee stock purchase plan (computed using the treasury
stock method). Fully diluted earnings per share also include, if dilutive, the
effect of incremental shares issuable upon the conversion of the convertible
subordinated notes and an adjustment to net income for the interest expense (net
of income taxes) related to the notes.

Page 6 of 23
<PAGE> 7
4. Wafer Supply Agreements and Commitments

In the third quarter of 1995, the Company entered into two long-term
manufacturing capacity arrangements. The Company entered into an agreement with
United Microelectronics Corporation (UMC) and Alliance Semiconductor (Alliance)
to form USC, a separate Taiwanese company, for the purpose of building and
managing a semiconductor manufacturing facility in the Science-Based Industrial
Park in Hsin Chu City, Taiwan. Pursuant to the agreement, as initially executed,
the Company invested $36.4 million in 1995 and committed to invest New Taiwanese
Dollars (NTD) 1,500,000,000 (approximately $56.2 million) in the second half of
1996 for a 25% equity interest in USC. In June 1996, the Company amended its
agreement with UMC and Alliance to provide that the Company would pay NTD
688,000,000 (approximately $26.1 million) in July 1996 and would have the
option, exercisable no later than December 31, 1996 to pay NTD 687,000,000, plus
8.5% of such amount from July 4, 1996, for a revised equity interest of 23.75%
if the option was exercised. The first installment of NTD 688,000,000
(approximately $26.1 million) was paid at the beginning of July 1996. The
Company intends to pay the remaining balance of NTD 687,000,000 plus interest
prior to December 31, 1996. The facility began production utilizing advanced
submicron semiconductor manufacturing processes in September 1996, although
there can be no assurance that production will ramp to planned capacity. The
Company has the right to purchase up to 31.25% of the output from USC.
Operations through September 30, 1996 consisted primarily of construction and
other capitalizable preproduction activities and, therefore, results of
operations for the entity have been immaterial. To the extent USC experiences
operating losses during the ramp up of production or thereafter, the Company
will recognize its proportionate share of such losses. There can be no assurance
that such operating losses will not continue after ramp up of production or that
such losses will not have a material adverse effect on the Company's
consolidated results of operations.

In June 1995, the Company expanded and formalized its relationship with
Taiwan Semiconductor Manufacturing Company (TSMC) to provide additional capacity
over the 1996 to 2000 timeframe. The agreement with TSMC requires the Company to
make certain annual advance payments to be applied against the following year's
capacity. The Company has signed promissory notes to secure these payments over
the term of the agreement. On July 1, 1996, the Company paid $7.2 million to
TSMC. At September 30, 1996 the remaining advance payments (and corresponding
promissory notes to be paid through 2000) totaled $24.0 million ($9.6 million in
prepaid expenses and $14.4 million in production capacity rights).

In the ordinary course of business, the Company places orders with its
wafer suppliers based on its existing and anticipated customer orders for its
products. Should the Company experience a substantial unanticipated decline in
the selling price of its products and/or demand thereof, it could result in a
material loss on such purchase commitments.

During December 1995, the Company entered into a limited partnership
arrangement with a developer to obtain a ground lease and develop and operate
the Company's future Santa Clara facilities. At September 30, 1996, the Company
had invested $2.1 million in the limited partnership. In connection with the
Company's investment in the real estate partnership, the Company (together with
the developer) is subject to recourse provisions for the construction financing
loan for up to $12.0 million. At September 30, 1996, the Company was a guarantor
with respect to $7.2 million incurred under the construction financing loan
agreement. Permanent nonrecourse financing has been obtained, conditioned upon
completion of the construction and satisfaction of certain criteria of the
lender. The Company is not a guarantor on the permanent financing. The
facilities are currently scheduled to be ready for occupancy in the first half
of 1997.

5. Convertible Subordinated Notes

In September 1996, the Company completed a private placement of
$103,500,000 aggregate principal amount of convertible subordinated notes. The
notes mature in 2003. Interest is payable semi-annually at 5 3/4% per annum.

Page 7 of 23
<PAGE> 8
The notes are convertible at the option of the note holders into the Company's
common stock at an initial conversion price of $19.22 per share, subject to
adjustment. Beginning in October 1999, the notes are redeemable at the option of
the Company at an initial redemption price of 102% of the principal amount. The
Company has reserved 5,385,016 shares of common stock (plus such additional
number of shares that may be required pursuant to the operation of anti-dilution
provisions) for the conversion of these notes. Offering costs of $3,250,000 are
included in other assets and are amortized on a straight-line basis over the
term of the notes.

6. Contingencies:

In October 1995, Brooktree Corporation ("Brooktree") filed a complaint
against the Company in the United States District Court for the Southern
District of California, alleging that most of the Company's current products
infringe a Brooktree patent. Such lawsuit resulted in substantial expense to the
Company to defend the action and diverted the efforts of the Company's technical
and management personnel. In August 1996, the Company and Brooktree entered into
a settlement and license agreement pursuant to which all claims and
counterclaims between the parties were dismissed. S3 made no admission of
infringement or any other wrongdoing. The settlement requires S3 to pay to
Brooktree a license fee and royalties over a five-year period, and each company
has agreed not to sue the other with respect to video and graphics products over
such five-year period.

The semiconductor and software industries are characterized by frequent
litigation regarding patent and other intellectual property rights. The Company
is party to various claims of this nature. Although the ultimate outcome of
these matters is not presently determinable, management currently believes that
the resolution of all such pending matters will not have a material adverse
effect on the Company's financial position or results of operations.
Accordingly, no liability that may occur has been provided for in the
accompanying financial statements.

Page 8 of 23
<PAGE> 9
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations

When used in this discussion, the word "expects", "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements, which include statements concerning the timing of availability and
functionality of products under development, product mix, trends in average
selling prices, the growth rate of the market for PCs, the percentage of export
sales and sales to strategic customers, the adoption or retention of industry
standards, the availability and cost of products from the Company's suppliers,
and the initial operating results for the Company's joint venture foundry, are
subject to risks and uncertainties, including those set forth below under
"Factors that May Affect Results," that could cause actual results to differ
materially from those projected. These forward-looking statements speak only as
of the date hereof. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.

OVERVIEW

The Company is a leading supplier of high performance multimedia
accelerator solutions for the PC market. The Company's accelerators are designed
to work cooperatively with a PC's central processing unit ("CPU"), implementing
functions best suited for a dedicated accelerator while allowing the CPU to
perform the more general purpose computing functions of today's advanced
graphical user interface ("GUI") environments and applications.

The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 20 through 23 of the Company's 1995 Annual Report to
Stockholders.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain
financial data as a percentage of net sales:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------

<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 61.0 59.8 61.1 60.2
--------- --------- --------- ---------
Gross margin 39.0 40.2 38.9 39.8
--------- --------- --------- ---------
Operating expenses:
Research and development 13.3 13.3 13.7 12.7
Selling, marketing and administrative 10.7 10.4 10.6 10.9
--------- --------- --------- ---------
Total operating expenses 24.0 23.7 24.3 23.6
--------- --------- --------- ---------
Income from operations 15.0 16.5 14.6 16.2
Other income, net 0.2 1.9 0.6 1.5
--------- --------- --------- ---------
Income before income taxes 15.2 18.4 15.2 17.7
Provision for income taxes 5.3 6.8 5.3 6.5
--------- --------- --------- ---------
Net income 9.9% 11.6% 9.9% 11.2%
========= ========= ========= =========
</TABLE>

Page 9 of 23
<PAGE> 10
NET SALES

The Company's net sales to date have been generated from the sale of
its graphic and multimedia accelerators. The Company's products are used in, and
its business is dependent on, the personal computer industry with sales
primarily in the U.S., Asia, and Europe. Net sales were $119.4 million for the
three months ended September 30, 1996, a 41% increase above the $84.8 million of
net sales for the three months ended September 30, 1995. Net sales were $333.3
million for the nine months ended September 30, 1996 or 57% above the $212.8
million of net sales for the nine months ended September 30, 1995. Net sales
increased primarily as a result of strong demand for the Company's 64-bit Trio
and ViRGE products that resulted in increased unit shipments. The increase in
unit shipments was partially offset by lower overall average selling prices.
Sales for the three and nine months ended September 30, 1996 consisted primarily
of the Trio family of integrated accelerators and ViRGE family of multimedia
accelerators, which commenced shipment in volume in the second quarter of the
year. Sales for the three and nine months ended September 30, 1995 consisted
primarily of the 64-bit Vision family and Trio family of integrated
accelerators. The Company expects that the percentage of its net sales
represented by any one product or type of product may change significantly from
period to period as new products are introduced and existing products reach the
end of their product life cycles. Due to competitive price pressures, the
Company's products experience declining unit average selling prices over time,
which at times can be substantial.

The pricing environment for 2D graphics accelerators, which accounted
for a majority of the Company's net sales for the nine months ended September
30, 1996, has recently experienced and is expected to continue to experience
increasing pricing pressures due in part to the alleviation of supply
constraints that contributed to more stable pricing in 1995 and to aggressive
pricing from certain of the Company's competitors. In particular, the Company's
Trio family of integrated 2D accelerators has experienced significant decreases
in average selling prices in 1996. The Company expects that the graphics
accelerator market will transition from 2D acceleration to 3D acceleration, and
the Company has introduced the initial member of its ViRGE family of 3D
accelerators in the first quarter of 1996 in response to this expected
transition. As a result of the entry of competitors into the 3D acceleration
market, the Company anticipates that it may experience increased pricing
pressures on average selling prices for the ViRGE family of 3D accelerators. If
the transition occurs slower than expected, if the Company's 3D products do not
achieve market acceptance or if the pricing pressures increase, the Company's
operating results could be adversely affected.

Export sales accounted for 62% and 46% of net sales in the three months
ended September 30, 1996 and 1995, respectively. Export sales accounted for 58%
and 43% of net sales in the nine months ended September 30, 1996 and 1995,
respectively. Approximately 33% and 34% of export sales for the three months and
nine months ended September 30, 1996, respectively were to affiliates of United
States customers. The Company expects that export sales will continue to
represent a significant portion of net sales, although there can be no assurance
that export sales as a percentage of net sales will remain at current levels.
All sale transactions were denominated in U.S. dollars.

Two customers accounted for 13% and 11% of net sales for the three
months ended September 30, 1996. Three customers accounted for 16%, 15% and 11%
of net sales for the three months ended September 30, 1995. One customer
accounted for 15% of net sales for the nine months ended September 30, 1996. Two
customers accounted for 18% and 11% of net sales for the nine months ended
September 30, 1995. The Company expects a significant portion of its future
sales to remain concentrated within a limited number of strategic customers.
There can be no assurance that the Company will be able to retain its strategic
customers or that such customers will not cancel or reschedule orders or, in the
event orders are canceled, that such orders will be replaced by other sales. In
addition, sales to any particular customer may fluctuate significantly from
quarter to quarter. The occurrence of any such events or the loss of a strategic
customer could have a material adverse effect on the Company's operating
results.

Page 10 of 23
<PAGE> 11
GROSS MARGIN

Gross margin percentage decreased to 39% for the three months and nine
months ended September 30, 1996 from 40% in the three months and nine months
ended September 30, 1995. The decrease resulted from the continuing decrease in
overall average selling prices of the 64-bit Trio family, partially offset by
the decrease in the unit average costs resulting from the Company's foundries'
conversion to 8-inch wafers and 0.5 micron technology, and from initial volume
sales of ViRGE products.

In the future, the Company's gross margin percentages may be affected
by increased competition and related decreases in the unit average selling
prices (particularly with respect to older generation products), timing of
volume shipments of new products, the availability and cost of products from the
Company's suppliers, changes in the mix of products sold, and future shifts in
the mix of sales to add-in card manufacturers and systems OEMs.

RESEARCH AND DEVELOPMENT EXPENSES

The Company has made and intends to continue to make significant
investments in research and development to remain competitive by developing new
and enhanced products, which include products focused on the acceleration of
personal computer audio and communication functions and 3D multimedia
accelerators with enhanced features. Research and development expenses were
$15.9 million for the three months ended September 30, 1996, an increase of $4.6
million from $11.3 million for the three months ended September 30, 1995.
Research and development expenses were $45.6 million for the nine months ended
September 30, 1995, an increase of $18.5 million from $27.1 million for the nine
months ended September 30, 1995. Research and development spending increases
reflect additions to the Company's engineering staff and nonrecurring
engineering expenses related to the introduction of new products and initial
product verification. Research and development spending is expected to increase
in absolute dollars in 1996 as a result of product development activities
currently underway for the desktop, mobile, and home PC markets with a focus on
video, 3D, audio and communications.

SELLING, MARKETING AND ADMINISTRATIVE EXPENSES

Selling, marketing and administrative expenses were $12.9 million in
the three months ending September 30, 1996, an increase of $4.0 million from
$8.8 million in the three months ending September 30, 1995. Selling, marketing
and administrative expenses were $35.3 million in the nine months ended
September 30, 1996, an increase of $12.2 million from $23.1 million in the nine
months ending September 30, 1995. Selling and marketing costs increased as a
result of additional personnel, increased commissions associated with higher
sales levels and increased marketing costs associated with the introduction of
new products, including consumer software licensing costs for the ViRGE 3D
software. Administrative costs have increased due to the hiring of additional
personnel necessary to support the increased level of operations and the
litigation costs in defending the Brooktree lawsuit. The Company anticipates
that selling, marketing and administrative expenses will increase in absolute
dollars in 1996.

OTHER INCOME, NET

Other income, net decreased to $0.3 million in the three months ended
September 30, 1996 from $1.6 million in the three months ended September 30,
1995. Other income, net decreased to $2.0 million in the nine months ended
September 30, 1996 from $3.4 million in the nine months ended September 30,
1995. The current year decrease is due to the lower average amounts of cash and
short-term investments in the three and nine months ended September 30, 1996
compared to the same period in 1995.

Page 11 of 23
<PAGE> 12
INCOME TAXES

The Company's effective tax rate for the three and nine months ended
September 30, 1996 was 35%, compared to the effective tax rate for the three and
nine months ended September 30, 1995 of 37% due principally to increased tax
credits.

Page 12 of 23
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES

Cash used for operating activities for the nine months ended September
30, 1996 was $21.5 million. The Company experienced an increase from December
31, 1995 in accounts receivable, inventory, prepaid expenses and other,
production capacity rights, income taxes payable and accrued liabilities. These
increases were partially offset by decreases in accounts payable. The Company
experienced an increase in accounts receivable from the level at December 31,
1995 due to the substantial concentration of sales in September 1996 resulting
from the delivery schedules of the Company's suppliers and increased shipments
in the third month of that quarter over either of the first two months of the
quarter relative to what the Company experienced in previous quarters. Inventory
increased due to the absence of capacity constraints and an increase in finished
goods inventory to support sales levels. During the nine months ended September
30, 1996, the Company sold its remaining inventory of its Vision family of
integrated accelerators.

Investing activities for the nine months ended September 30, 1996 and
1995 reflected property and equipment purchases of $12.5 million and $12.4
million, respectively, sales and maturities of short-term investments, the 1996
investment in a real estate partnership for the Company's new headquarters
facility of $2.1 million and the first 1996 installment of $26.9 million for the
Company's 23.75% equity interest in USC. Continued expansion of the Company's
business is likely to require higher levels of capital equipment purchases,
foundry investments and other payments to secure manufacturing capacity.

Financing activities provided cash of $113.1 million principally as a
result of the convertible subordinated note offering of $103,500,000 aggregate
principal amount completed in September 1996. Net proceeds from the sale of the
notes were approximately $100.2 million. The notes mature in 2003. Interest is
payable semi-annually at 5 3/4% per annum. The notes are convertible at the
option of the note holders into the Company's common stock at an initial
conversion price of $19.22 per share, subject to adjustment. Beginning in
October 1999, the notes are redeemable at the option of the Company at an
initial redemption price of 102% of the principal amount. The Company has
reserved 5,385,016 shares of common stock (plus such additional number of shares
that may be required pursuant to the operation of anti-dilution provisions) for
the conversion of these notes. Equipment financing and proceeds from the
issuance of common stock resulting from the exercise of stock options also
generated cash in that period.

Working capital at September 30, 1996 and December 31, 1995 was $246.4
million and $144.6 million, respectively. At September 30, 1996 the Company's
principal sources of liquidity included cash and equivalents of $130.8 million
and $13.2 million in short-term investments. In addition, the Company has
available $25.0 million under an unsecured revolving line of credit that expires
June 1, 1997. The Company had $5.0 million outstanding under this line of credit
as of September 30, 1996. The line of credit requires the Company to comply with
certain financial covenants, and the Company was in compliance with all of the
covenants at September 30, 1996. In addition, the Company has available two
separate secured equipment lines of credit totaling $10.0 million. The Company
had $6.5 million outstanding under these secured equipment lines of credit at
September 30, 1996. The Company believes these available funds and anticipated
funds from operations will satisfy the Company's projected working capital,
existing foundry supply agreement and capital expenditure requirements through
1997, other than future potential manufacturing agreements.

Page 13 of 23
<PAGE> 14
was a guarantor with respect to $7.2 million incurred under the construction
financing loan agreement. Permanent nonrecourse financing has been obtained,
conditioned upon completion of the construction and satisfaction of certain
criteria of the lender. The Company is not a guarantor on the permanent
financing. The facilities are currently scheduled to be ready for occupancy in
the first half of 1997.

In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has entered into
and will continue to consider various possible transactions. See "Factors That
May Affect Results - Transactions to Obtain Manufacturing Capacity; Future
Capital Needs."

The cyclical nature of the semiconductor industry periodically results
in shortages of advanced process wafer fabrication capacity such as the Company
experiences from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand, and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition, because the Company must order products and build inventory
substantially in advance of product shipments and because the Company's products
are volatile and subject to rapid technology and price change, there is a risk
that the Company will forecast incorrectly and produce excess or insufficient
inventories of particular products. This inventory risk is heightened because
certain of the Company's key customers place orders with short lead times. The
Company's customers' ability to reschedule or cancel orders without significant
penalty could adversely affect the Company's liquidity, as the Company may be
unable to adjust its purchases from its independent foundries to match such
customer changes and cancellations. To the extent the Company purchases excess
or insufficient inventories of particular products, the Company's operating
results could be adversely affected.

Page 14 of 23
<PAGE> 15
In October 1995, Brooktree Corporation ("Brooktree") filed a complaint
against the Company in the United States District Court for the Southern
District of California, alleging that the Company's current products infringe a
Brooktree patent. Such lawsuit resulted in substantial expense to the Company to
defend the action and diverted the efforts of the Company's technical and
management personnel. In August 1996, the Company and Brooktree entered into a
settlement and license agreement pursuant to which all claims and counterclaims
between the parties were dismissed and the Company agreed to pay to Brooktree a
license fee and royalties over a five-year period.

FACTORS THAT MAY AFFECT RESULTS

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's operating results have historically been, and will
continue to be, subject to quarterly and other fluctuations due to a variety of
factors, including changes in pricing policies by the Company, its competitors
or its suppliers, anticipated and unanticipated decreases in unit average
selling prices of the Company's products, availability and cost of products from
the Company's suppliers, changes in the mix of products sold and in the mix of
sales by distribution channels, the gain or loss of significant customers, new
product introductions by the Company or its competitors, market acceptance of
new or enhanced versions of the Company's products, seasonal customer demand,
and the timing of significant orders. Operating results could also be adversely
affected by general economic and other conditions affecting the timing of
customer orders and capital spending, a downturn in the market for PCs, and
order cancellations or rescheduling. Any shortfall in net sales or net income
from levels expected by securities analysts could have an immediate and
significant adverse effect on the trading price of the Company's Common Stock.
In particular, the market for PCs in 1996 has experienced a weakening in the
trends for demand as compared with the comparable period in 1995 and is expected
to grow at a lower rate for the entire year as compared with 1995. These factors
could adversely affect demand for the Company's products. In addition, the
pricing environment for graphics accelerators has recently experienced and is
expected to continue to experience increasing pricing pressures due in part to
the alleviation of supply constraints that contributed to more stable pricing in
1995 and to aggressive pricing from certain of the Company's competitors. In
particular, the Company's Trio family of integrated 2D accelerators, which
accounted for a majority of the Company's revenues in the first nine months of
1996, has experienced significant decreases in average selling prices in 1996.
The Company expects that the graphics accelerator market will transition from 2D
acceleration to 3D acceleration, and the Company has introduced its ViRGE family
of 3D accelerators in response to this expected transition. As a result of the
entry of competitors into the 3D acceleration market, the Company anticipates
that it may experience increased pricing pressures on average selling prices for
the ViRGE family of 3D accelerators. If the transition occurs slower than
expected, if the Company's 3D products do not achieve market acceptance or if
pricing pressures increase, the Company's operating results could be adversely
affected. Further, because the Company is continuing to increase its operating
expenses for personnel and new product development, the Company's operating
results would be adversely affected if budgeted sales levels were not achieved.
PC graphics and multimedia subsystems include, in addition to the Company's
products, a number of other components, which are supplied by third-party
manufacturers. Any shortage of such components in the future could adversely
affect the Company's business and operating results. Furthermore, it is possible
that the Company's products may be found to be defective after the Company has
already shipped significant volume production. There can be no assurance that
the Company would be able to successfully correct such defects or that such
corrections would be acceptable to customers, and the occurrence of such events
could have a material adverse effect on the Company's business and operating
results.

Page 15 of 23
<PAGE> 16
Because the Company must order products and build inventory
substantially in advance of product shipments, and because the markets for the
Company's products are volatile and subject to rapid technological and price
changes, there is a risk that the Company will forecast incorrectly and produce
excess or insufficient inventories of particular products. In addition, the
Company's customers may change delivery schedules or cancel orders without
significant penalty. To the extent the Company produces excess or insufficient
inventories of particular products, the Company's operating results could be
adversely affected.

The Company ships more product in the third month of each quarter than
in either of the first two months of the quarter, with shipments in the third
month higher at the end of the month. This pattern, which is common in the
semiconductor industry, is likely to continue. The concentration of sales in the
last month of the quarter may cause the Company's quarterly results of
operations to be more difficult to predict. Moreover, a disruption in the
Company's production or shipping near the end of a quarter could materially
reduce the Company's net sales for that quarter. The Company's reliance on
outside foundries and independent assembly and testing houses reduces the
Company's ability to control, among other things, delivery schedules.

IMPORTANCE OF NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE

The PC industry in general, and the market for the Company's products
in particular, is characterized by rapidly changing technology, evolving
industry standards, frequent new product introductions and significant price
competition, resulting in short product life cycles and regular reductions of
unit average selling prices over the life of a specific product. Products in the
Company's market typically have a life cycle of 12 to 24 months, with regular
reductions of unit average selling prices over the life of a specific product.
The successful development and commercialization of new products required to
replace or supplement existing products involve many risks, including the
identification of new product opportunities, the successful and timely
completion of the development process, and the selection of the Company's
products by leading systems suppliers and board manufacturers for design into
their products. There can be no assurance that the Company will successfully
identify new product opportunities and develop and bring to market in a timely
manner successful new products, that products or technologies developed by
others will not render the Company's products or technologies noncompetitive, or
that the Company's products will be selected for design into its customers'
products.

The Company is continually developing new products to address changing
market needs, and its operating results may fluctuate from those in prior
quarters or may be adversely affected in quarters in which it is undergoing a
product transition or in which existing products are under price pressures due
to competitive factors. The Company also intends to add increased functionality
to its products, such as system logic, audio, communications or other additional
functions. Market acceptance of the Company's products will also depend upon
acceptance of other components, such as memory, that the Company's products are
designed to work with. For example, if performance of synchronous graphics RAM
("SGRAM") and/or synchronous DRAM ("SDRAM") improves relative to the performance
of more expensive video RAM ("VRAM"), market demand for higher performance
multimedia accelerators may shift away from VRAM-based accelerators toward SGRAM
or SDRAM-based accelerators. If new products are not brought to market in a
timely manner or do not address market needs or achieve market acceptance, then
the Company's operating results will be adversely affected. The Company's 1994
operating results were adversely affected in part because the Company had made a
strategic decision to transition its product offerings from 32-bit to 64-bit
accelerators during the first half of 1994, but due to a lack of PC system logic
chipsets based on the PCI bus standard and a slower than anticipated shift from
32- to 64-bit graphics, sales of S3's PCI-based Vision64 family of accelerators
were less than expected. During the same period of time, competitors' 32-bit
integrated accelerator products offered a more competitive solution to the
Company's customers and ultimately necessitated an adjustment in the valuation
of the Company's 32-bit non-integrated inventory. In

Page 16 of 23
<PAGE> 17
anticipation of a shift in demand from 2D to 3D technology, the Company has
recently introduced the initial products from its ViRGE family of 3D multimedia
accelerators. If the transition from 2D to 3D in the PC market is slower than
the Company expects or if these products are not brought to market in a timely
manner or do not address market needs or achieve market acceptance, the
Company's operating results could be adversely affected.

DEPENDENCE ON FOUNDRIES AND OTHER THIRD PARTIES

The Company currently relies on several independent foundries to
manufacture its products either in finished form or wafer form. The Company
currently has a long-term supply agreement with only one of its foundries, TSMC,
which is a "take or pay" contract, and has invested in a joint venture foundry,
USC. The Company conducts business with its other current foundries by
delivering written purchase orders specifying the particular product ordered,
quantity, price, delivery date and shipping terms and, therefore, such foundries
are generally not obligated to supply products to the Company for any specific
period, in any specific quantity or at any specified price, except as may be
provided in a particular purchase order. To the extent a foundry terminates its
relationship with the Company or should the Company's supply from a foundry be
interrupted or terminated for any other reason, such as a natural disaster, the
Company may not have a sufficient amount of time to replace the supply of
products manufactured by that foundry. From time to time, the Company is unable
to obtain a sufficient supply of products to enable it to meet demand and is
required to allocate available supply of its products among its customers. Until
recently, there has been a worldwide shortage of advanced process technology
foundry capacity and there can be no assurance that the Company will obtain
sufficient foundry capacity to meet customer demand in the future, particularly
if that demand should increase. The Company is continuously evaluating potential
new sources of supply. However, the qualification process and the production
ramp-up for additional foundries has in the past taken, and could in the future
take, longer than anticipated, and there can be no assurance that such sources
will be able or willing to satisfy the Company's requirements on a timely basis
or at acceptable quality or per unit prices.

In the third quarter of 1995, the Company entered into an agreement
with UMC and Alliance to form a separate Taiwanese company, USC, for the purpose
of building and managing a semiconductor manufacturing facility in the
Science-Based Industrial Park in Hsin Chu City, Taiwan. To the extent USC
experiences operating losses during the ramp up of production or thereafter, the
Company will recognize its proportionate share of such losses and may be
required to contribute additional capital. There can be no assurance that USC
will ramp to planned capacity, that such operating losses will not continue
after the ramp up of production or that such losses will not have a material
adverse effect on the Company's consolidated results of operations.

The Company's foundry agreement with TSMC requires the Company, under
certain circumstances, to purchase certain committed capacity amounts or forfeit
advance payments against such amounts. To the extent the Company purchases
excess inventories of particular products or chooses to forfeit advance
payments, the Company's operating results could be adversely affected.

Two of the Company's principal foundries, TSMC and UMC, and the
Company's foundry joint venture, USC, are located in the Science-Based
Industrial Park in Hsin Chu City, Taiwan. Disruption of operations at these
foundries for any reason, including work stoppages, fire, earthquakes or other
natural disasters, would cause delays in shipments of the Company's products,
and could have a material adverse effect on the Company's results of operations.
In addition, as a result of the rapid growth of the semiconductor industry based
in the Science-Based Industrial Park, severe constraints have been placed on the
water and electricity supply in that region. Any shortages of water or
electricity could adversely affect the Company's foundries' ability to supply
the Company's products, which could have a material adverse effect on the
Company's results of operations.

Page 17 of 23
<PAGE> 18
The Company is using multiple sources of supply for certain of its
products, which may require the Company's customers to perform separate product
qualifications. The Company has not, however, developed alternate sources of
supply for certain other products, and its newly introduced products are
typically produced initially by a single foundry until alternate sources can be
qualified. The requirement that a customer perform separate product
qualifications or a customer's inability to obtain a sufficient supply of
products from the Company may cause that customer to satisfy its product
requirements from the Company's competitors, which would adversely affect the
Company's results of operations.

The Company's products are assembled and tested by a variety of
independent subcontractors. The Company's reliance on independent assembly and
testing houses to provide these services involves a number of risks, including
the absence of guaranteed capacity and reduced control over delivery schedules,
quality assurance and costs. The Company also is subject to the risks of
shortages and increases in the cost of raw materials used in the manufacture or
assembly of the Company's products.

Constraints or delays in the supply of the Company's products, whether
because of capacity constraints, unexpected disruptions at the foundries or
assembly or testing houses, delays in obtaining additional production at
existing foundries or in obtaining production from new foundries, shortages of
raw materials, or other reasons, could result in the loss of customers and other
material adverse effects on the Company's operating results, including effects
that may result should the Company be forced to purchase products from higher
cost foundries or pay expediting charges to obtain additional supply.

TRANSACTIONS TO OBTAIN MANUFACTURING CAPACITY; FUTURE CAPITAL NEEDS

In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has entered into
and will continue to consider various possible transactions, including the use
of "take or pay" contracts that commit the Company to purchase specified
quantities of wafers over extended periods, equity investments in or advances or
issuances of equity securities to wafer manufacturing companies in exchange for
guaranteed production capacity, or the formation of joint ventures to own and
operate or construct foundries or to develop certain products. Any of these
transactions would involve financial risk to the Company and could require the
Company to commit substantial capital or provide technology licenses in return
for guaranteed production capacity. In particular, the Company has entered into
a "take or pay" contract with TSMC and a joint venture with UMC and another
semiconductor company. The need to commit substantial capital may require the
Company to seek additional equity or debt financing. The sale or issuance of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on terms acceptable to the Company.

DEPENDENCE ON ACCELERATOR PRODUCT LINE

S3's products are designed to improve the graphics and multimedia
performance of x86-based PCs and Microsoft Windows, Windows NT and IBM OS/2
operating systems, the predominant standards in today's PC market. Any shift
away from such standards would require the Company to develop new products. The
Company expects that additional specialized graphics and multimedia processing
and general purpose computing capabilities will be integrated into future
versions of Intel and other x86-based microprocessors and that standard
multimedia accelerators in the future will likely integrate memory, system
logic, audio, communications or other additional functions. The Company has not
previously offered either single function or integrated accelerator products
that provide these functions, which have traditionally been provided by separate
single function chips or chipsets. The

Page 18 of 23
<PAGE> 19
Company has been and will continue to be required to expand the scope of its
research and development efforts to provide these functions, which will require
the hiring of engineers skilled in the respective areas and additional
management and coordination among the Company's design and engineering groups.
Alternatively, the Company may find it necessary or desirable to license or
acquire technology to enable the Company to provide these functions, and there
can be no assurance that any such technology will be available for license or
purchase on terms acceptable to the Company. Furthermore, there is a limited
amount of space on PC motherboards, and companies that offer solutions that
provide the greatest amount of functionality within this limited space may have
a competitive advantage. While the Company's strategy is to develop new and
enhanced graphics and multimedia accelerator products that will be complementary
to present and future versions of Intel and other x86-based microprocessors and
integrate significant additional functionality, there can be no assurance that
the Company will be able to develop such new or enhanced products or correctly
anticipate the additional functionality that will be required to compete
effectively in this market. There can be no assurance that, if developed, the
Company's new or enhanced products that incorporate these functions will achieve
market acceptance. There also can be no assurance that the market for graphics
and multimedia accelerators will continue to grow in the future or that new
technological developments or changes in standards will not result in decreased
demand for graphics and multimedia accelerators or for the Company's products
that are not compatible with such changed standards. While the PC industry in
recent periods has been characterized by substantial demand, such demand has
historically been cyclical, and there can be no assurance that this demand will
continue in future periods or that demand for the Company's products will
continue. The occurrence of any such events would have a material adverse effect
on the Company's operating results.

SUBSTANTIAL COMPETITION

The market for the Company's products is extremely competitive and is
characterized by declining selling prices over the life of a particular product
and rapid technological changes. The Company's principal competitors for
graphics accelerators include ATI Technologies, Inc., Cirrus Logic, Inc., Matrox
Graphics Inc., and Trident Microsystems, Inc. The Company's principal
competitors in the multimedia market include the companies named in the
preceding sentence and a number of small, privately-held companies which may
have greater flexibility to address specific market needs. Potential competitors
in these markets include both large and emerging domestic and foreign
semiconductor companies. In particular, there is a significant number of
established and emerging companies that have announced plans to develop 3D
graphics chips, including Intel Corporation and Lockheed Martin Corporation,
which have announced a joint venture to develop such chips, and Texas
Instruments Incorporated, which has announced a development and marketing
agreement with 3Dlabs Inc. To the extent the Company expands its product line to
add products with additional functionality, such as audio, communications and
system logic functions, it will encounter substantial competition from
established semiconductor companies and may experience competition from
companies designing chips based on different technologies, such as
software-centric multimedia processors. Further, the need of PC manufacturers to
rapidly introduce a variety of products aimed at different segments of the PC
market may lead to the shift by such system OEMs to the purchase of graphics and
multimedia add-in cards provided by others. Certain of the Company's competitors
supply both add-in cards and accelerator chips, which may provide those
competitors with an advantage over suppliers such as the Company that supply
only accelerator chips. Certain of the Company's current and potential
competitors have greater technical, manufacturing, financial and marketing
resources than the Company. The Company believes that its ability to compete
successfully depends upon a number of factors both within and outside of its
control, including product performance, product features, product availability,
price, quality, timing of new product introductions by the Company and its
competitors, the emergence of new graphics and PC standards, customer support,
and industry and general economic trends. There can be no assurance that the
Company will have the financial resources, technical expertise, or marketing,
distribution and support capabilities to compete successfully. The Company's
future success will be highly dependent upon the successful development and
introduction of new products that are responsive to market needs. There can be
no assurance that the Company will be able to successfully develop or market any
such products.

Page 19 of 23
<PAGE> 20
CUSTOMER CONCENTRATION

The Company's sales are concentrated within a limited customer base.
The Company expects a significant portion of its future sales to remain
concentrated within a limited number of strategic customers. There can be no
assurance that the Company will be able to retain its strategic customers or
that such customers will not otherwise cancel or reschedule orders, or in the
event of canceled orders, that such orders will be replaced by other sales. In
addition, sales to any particular customer may fluctuate significantly from
quarter to quarter. The occurrence of any such events could have a material
adverse effect on the Company's operating results.

MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL

Since its inception, the Company has experienced significant growth in
the number of its employees and in the scope of its operating and financial
systems, resulting in increased responsibilities for the Company's management.
To manage future growth effectively, the Company will need to continue to
improve its operational, financial and management information systems,
procedures and controls, and expand, train, motivate, retain and manage its
employee base. The Company is in the process of implementing a new management
information system. Any problems encountered in the implementation of such
system could adversely affect the Company's operations. There can be no
assurance that the Company will be able to manage its growth effectively, and
failure to do so could have a material adverse effect on the Company's operating
results.

The Company's future success depends in part on the continued service
of its key engineering, sales, marketing and executive personnel, including
highly skilled semiconductor design personnel and software developers, and its
ability to identify and hire additional personnel. In August 1996, the Company
appointed a new President and Chief Executive Officer to replace Terry N. Holdt,
who retired, and there can be no assurance as to the effects of this management
transition on the Company's business and operating results. Competition for such
personnel is intense and there can be no assurance that the Company can retain
and recruit adequate personnel to operate its business. The loss of key
personnel could have a material adverse effect on the Company's business and
operating results. The Company does not maintain key man insurance on any of its
employees.

IMPORTANCE OF INTELLECTUAL PROPERTY; LITIGATION INVOLVING INTELLECTUAL PROPERTY

The Company's ability to compete will be affected by its ability to
protect its proprietary information. The Company has filed several United States
and foreign patent applications and to date has four issued United States
patents. The Company relies primarily on its trade secrets and technological
know-how in the conduct of its business. There can be no assurance that the
steps taken by the Company to protect its intellectual property will be adequate
to prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. The semiconductor and software industries
are characterized by frequent claims and related litigation regarding patent and
other intellectual property rights. The Company is party to various claims of
this nature. Although the ultimate outcome of these matters is not presently
determinable, management presently believes that the resolution of all such
pending matters will not have a material adverse effect on the Company's
operating results. There can be no assurance that third parties will not assert
additional claims or initiate litigation against the Company, its foundries or
its customers with respect to existing or future products. In addition, the
Company may initiate claims or litigation against third parties for infringement
of the Company's proprietary rights or to determine the scope and validity of
the proprietary rights of the Company or others. Litigation by or against the
Company has in the past, in the case of the Brooktree litigation, resulted and
could in the future result in significant expense to the Company and diversion
of the efforts of the Company's technical and management personnel, whether or
not litigation is determined in favor of the Company. In the event of an adverse
result in any such litigation, the Company could be required to pay

Page 20 of 23
<PAGE> 21
substantial damages, cease the manufacture, use, sale, offer for sale and
importation of infringing products, expend significant resources to develop or
obtain non-infringing technology, discontinue the use of certain processes, or
obtain licenses to the technology which is the subject of the litigation. There
can be no assurance that the Company would be successful in such development or
acquisition or that any such licenses, if available, would be available on
commercially reasonable terms, and any such development or acquisition could
require expenditures by the Company of substantial time and other resources. Any
such litigation or adverse result therefrom could have a material adverse effect
on the Company's operating results.

INTERNATIONAL OPERATIONS

The Company expects that export sales will continue to represent a
significant portion of net sales, although there can be no assurance that export
sales, as a percentage of net sales, will remain at current levels. In addition,
a substantial proportion of the Company's products are manufactured, assembled
and tested by independent third parties in Asia. Due to its export sales and
independent third party manufacturing, assembly and testing operations and its
joint venture foundry, and to the extent the Company qualifies an additional
foundry or foundries in Asia to manufacture its products, the Company is subject
to the risks of conducting business internationally, including unexpected
changes in, or impositions of, legislative or regulatory requirements,
fluctuations in the U.S. dollar, which could increase the sales price in local
currencies of the Company's products in foreign markets or increase the cost of
wafers purchased by the Company, delays resulting from difficulty in obtaining
export licenses for certain technology, tariffs and other barriers and
restrictions, potentially longer payment cycles, greater difficulty in accounts
receivable collection, potentially adverse taxes, and the burdens of complying
with a variety of foreign laws. In addition, the Company is subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations. Two of the Company's independent foundries, UMC and TSMC, which
produce a significant portion of the Company's products, and the Company's joint
venture foundry, USC, are located in Taiwan. The People's Republic of China and
Taiwan have recently experienced strained relations, and the worsening of
relations or the development of hostilities between the two parties could have a
material adverse effect on the Company. Although the Company has not to date
experienced any material adverse effect on its operations as a result of such
regulatory, geopolitical, economic and other factors, there can be no assurance
that such factors will not adversely impact the Company's operations in the
future or require the Company to modify its current business practices. In
addition, the laws of certain foreign countries may not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States.

Page 21 of 23
<PAGE> 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

4.1 Indenture, dated as of September 12, 1996, between the Company and
State Street Bank and Trust Company of California, N.A., as
Trustee.

4.2 Registration Rights Agreement, dated as of September 12, 1996,
among the Company and Lehman Brothers Inc., PaineWebber
Incorporated, and Cowen and Company, as Initial Purchasers.

27 Financial Data Schedule (filed only with the electronic submission
of Form 10-Q in accordance with the Edgar requirements).

(b) Reports on Form 8-K

On September 18, 1996, the Company filed a report on Form 8-K with
respect to the press release issued regarding the convertible subordinated
note offering.

Page 22 of 23
<PAGE> 23
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the

Registrant has duly caused this report to be signed on its behalf by the

undersigned thereunto duly authorized.

S3 INCORPORATED
(Registrant)

/S/GEORGE A. HERVEY
---------------------------------

GEORGE A. HERVEY
Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)

November 13 , 1996

<PAGE> 1
EXHIBIT 4.1

S3 INCORPORATED

AND

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

AS TRUSTEE

INDENTURE

DATED AS OF SEPTEMBER 12, 1996

5-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I

DEFINITIONS

Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES

Section 2.1 Designation, Amount and Issue of Notes . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.2 Form of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Date and Denomination of Notes; Payments of Interest . . . . . . . . . . . . . . . . . 8
Section 2.4 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.5 Exchange and Registration of Transfer of Notes;
Restrictions on Transfer; Depositary . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.7 Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.8 Cancellation of Notes Paid, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE III

REDEMPTION OF NOTES

Section 3.1 Redemption Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.2 Notice of Redemption; Selection of Notes . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.3 Payment of Notes Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.4 Conversion Arrangement on Call for Redemption . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE IV

SUBORDINATION OF NOTES

Section 4.1 Agreement of Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2 Payments to Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.3 Subrogation of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.4 Authorization by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.5 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.6 Trustee's Relation to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.7 No Impairment of Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>

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Section 4.8 Certain Conversions Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ARTICLE V

PARTICULAR COVENANTS OF THE COMPANY

Section 5.1 Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.3 Appointments to Fill Vacancies in Trustee's Office . . . . . . . . . . . . . . . . . . 34
Section 5.4 Provisions as to Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.5 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.6 Rule 144A Information Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.7 Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.8 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.9 Further Instruments and Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

ARTICLE VI

NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

Section 6.1 Noteholders' Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.2 Preservation and Disclosure of Lists . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.4 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

ARTICLE VII

DEFAULTS AND REMEDIES

Section 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.2 Payments of Notes on Default; Suit Therefor . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.3 Application of Monies Collected by Trustee . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.4 Proceedings by Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.5 Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.6 Remedies Cumulative and Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.7 Direction of Proceedings and Waiver of Defaults
by Majority of Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.8 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.9 Undertaking to Pay Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.10 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

ARTICLE VIII

CONCERNING THE TRUSTEE

Section 8.1 Duties and Responsibilities of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>

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Section 8.2 Reliance on Documents, Opinions, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.3 No Responsibility for Recitals, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar
May Own Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.5 Monies to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.6 Compensation and Expenses of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.7 Officers' Certificate as Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.8 Conflicting Interests of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.9 Eligibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.10 Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.11 Acceptance by Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.12 Succession by Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.13 Limitation on Rights of Trustee as Creditor . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE IX

CONCERNING THE NOTEHOLDERS

Section 9.1 Action by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.2 Proof of Execution by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.3 Who Are Deemed Absolute Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.4 Company-Owned Notes Disregarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.5 Revocation of Consents; Future Holders Bound . . . . . . . . . . . . . . . . . . . . . 52

ARTICLE X

NOTEHOLDERS' MEETINGS

Section 10.1 Purpose of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.2 Call of Meetings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.3 Call of Meetings by Company or Noteholders . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.4 Qualifications for Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.5 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.6 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.7 No Delay of Rights by Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

ARTICLE XI

SUPPLEMENTAL INDENTURES

Section 11.1 Supplemental Indentures Without Consent of Noteholders . . . . . . . . . . . . . . . . 55
Section 11.2 Supplemental Indentures with Consent of Noteholders . . . . . . . . . . . . . . . . . . 56
Section 11.3 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 11.4 Notation on Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.5 Evidence of Compliance of Supplemental Indenture to
Be Furnished Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>

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ARTICLE XII

CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

Section 12.1 Company May Consolidate, Etc. on Certain Terms . . . . . . . . . . . . . . . . . . . . 58
Section 12.2 Successor Corporation to Be Substituted . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.3 Opinion of Counsel to Be Given Trustee . . . . . . . . . . . . . . . . . . . . . . . . 59

ARTICLE XIII

SATISFACTION AND DISCHARGE OF INDENTURE

Section 13.1 Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 13.2 Deposited Monies to Be Held in Trust by Trustee . . . . . . . . . . . . . . . . . . . . 60
Section 13.3 Paying Agent to Repay Monies Held . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 13.4 Return of Unclaimed Monies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 13.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

ARTICLE XIV

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS

Section 14.1 Indenture and Notes Solely Corporate Obligations . . . . . . . . . . . . . . . . . . . 61

ARTICLE XV

CONVERSION OF NOTES

Section 15.1 Right to Convert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 15.2 Exercise of Conversion Privilege; Issuance of
Common Stock on Conversion; No Adjustment for
Interest or Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 15.3 Cash Payments in Lieu of Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 63
Section 15.4 Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 15.5 Adjustment of Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale . . . . . . . . . . . . . . . 73
Section 15.7 Taxes on Shares Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Listing
of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 15.9 Responsibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 15.10 Notice to Holders Prior to Certain Actions . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>

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ARTICLE XVI

REPURCHASE UPON A DESIGNATED EVENT

Section 16.1 Repurchase Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 16.2 Conditions to the Company's Election to Pay the
Repurchase Price in Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 16.3 Notices; Method of Exercising Repurchase Right, Etc. . . . . . . . . . . . . . . . . . 77
Section 16.4 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

ARTICLE XVII

MISCELLANEOUS PROVISIONS

Section 17.1 Provisions Binding on Company's Successors . . . . . . . . . . . . . . . . . . . . . . 81
Section 17.2 Official Acts by Successor Corporation . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 17.3 Addresses for Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 17.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 17.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 17.6 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 17.7 No Security Interest Created . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 17.8 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 17.9 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 17.10 Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 17.11 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 17.12 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
</TABLE>

EXHIBIT A - FORM OF NOTE

EXHIBIT B - FORM OF PURCHASER LETTER FOR INSTITUTIONAL ACCREDITED
INVESTORS

EXHIBIT C - FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL
SECURITY

EXHIBIT D- FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL
SECURITY

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THIS INDENTURE, dated as of September 12, 1996, is entered into by and
between S3 INCORPORATED, a Delaware corporation (the "Company"), and STATE
STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national banking
association duly organized and existing under the laws of the United States of
America (the "Trustee").

W I T N E S S E T H:

WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its 5-3/4% Convertible Subordinated Notes due 2003 (the
"Notes"), in an aggregate principal amount not to exceed $103,500,000 and, to
provide the terms and conditions upon which the Notes are to be authenticated,
issued and delivered, the Company has duly authorized the execution and
delivery of this Indenture; and

WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a
duly authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents
a valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration
of the premises and of the purchase and acceptance of the Notes by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1 DEFINITIONS. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. All
other terms used in this Indenture, which are defined in the Trust Indenture
Act or which are by reference therein defined in the Securities Act (except as
herein otherwise expressly provided or unless the context otherwise requires)
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
Indenture. The words "herein," "hereof," "hereunder," and words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision. The terms defined in this Article include the
plural as well as the singular.

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<PAGE> 8
"Affiliate" of any specified person shall mean 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.

"Agent Members" has the meaning specified in Section 2.5.

"Applicable Procedures" has the meaning specified in Section 2.5.

"Board of Directors" shall mean the Board of Directors of the Company
or a committee of such Board duly authorized to act for it hereunder.

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

"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which the banking institutions in The City of
New York or the city in which the Corporate Trust Office is located are
authorized or obligated by law or executive order to close or be closed.

"CEDEL" means Cedel Bank, societe anonyme.

"Closing Price" has the meaning specified in Section 15.5.

"Commission" shall mean the Securities and Exchange Commission.

"Common Stock" shall mean any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company and which is not subject to redemption by the Company. Subject to the
provisions of Section 15.6, however, shares issuable on conversion of Notes
shall include only shares of the class designated as common stock of the
Company at the date of this Indenture or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which are not subject to redemption by the Company; provided that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.

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<PAGE> 9
"Company" shall mean S3 Incorporated, a Delaware corporation, and
subject to the provisions of Article XII, shall include its successors and
assigns.

"Conversion Price" shall have the meaning specified in Section 15.4.

"Corporate Trust Office," or other similar term, shall mean the office
of the Trustee at which at any particular time its corporate trust business
shall be principally administered, which office is, at the date as of which
this Indenture is dated, located at 725 South Figueroa Street, Suite 3100, Los
Angeles, California 90017, Attention: Corporate Trust Department (S3
Incorporated, 5-3/4% Convertible Subordinated Notes due 2003).

"Custodian" shall mean State Street Bank and Trust Company of
California, N.A., as custodian with respect to the Notes in global form, or any
successor entity thereto.

"Default" or "default" shall mean any event that is, or after notice
or passage of time, or both, would be, an Event of Default.

"Depositary" shall mean, with respect to the Notes issuable or issued
in whole or in part in global form, the person specified in Section 2.5(e) as
the Depositary with respect to such Notes, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.

"Designated Event" shall have the meaning specified in Section 16.4.

"Euroclear" means the Euroclear System.

"Event of Default" shall mean any event specified in Section 7.1(a),
(b), (c), (d), (e), (f), (g) or (h) continued for the period of time, if any,
and after the giving of notice, if any, therein designated.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

"Global Security" means any of the Restricted Global Security and the
Regulation S Global Security.

"IAI Letter" has the meaning specified in Section 2.3.

"Indebtedness" shall have the meaning specified in Section 7.1(e).

"Initial Purchasers" shall mean Lehman Brothers Inc., PaineWebber
Incorporated, and Cowen & Company, as Initial Purchasers under the Purchase
Agreement.

"Indenture" shall mean this instrument as originally executed or, if
amended or supplemented as herein provided, as so amended or supplemented.

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<PAGE> 10
"Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.

"Note" or "Notes" shall mean any note or notes, as the case may be,
authenticated and delivered under this Indenture.

"Noteholder" or "holder" as applied to any Note, or other similar
terms (but excluding the term "beneficial holder"), shall mean any person in
whose name at the time a particular Note is registered on the Note register.

"Note register" shall have the meaning specified in Section 2.5.

"Officers' Certificate", when used with respect to the Company, shall
mean a certificate signed by (a) one of the President, the Chief Executive
Officer, Executive or Senior Vice President or any Vice President (whether or
not designated by a number or numbers or word added before or after the title
"Vice President") and (b) one of the Treasurer or any Assistant Treasurer,
Secretary or any Assistant Secretary or Controller of the Company, which is
delivered to the Trustee. Each such certificate shall include the statements
provided for in Section 17.5 if and to the extent required by the provisions of
such Section.

"Opinion of Counsel" shall mean an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company, or other counsel
acceptable to the Trustee, which is delivered to the Trustee. Each such
opinion shall include the statements provided for in Section 17.5 if and to the
extent required by the provisions of such Section.

"Outstanding," when used with reference to Notes, shall, subject to
the provisions of Section 9.4, mean, as of any particular time, all Notes
authenticated and delivered by the Trustee under this Indenture, except:

(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;

(b) Notes, or portions thereof, for the payment, or redemption of
which monies in the necessary amount shall have been deposited in trust with
the Trustee or with any paying agent (other than the Company) or shall have
been set aside and segregated in trust by the Company (if the Company shall act
as its own paying agent); provided that if such Notes are to be redeemed, as
the case may be, prior to the maturity thereof, notice of such redemption shall
have been given as provided in Section 3.2, or provision satisfactory to the
Trustee shall have been made for giving such notice;

(c) Notes in lieu of which, or in substitution for which, other Notes
shall have been authenticated and delivered pursuant to the terms of Section
2.6 unless proof satisfactory to the Trustee is presented that any such Notes
are held by bona fide holders in due course; and

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<PAGE> 11
(d) Notes converted into Common Stock pursuant to Article XV and Notes
deemed not outstanding pursuant to Section 3.2.

"Person" or "person" shall mean a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.

"PORTAL Market" shall mean the Private Offerings, Resales and Trading
through Automated Linkages Market operated by the National Association of
Securities Dealers, Inc. or any successor thereto.

"Predecessor Note" of any particular Note shall mean every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note that it replaces.

"Purchase Agreement" shall mean the Purchase Agreement dated September
12, 1996 by and among the Company and the Initial Purchasers.

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

"Regulation S" shall mean Regulation S as promulgated under the
Securities Act.

"Regulation S Global Security" has the meaning specified in Section
2.1.

"Repurchase Price" has the meaning specified in Section 16.1.

"Responsible Officer", when used with respect to the Trustee, shall
mean an officer of the Trustee assigned to the Corporate Trust Office, and any
officer of the Trustee to whom such matter is referred to because of his or her
knowledge of and familiarity with the particular subject.

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

"Restricted Period" has the meaning specified in Section 2.2.

"Restricted Securities" has the meaning specified in Section 2.5(e).

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

"Rule 144A" shall mean Rule 144A as promulgated under the Securities
Act.

"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.

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<PAGE> 12
"Senior Indebtedness" shall mean the principal of, premium, if any,
interest on (including any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law) and any
other payment due pursuant to any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created:

(a) All indebtedness of the Company for money borrowed or
evidenced by notes, debentures, bonds or other securities (including,
but not limited to, those which are convertible or exchangeable for
securities of the Company);

(b) All indebtedness of the Company due and owing with
respect to letters of credit (including, but not limited to,
reimbursement obligations with respect thereto);

(c) All indebtedness or other obligations of the Company
due and owing with respect to interest rate and currency swap
agreements, cap, floor and collar agreements, currency spot and
forward contracts and other similar agreements and arrangements;

(d) All indebtedness consisting of commitment or standby
fees due and payable to lending institutions with respect to credit
facilities or letters of credit available to the Company;

(e) All obligations of the Company under leases required
or permitted to be capitalized under generally accepted accounting
principles;

(f) All indebtedness or obligations of others of the
kinds described in any of the preceding clauses (a), (b), (c), (d) or
(e) assumed by or guaranteed in any manner by the Company or in effect
guaranteed (directly or indirectly) by the Company through an
agreement to purchase, contingent or otherwise, and all obligations of
the Company under any such guarantee or other arrangements; and

(g) All renewals, extensions, refunds, deferrals,
amendments or modifications of indebtedness or obligations of the
kinds described in any of the preceding clauses (a), (b), (c), (d),
(e) or (f);

unless in the case of any particular indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement, the instrument or
other document creating or evidencing the same or the assumption or guarantee
of the same expressly provides that such indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement is subordinate to,
or is not superior to, or is pari passu with, the Notes; provided that Senior
Indebtedness shall not include (i) any indebtedness of any kind of the Company
to any Subsidiary and (ii) indebtedness for trade payables or constituting the
deferred purchase price of assets or services incurred in the ordinary course
of business.

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<PAGE> 13
"Significant Subsidiary" shall mean, with respect to any person, a
Subsidiary of such person organized under the laws of the United States of
America, any state thereof, or the District of Columbia that would constitute a
"significant subsidiary" as such term is defined under Rule 1-02 of Regulation
S-X of the Commission (as such Regulation is in effect on the date hereof).

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

"Trading Day" has the meaning specified in Section 15.5(g)(5).

"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended, as it was in force at the date of execution of this Indenture, except
as provided in Sections 11.3 and 15.6; provided, however, that in the event the
Trust Indenture Act of 1939 is amended after the date hereof, the term "Trust
Indenture Act" shall mean, to the extent required by such amendment, the Trust
Indenture Act of 1939 as so amended.

"Trustee" shall mean State Street Bank and Trust Company of
California, N.A. and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee at the time serving as successor trustee
hereunder.

The definitions of certain other terms are as specified in Article XV
and Article XVI.

ARTICLE II

ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES

SECTION 2.1 DESIGNATION, AMOUNT AND ISSUE OF NOTES. The Notes
shall be designated as "5-3/4% Convertible Subordinated Notes due 2003". Notes
not to exceed the aggregate principal amount of $90,000,000 (or $103,500,000 if
the over-allotment option set forth in Section 2(b) of the Purchase Agreement
is exercised in full) upon the execution of this Indenture, or from time to
time thereafter, may be executed by the Company and delivered to the Trustee
for authentication, and the Trustee shall thereupon authenticate and deliver
said Notes upon the written order of the Company, signed by the Company's (a)
President, Executive or Senior Vice President or any Vice President (whether or
not designated by a number or numbers or word or words added before or after
the title "Vice President") and (b) Treasurer or Assistant Treasurer or its
Secretary or any Assistant Secretary, without any further action by the Company
hereunder.

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<PAGE> 14
SECTION 2.2 FORM OF NOTES. The Notes and the Trustee's
certificate of authentication to be borne by such Notes shall be substantially
in the form set forth in Exhibit A, which is incorporated in and made a part of
this Indenture.

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

Notes offered and sold in their initial distribution in reliance on
Regulation S shall be initially represented by one or more Global Securities
(collectively, the "Regulation S Global Security") issued in fully registered
form without interest coupons, substantially in the form of Note set forth in
Exhibit A, with such applicable legends as are provided for in Exhibit A. Such
Regulation S Global Security shall be registered in the name of the Depositary
or its nominee and deposited with the Custodian, duly executed by the Company
and authenticated by the Trustee as hereinafter provided, for credit to the
respective accounts at the Depositary of the depositories for Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, or CEDEL.
Until such time as the Restricted Period shall have terminated, investors may
hold beneficial interests in such Regulation S Global Securities only through
Euroclear and CEDEL, unless delivery of such beneficial interest shall be made
through the Restricted Global Security in accordance with the certification
requirements discussed below in Section 2.5(b)(3). After such time as the
Restricted Period shall have terminated, such certification requirements shall
no longer be required for such transfers. As used herein, the term "Restricted
Period" means the period up to (but not including) the 40th day following the
later of (i) the date of the commencement of the offering of Notes and (ii) the
last original issuance date of the Notes.

Notes offered and sold in their initial distribution in reliance on
Rule 144A shall be issued in the form of one or more Global Securities
(collectively, the "Restricted Global Security") in fully registered form
without interest coupons, substantially in the form of Note set forth in
Exhibit A, with such applicable legends as are provided for in Exhibit A. Such
Restricted Global Security shall be registered in the name of the Depositary or
its nominee and deposited with the Custodian, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Restricted Global Security may be increased or decreased from
time to time by adjustments made on the records of the Custodian in connection
with a corresponding decrease or increase in the aggregate principal amount of
the Regulation S Global Security, as hereinafter provided.

The terms and provisions contained in the form of Note attached as
Exhibit A hereto shall constitute, and is hereby expressly made, a part of this
Indenture and to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.

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<PAGE> 15
SECTION 2.3 DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST.
The Notes shall be issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof, except that Notes
offered other than in reliance on Regulation S or to QIBs will be issued only
in definitive certificated form and will be issued initially in minimum
denominations of $250,000 and integral multiples of $1,000 in excess thereof.
Such Notes (i.e., Notes sold to Institutional Accredited Investors) will be
subject to restrictions on transfer in accordance with a form of Letter for
Institutional Accredited Investors (the "IAI Letter"), that such investors will
be required to sign, the form of which is attached hereto as Exhibit B. Every
Note shall be dated the date of its authentication, shall bear interest from
the applicable date and shall be payable on the dates specified on the face of
the form of Note, attached as Exhibit A hereto. Interest on the Notes shall be
computed on the basis of a 360-day year comprised of twelve 30-day months.

The person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
interest payment date (including any Note that is converted after the record
date and on or before the interest payment date) shall be entitled to receive
the interest payable on such interest payment date notwithstanding the
cancellation of such Note upon any transfer, exchange or conversion subsequent
to the record date and on or prior to such interest payment date; provided that
in the case of any Note, or portion thereof, called for redemption pursuant to
Article III on a redemption date or repurchased by the Company pursuant to
Article XVI on a repurchase date during the period from the close of business
on the record date to the close of business on the Business Day next preceding
the following interest payment date, interest shall not be paid to the person
in whose name the Note, or portion thereof, is registered on the close of
business on such record date, and the Company shall have no obligation to pay
interest on such Note or portion thereof except to the extent required to be
paid upon such redemption or repurchase in accordance with Article III or
Article XVI. The term "record date" with respect to any interest payment date
shall mean the March 15 or September 15 preceding said April 1 or October 1.

Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any said April 1 or October 1 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of its having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:

(1) The Company may elect to make payment of any
Defaulted Interest to the persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business
on a special record date for the payment of such Defaulted Interest,
which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest to
be paid on each Note and the date of the payment (which shall be not
less than twenty-five (25) days after the receipt by the Trustee of
such notice, unless the Trustee shall consent to an earlier date), and
at the same time the Company shall deposit with the Trustee an amount
of money equal to the aggregate amount to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such

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<PAGE> 16
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the persons entitled
to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a special record date for the payment of such
Defaulted Interest which shall be not more than fifteen (15) days and
not less than ten (10) days prior to the date of the proposed payment
and not less than ten (10) days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such special record date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the special record date therefor to be
mailed, first-class postage prepaid, to each Noteholder at its address
as it appears in the Note register, not less than ten (10) days prior
to such special record date. Notice of the proposed payment of such
Defaulted Interest and the special record date therefor having been so
mailed, such Defaulted Interest shall be paid to the persons in whose
names the Notes (or their respective Predecessor Notes) were
registered at the close of business on such special record date and
shall no longer be payable pursuant to the following clause (2).

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

SECTION 2.4 EXECUTION OF NOTES. The Notes shall be signed in the
name and on behalf of the Company by the facsimile signature of its Chairman of
the Board, its President and Chief Executive Officer, any of its Senior Vice
Presidents, or any of its Vice Presidents (whether or not designated by a
number or numbers or word or words added before or after the title "Vice
President") and attested by the facsimile signature of its Secretary or any of
its Assistant Secretaries (which may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear
thereon a certificate of authentication substantially in the form set forth on
the form of Note attached as Exhibit A hereto, manually executed by the Trustee
(or an authenticating agent appointed by the Trustee as provided by Section
17.11), shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate by the Trustee (or such an
authenticating agent) upon any Note executed by the Company shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.

In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons
as, at the actual date of the execution of such Note, shall be the

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<PAGE> 17
proper officers of the Company, although at the date of the execution of this
Indenture any such person was not such an officer.

SECTION 2.5 EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES;
RESTRICTIONS ON TRANSFER; DEPOSITARY.

(a) The Company shall cause to be kept at the Corporate
Trust Office a register (the register maintained in such office and in
any other office or agency of the Company designated pursuant to
Section 5.2 being herein sometimes collectively referred to as the
"Note register") in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration of
Notes and of transfers of Notes. Such register shall be in written
form or in any form capable of being converted into written form
within a reasonable period of time. The Trustee is hereby appointed
"Note registrar" for the purpose of registering Notes and transfers of
Notes as herein provided. The Company may appoint one or more
co-registrars in accordance with Section 5.2.

Upon surrender for registration of transfer of any Note to the
Note registrar or any co-registrar, and satisfaction of the
requirements for such transfer set forth in this Section 2.5, the
Company shall execute, and the Trustee shall authenticate and deliver,
in the name of the designated transferee or transferees, one or more
new Notes of any authorized denominations and of a like aggregate
principal amount and bearing such restrictive legends as may be
required by this Indenture.

Subject to the other provisions of this Section 2.5(a), Notes
may be exchanged for other Notes of any authorized denominations and
of a like aggregate principal amount, upon surrender of the Notes to
be exchanged at any such office or agency. Whenever any Notes are so
surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Notes which the Noteholder making
the exchange is entitled to receive, bearing registration numbers not
contemporaneously outstanding.

All Notes presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the
Trustee, the Note registrar or any co-registrar) be duly endorsed, or
be accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company and the Trustee and duly executed, by
the Noteholder thereof or its attorney duly authorized in writing.

No service charge shall be charged to the Noteholder for any
exchange or registration of transfer of Notes, but the Company may
require payment of a sum sufficient to cover any tax, assessments or
other governmental charges that may be imposed in connection
therewith.

None of the Company, the Trustee, the Note registrar or any
co-registrar shall be required to exchange or register a transfer of
(a) any Notes for a period of fifteen (15) days next preceding any
selection of Notes to be redeemed or (b) any Notes

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<PAGE> 18
called for redemption or, if a portion of any Note is selected or
called for redemption, such portion thereof selected or called for
redemption or (c) any Notes surrendered for conversion or, if a
portion of any Note is surrendered for conversion, such portion
thereof surrendered for conversion.

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

(b) Notwithstanding any other provisions of this
Indenture or the Notes (but subject to Section 2.2), transfers of a
Global Security, in whole or in part, transfers and exchanges of
interests therein of the kinds described in clauses (2), (3), (4) and
(5) below and exchanges of interests in Global Securities, and
transfers or exchanges of other Notes as described in clause (6)
below, shall be made only in accordance with this Section 2.5(b).
Transfers and exchanges subject to this Section 2.5 shall also be
subject to the other provisions of this Indenture that are not
inconsistent with this Section 2.5.

(1) Limitation on Transfers of a Global Security.
A Global Security may not be transferred, in whole or in part,
to any Person other than the Depositary or a nominee thereof,
and no such transfer to any such other Person may be
registered; provided that this clause (1) shall not prohibit
any transfer of a Note that is issued in exchange for a Global
Security but is not itself a Global Security. No transfer of
a Note to any Person shall be effective under this Indenture
or the Notes unless and until such Note has been registered in
the name of such Person. Nothing in this Section 2.5(b)(1)
shall prohibit or render ineffective any transfer of a
beneficial interest in a Global Security effected in
accordance with the other provisions of this Section 2.5(b).

(2) Restricted Global Security to Regulation S
Global Security. If the holder of a beneficial interest in
the Restricted Global Security wishes at any time to transfer
such interest to a Person who wishes to take delivery thereof
in the form of a beneficial interest in the Regulation S
Global Security, such transfer may be effected, subject to the
rules and procedures of the Depositary, Euroclear and CEDEL,
in each case to the extent applicable (the "Applicable
Procedures"), only in accordance with this Section 2.5(b)(2).
Upon receipt by the Trustee, as Note registrar, at its office
in The City of New York of (A) written instructions given in
accordance with the Applicable Procedures from an Agent Member
directing the Trustee to credit or cause to be credited to a
specified Agent Member's account a beneficial interest in the
Regulation S Global Security in a principal amount equal to
that of the beneficial interest in the Restricted Global
Security to be so transferred, (B) a written order given in
accordance with the Applicable Procedures containing
information regarding the account of the Agent Member (and, if
applicable,

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<PAGE> 19
the Euroclear or CEDEL account, as the case may be) to be credited
with, and the account of the Agent Member to be debited for, such
beneficial interest and (C) a certificate in substantially the form
set forth in Exhibit C given by the holder of such beneficial
interest; the Trustee, as Note registrar, shall instruct the
Depositary to reduce the principal amount of the Restricted Global
Security, and to increase the principal amount of the Regulation S
Global Security, by the principal amount of the beneficial interest in
the Restricted Global Security to be so transferred, and to credit or
cause to be credited to the account of the Person specified in such
instructions (which during the Restricted Period shall be the Agent
Member for Euroclear or CEDEL or both, as the case may be) a
beneficial interest in the Regulation S Global Security having a
principal amount equal to the amount by which the principal amount of
the Restricted Global Security was reduced upon such transfer.

(3) Regulation S Global Security to Restricted
Global Security. If during the Restricted Period the holder
of a beneficial interest in the Regulation S Global Security
wishes to transfer such interest to a Person who wishes to
take delivery thereof in the form of a beneficial interest in
the Restricted Global Security, such transfer may be effected,
subject to the Applicable Procedures, only in accordance with
this Section 2.5(b)(3). Upon receipt by the Trustee, as Note
registrar, at its office in The City of New York of (A)
written instructions given in accordance with the Applicable
Procedures from an Agent Member directing the Trustee to
credit or cause to be credited to a specified Agent Member's
account a beneficial interest in the Restricted Global
Security in a principal amount equal to that of the beneficial
interest in the Regulation S Global Security to be so
transferred, (B) a written order given in accordance with the
Applicable Procedures containing information regarding the
account of the Agent Member to be credited with, and the
account of the Agent Member (and, if applicable, the Euroclear
or CEDEL account, as the case may be) to be debited for, such
beneficial interest and (C) a certificate in substantially the
form set forth in Exhibit D given by the holder of such
beneficial interest, the Trustee, as Note registrar, shall
instruct the Depositary to reduce the principal amount of the
Regulation S Global Security and to increase the principal
amount of the Restricted Global Security, by the principal
amount of the beneficial interest in the Regulation S Global
Security to be so transferred, and to credit or cause to be
credited to the account of the Person specified in such
instructions a beneficial interest in the Restricted Global
Security having a principal amount equal to the amount by
which the principal amount of the Regulation S Global
Security, as the case may be, was reduced upon such transfer.

(4) Exchanges. In the event that a Restricted
Global Security or any portion thereof is exchanged for a
Regulation S Global Security or Notes other than Global
Securities, such Security or Notes may in turn be

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<PAGE> 20
exchanged (on transfer or otherwise) for Notes that are not Global
Securities or for beneficial interests in a Global Security (if any is
then outstanding) only in accordance with such procedures, which shall
be substantially consistent with the provisions of clauses (1) through
(3) above and (5) below (including the certification requirements
intended to insure that the transfers and exchanges of beneficial
interests in a Global Security comply with Rule 144A, Rule 144 or
Regulation S, as the case may be) and any Applicable Procedures, as
may be from time to time adopted by the Company and the Trustee.

(5) Interests in Regulation S Global Security to
be Held Through Euroclear or CEDEL. Until the termination of
the Restricted Period, interests in the Regulation S Global
Security may be held only through Agent Members acting for an
on behalf of Euroclear and CEDEL, provided that this Clause
(5) shall not prohibit any transfer in accordance with Section
2.5(b)(3) hereof.

(6) Notes originally issued to Institutional
Accredited Investors. Notes may be issued other than in
reliance on Rule 144A or Regulation S, and such Notes will be
issued only in definitive certificated form and, initially,
only in minimum denominations of $250,000 and integral
multiples of $1,000 in excess thereof. Such Notes (i.e.,
Notes sold to Institutional Accredited Investors) will be
subject to restrictions on transfer in accordance with the IAI
Letter. Furthermore, in case a Note held by an Institutional
Accredited Investor is to be transferred (whether during or
after the Restricted Period) in a transaction exempt (i)
pursuant to Rule 144A, then the transferor shall deliver a
certificate substantially in the form of Exhibit D hereto, or
(ii) pursuant to Regulation S, then the transferor shall
deliver a certificate substantially in the form of Exhibit C
hereto, in each case with such changes in the second paragraph
thereof as are appropriate to reflect the facts and
circumstances, including that the Holder will be transferring
a Note in the form of a definitive registered certificate.
(However, a transfer or exchange that does not involve any
change in beneficial ownership shall not be considered to be a
transfer that triggers these certification requirements.) The
Company may vary these procedures or impose other reasonable
procedures to ensure compliance with the agreement of such
Holder contained in its IAI Letter.

(c) Each Restricted Security and Global Security issued
hereunder shall, upon issuance, bear the legends required by Section
2.5(e) to be applied and such required legends shall not be removed
except as provided in the next sentence or paragraph (d) of this
Section 2.5. The legend required for a Restricted Security may be
removed if there is delivered to the Company such satisfactory
evidence, which may include an opinion of independent counsel licensed
to practice law in the State of New York, as may be reasonably
required by the Company that neither such legend nor the restrictions
on transfer set forth therein are required to ensure that

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<PAGE> 21
transfers of such Note will not violate the registration requirements
of the Securities Act. Upon provision of such satisfactory evidence,
the Trustee, at the written direction of the Company, shall
authenticate and deliver in exchange for such Notes another Note or
Notes having an equal aggregate principal amount that does not bear
such legend. If such a legend required for a Restricted Security has
been removed from a Note as provided above, no other Note issued in
exchange for all or any part of such Note shall bear such legend,
unless the Company has reasonable cause to believe that such other
Note is a "restricted security" within the meaning of Rule 144 and
instructs the Trustee in writing to cause a legend to appear thereon.

(d) The provisions of clauses (1), (2), (3) and (4) below
shall apply only to Global Securities:

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

(2) Notwithstanding any other provision in this
Indenture or the Notes, no Global Security may be exchanged in
whole or in part for Notes registered, and no transfer of a
Global Security in whole or in part may be registered, in the
name of any Person other than the Depositary or a nominee
thereof unless (A) the Depositary (i) has notified the Company
that it is unwilling or unable to continue as Depositary for
such Global Security or (ii) has ceased to be a clearing
agency registered under the Exchange Act, (B) in the case of a
Global Security held for an account of Euroclear or CEDEL,
Euroclear or CEDEL, as the case may be, (i) is closed for
business for a continuous period of 14 days (other than by
reason of statutory or other holidays) or (ii) announces an
intention permanently to cease business or does in fact do so,
(C) there shall have occurred and be continuing an Event of
Default with respect to such Global Security or (D) a request
for certificates has been made upon the Trustee in accordance
with the Depositary's customary procedures and a copy of such
notice has been received by the Company from the Trustee. Any
Global Security exchanged pursuant to clause (A) or (B) above
shall be so exchanged in whole and not in part and any Global
Security exchanged pursuant to clause (C) or (D) above may be
exchanged in whole or from time to time in part as directed by
the Depositary. Any Note issued in exchange for a Global
Security or any portion thereof shall be a Global Security,
provided that any such Note so issued that is registered in
the name of a Person other than the Depositary or a nominee
thereof shall not be a Global Security.

(3) Notes issued in exchange for a Global
Security or any portion thereof pursuant to clause (2) above
shall be issued in definitive, fully registered form, without
interest coupons, shall have an aggregate principal

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<PAGE> 22
amount equal to that of such Global Security or portion thereof
to be so exchanged, shall be registered in such names and be in
such authorized denominations as the Depositary shall designate
and shall bear any legends required hereunder. Any Global
Security to be exchanged in whole shall be surrendered by the
Depositary to the Trustee, as Note registrar. With regard to
any Global Security to be exchanged in part, either such Global
Security shall be so surrendered for exchange or, if the
Trustee is acting as custodian for the Depositary or its
nominee with respect to such Global Security, the principal
amount thereof shall be reduced, by an amount equal to the
portion thereof to be so exchanged, by means of an appropriate
adjustment made on the records of the Trustee. Upon any such
surrender or adjustment, the Trustee shall authenticate and
make available for delivery the Note issuable on such exchange
to or upon the written order of the Depositary or an authorized
representative thereof.

(4) In the event of the occurrence of any of the
events specified in clause (2) above, the Company will
promptly make available to the Trustee a reasonable supply of
certificated Notes in definitive, fully registered form,
without interest coupons.

(5) Neither any members of, or participants in,
the Depositary ("Agent Members") nor any other Persons on
whose behalf Agent Members may act (including Euroclear and
CEDEL and account holders and participants therein) shall have
any rights under this Indenture with respect to any Global
Security, or under any Global Security, and the Depositary or
such nominee, as the case may be, may be treated by the
Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner and holder of such Global
Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other
authorization furnished by the Depositary or such nominee, as
the case may be, or impair, as between the Depositary, its
Agent Members and any other person on whose behalf an Agent
Member may act, the operation of customary practices of such
Persons governing the exercise of the rights of a holder of
any Note.

(e) Every Note that bears or is required under this
Section 2.5(e) to bear the legend set forth in this Section 2.5(e)
(together with any Common Stock issued upon conversion of the Notes
and required to bear the legend set forth in Section 2.5(f),
collectively, the "Restricted Securities") shall be subject to the
restrictions on transfer set forth in this Section 2.5(e) (including
the legend set forth below), unless such restrictions on transfer
shall be waived by written consent of the Company, and the holder of
each such Restricted Security, by such holder's acceptance thereof,
agrees to be bound by all such restrictions on transfer. As used in
Sections 2.5(e) and 2.5(f), the term "transfer" encompasses any sale,
pledge, transfer or other disposition whatsoever of any Restricted
Security.

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<PAGE> 23
Until three (3) years after the original issuance date of any
Note, any certificate evidencing such Note (and all securities issued
in exchange therefor or substitution thereof, other than Common Stock,
if any, issued upon conversion thereof which shall bear the legend set
forth in Section 2.5(f), if applicable) shall bear a legend in
substantially the following form (unless such Notes have been
transferred pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be
effective at the time of such transfer) or unless otherwise agreed by
the Company in writing, with notice thereof to the Trustee):

THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN
OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY
RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE
COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE ACT (AND WHICH CONTINUES
TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED
HEREBY IS

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<PAGE> 24
TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE) A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THE NOTE EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF SUCH NOTE (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 2(F) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER
AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A., AS TRUSTEE (OR SUCCESSOR TRUSTEE AS APPLICABLE). IF
THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR SUCCESSOR TRUSTEE AS
APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE
EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF
THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.

Any Note (or security issued in exchange or substitution therefor) as
to which such restrictions on transfer shall have expired in accordance with
their terms or as to which the conditions for removal of the foregoing legend
as set forth therein have been satisfied may, upon surrender of such Note for
exchange to the Note registrar in accordance with the provisions of this
Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate
principal amount, which shall not bear the restrictive legend required by this
Section 2.5(e).

The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the Global Securities. Initially, the Global
Securities shall be issued to the Depositary, registered in the name of Cede &
Co., as the nominee of the Depositary, and deposited with the Trustee as
Custodian for Cede & Co.

If at any time the Depositary for a Global Security notifies the
Company that it is unwilling or unable to continue as Depositary for a Global
Security, the Company may appoint a successor Depositary with respect to such
Global Security. If a successor Depositary for a Global Security is not
appointed by the Company within ninety (90) days

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<PAGE> 25
after the Company receives such notice, the Company will execute, and the
Trustee, upon receipt of an Officers' Certificate for the authentication and
delivery of Notes, will authenticate and deliver, Notes in certificated form,
in an aggregate principal amount equal to the principal amount of the Global
Security in exchange for such Global Security and upon delivery of such Global
Security to the Trustee such Global Security shall be canceled.

Notes in certificated form issued in exchange for all or a part of a
Global Security pursuant to this Section 2.5 shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. Upon execution and authentication, the Trustee shall
deliver such Notes in certificated form to the persons in whose names such
Notes in certificated form are so registered.

At such time as all interests in a Global Security have been redeemed,
converted, canceled, repurchased or transferred, such Note in global form shall
be, upon receipt thereof, canceled by the Trustee in accordance with standing
procedures and instructions existing between the Depositary and the Custodian.
At any time prior to such cancellation, if any interest in a Global Security is
exchanged for Notes in certificated form, redeemed, converted, canceled,
repurchased or transferred to a transferee who receives Notes in certificated
form therefor or any Note in certificated form is exchanged or transferred for
part of a Global Security, the principal amount of such Global Security shall,
in accordance with the standing procedures and instructions existing between
the Depositary and the Custodian, be appropriately reduced or increased, as the
case may be, and an endorsement shall be made on such Global Security, by the
Trustee or the Custodian, at the direction of the Trustee, to reflect such
reduction or increase.

(f) Until three (3) years after the original issuance date of any
Note, any stock certificate representing Common Stock issued upon conversion of
such Note shall bear a legend in substantially the following form (unless such
Common Stock has been sold pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be
effective at the time of such transfer) or such Common Stock has been issued
upon conversion of Notes that have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act or unless
otherwise agreed by the Company with written notice thereof to the Trustee and
any transfer agent for the Common Stock):

THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL
THE EXPIRATION OF THREE YEARS AFTER THE ORIGINAL ISSUANCE OF
THE NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK
EVIDENCED HEREBY WAS ISSUED, (1) IT WILL NOT RESELL OR

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<PAGE> 26
OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE
COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO
SUCH TRANSFER, FURNISHES TO THE FIRST NATIONAL BANK OF BOSTON, AS
TRANSFER AGENT, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON
STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
SUCH TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY SUCH
TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT
WILL FURNISH TO THE FIRST NATIONAL BANK OF BOSTON, AS TRANSFER AGENT,
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT
WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY
IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL
BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK
EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR THE EXPIRATION OF
THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION
OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR UPON THE
EARLIER SATISFACTION OF THE FIRST NATIONAL BANK OF BOSTON, AS TRANSFER
AGENT (OR SUCCESSOR TRANSFER AGENT AS APPLICABLE), THAT THE COMMON
STOCK HAS BEEN OR IS BEING OFFERED AND SOLD IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.

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<PAGE> 27
Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms or as to which the conditions for
removal of the foregoing legend as set forth therein have been satisfied may,
upon surrender of the certificates representing such shares of Common Stock for
exchange in accordance with the procedures of the transfer agent for the Common
Stock, be exchanged for a new certificate or certificates for a like aggregate
number of shares of Common Stock, which shall not bear the restrictive legend
required by this Section 2.5(f).

(g) Any certificate evidencing a Note that has been transferred to
an Affiliate of the Company within three years after the original issuance date
of the Note, as evidenced by a notation on the assignment form for such
transfer or in the representation letter delivered in respect thereof, for so
long as such Note is held by such Affiliate, shall, until three years after the
last date on which the Company or any Affiliate of the Company was an owner of
such Note, in each case, bear a legend in substantially the following form,
unless otherwise agreed by the Company (with written notice thereof to the
Trustee):

THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER AGREES (1) THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE
NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF
SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) IN
A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OR (C) PURSUANT TO
THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) AND (2) THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND SHALL BE
REMOVED UPON THE TRANSFER OF THE NOTE EVIDENCED HEREBY OR THE COMMON
STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE PURSUANT TO THE
IMMEDIATELY PRECEDING SENTENCE. IF THE PROPOSED TRANSFER IS PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE,
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

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<PAGE> 28
Any stock certificate representing Common Stock issued upon conversion
of such Note shall also bear a legend in substantially the form
indicated above, unless otherwise agreed by the Company (with written
notice thereof to the Trustee).

(h) Notwithstanding any provision of Section 2.5 to the
contrary, in the event Rule 144(k) as promulgated under the Securities
Act (or any successor rule) is amended to shorten the three-year
period under Rule 144(k) (or the corresponding period under any
successor rule), from and after receipt by the Trustee of the
Officers' Certificate and Opinion of Counsel provided for in this
Section 2.5(h), (i) the references in the first sentence of the second
paragraph of Section 2.5(e) to "three (3) years" and in the
restrictive legend set forth in such paragraph to "THREE YEARS" shall
be deemed for all purposes hereof to be references to such shorter
period, (ii) the references in the first paragraph of Section 2.5(f)
to "three (3) years" and in the restrictive legend set forth in such
paragraph to "THREE YEARS" shall be deemed for all purposes hereof to
be references to such shorter period and (iii) all corresponding
references in the Notes and the restrictive legends on the Restricted
Securities shall be deemed for all purposes hereof to be references to
such shorter period, provided that such changes shall not become
effective if they are otherwise prohibited by, or would otherwise
cause a violation of, the then-applicable federal securities laws. As
soon as practicable after the Company has knowledge of the
effectiveness of any such amendment to shorten the three-year period
under Rule 144(k) (or the corresponding period under any successor
rule), unless such changes would otherwise be prohibited by, or would
otherwise cause a violation of, the then-applicable securities law,
the Company shall provide to the Trustee an Officers' Certificate and
Opinion of Counsel informing the Trustee of the effectiveness of such
amendment and the effectiveness of the foregoing changes to Sections
2.5(e) and 2.5(f) and the restrictive legends on the Restricted
Securities. The provisions of this Section 2.5(h) will not be
effective until such time as the Opinion of Counsel and Officer's
Certificate have been received by the Trustee hereunder. This Section
2.5(h) shall apply to successive amendments to Rule 144(k) (or any
successor rule) shortening the holding period thereunder.

SECTION 2.6 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. In case
any Note shall become mutilated or be destroyed, lost or stolen, the Company in
its discretion may execute, and upon its request the Trustee or an
authenticating agent appointed by the Trustee shall authenticate and deliver, a
new Note, bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated Note, or in lieu of and in substitution for the
Note so destroyed, lost or stolen. In every case the applicant for a
substituted Note shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless for any loss, liability, cost or
expense caused by or connected with such substitution, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Company, to
the Trustee and, if applicable, to such authenticating agent evidence to their
satisfaction of the destruction, loss or theft of such Note and of the
ownership thereof.

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<PAGE> 29
The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, 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 connected
therewith. In case any Note which has matured or is about to mature or has
been called for redemption or is about to be converted into Common Stock shall
become mutilated or be destroyed, lost or stolen, the Company may, instead of
issuing a substitute Note, pay or authorize the payment of or convert or
authorize the conversion of the same (without surrender thereof except in the
case of a mutilated Note), as the case may be, if the applicant for such
payment or conversion shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless for any loss, liability, cost or
expense caused by or connected with such substitution, and, in case of
destruction, loss or theft, evidence satisfactory to the Company, the Trustee
and, if applicable, any paying agent or conversion agent of the destruction,
loss or theft of such Note and of the ownership thereof.

Every substitute Note issued pursuant to the provisions of this
Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether
or not the destroyed, lost or stolen Note shall be found at any time, and shall
be entitled to all the benefits of (but shall be subject to all the limitations
set forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall
be held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of
mutilated, destroyed, lost or stolen Notes and shall preclude any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or payment or
conversion of negotiable instruments or other securities without their
surrender.

SECTION 2.7 TEMPORARY NOTES. Pending the preparation of Notes in
certificated form, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in
the form of the Notes in certificated form but with such omissions, insertions
and variations as may be appropriate for temporary Notes, all as may be
determined by the Company. Every such temporary Note shall be executed by the
Company and authenticated by the Trustee or such authenticating agent upon the
same conditions and in substantially the same manner, and with the same effect,
as the Notes in certificated form. Without unreasonable delay the Company will
execute and deliver to the Trustee or such authenticating agent Notes in
certificated form (other than in the case of Notes in global form) and
thereupon any or all temporary Notes (other than any such Note in global form)
may be surrendered in exchange therefor, at each office or agency maintained by
the Company pursuant to Section 5.2 and the Trustee or such authenticating
agent shall authenticate and deliver in exchange for such temporary Notes an
equal aggregate principal amount of Notes in certificated form. Such exchange
shall be made by the Company at its own expense and without any charge
therefor. Until so exchanged, the

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<PAGE> 30
temporary Notes shall in all respects be entitled to the same benefits and
subject to the same limitations under this Indenture as Notes in certificated
form authenticated and delivered hereunder.

SECTION 2.8 CANCELLATION OF NOTES PAID, ETC. All Notes
surrendered for the purpose of payment, redemption, repurchase, conversion,
exchange or registration of transfer, shall, if surrendered to the Company or
any paying agent or any Note registrar or any conversion agent, be surrendered
to the Trustee and promptly canceled by it, or, if surrendered to the Trustee,
shall be promptly canceled by it, and no Notes shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. Upon
written instructions of the Company, the Trustee shall destroy canceled Notes
and, after such destruction, shall deliver a certificate of such destruction to
the Company. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are delivered to the
Trustee for cancellation.

ARTICLE III

REDEMPTION OF NOTES

SECTION 3.1 REDEMPTION PRICES. The Company may, at its option,
redeem all or from time to time, but in no circumstance prior to October 8,
1999, any part of the Notes on any date prior to maturity, upon notice as set
forth in Section 3.2, at the redemption price as set forth in the following
schedule (expressed in percentage of the principal amount), together with
accrued interest, if any, to, but excluding, the date fixed for redemption:
If redeemed during the 12-month period beginning October 1
(October 8 in the case of 1999):

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999 102%
2000 101%

2001 and thereafter 100%
</TABLE>

SECTION 3.2 NOTICE OF REDEMPTION; SELECTION OF NOTES. In case
the Company shall desire to exercise the right to redeem all or, as the case
may be, any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption, and it, or at its request (which must be received by the Trustee at
least ten (10) Business Days prior to the date the Trustee is requested to give
notice as described below unless a shorter period is agreed to by the Trustee),
the Trustee in the name of and at the expense of the Company, shall mail or
cause to be mailed a notice of such redemption at least twenty (20) and not
more than sixty (60) days prior to the date fixed for redemption to the holders
of Notes so to be redeemed as a whole or in part at their last addresses as the
same appear on the Note register (provided that if the Company shall give such
notice, it shall also give such notice, and notice of the

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<PAGE> 31
Notes to be redeemed to the Trustee). Such mailing shall be by first class
mail. The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice. In any case, failure to give such notice by mail or any defect in the
notice to the holder of any Note designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Note.

Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the date fixed for redemption, the redemption
price at which Notes are to be redeemed, the place or places of payment, that
payment will be made upon presentation and surrender of such Notes, that
interest accrued to, but excluding, the date fixed for redemption will be paid
as specified in said notice, and that on and after said date interest thereon
or on the portion thereof to be redeemed will cease to accrue. Such notice
shall also state the current Conversion Price and the date on which the right
to convert such Notes or portions thereof into Common Stock will expire. If
fewer than all the Notes are to be redeemed, the notice of redemption shall
identify the Notes to be redeemed. In case any Note is to be redeemed in part
only, the notice of redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that on and after the date fixed for
redemption, upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion thereof will be issued.

On or prior to the redemption date specified in the notice of
redemption given as provided in this Section, the Company will deposit with the
Trustee or with one or more paying agents (or, if the Company is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
5.4) an amount of money sufficient to redeem on the redemption date all the
Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; provided that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m. New York City time, on such date. If any Note called for
redemption is converted pursuant hereto, any money deposited with the Trustee
or any paying agent or so segregated and held in trust for the redemption of
such Note shall be paid to the Company upon its request, or, if then held by
the Company shall be discharged from such trust. If fewer than all the Notes
are to be redeemed the Company will give the Trustee written notice in the form
of an Officers' Certificate not fewer than forty-five (45) days (or such
shorter period of time as may be acceptable to the Trustee) prior to the
redemption date as to the aggregate principal amount of Notes to be redeemed.

If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed (in principal amounts of
$1,000 or integral multiples thereof), by lot or, in its sole discretion, on a
pro rata basis, with such adjustments, up to $1,000, in order to retain the
minimum denominations of the Notes. If any Note selected for partial
redemption is converted in part after such selection, the converted portion of
such Note shall be deemed (so far as may be) to be the portion to be selected
for redemption. The Notes (or portions thereof) so selected shall be deemed
duly selected for redemption for

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<PAGE> 32
all purposes hereof, notwithstanding that any such Note is converted as a whole
or in part before the mailing of the notice of redemption. If any Note is to
be redeemed in part only, a new Note or Notes in principal amount equal to the
unredeemed principal portion thereof shall be issued.

Upon any redemption of less than all Notes, the Company and the
Trustee may (but need not) treat as outstanding any Notes surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as not outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.

SECTION 3.3 PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and payable on the date and at
the place or places stated in such notice at the applicable redemption price,
together with interest accrued to, but excluding, the date fixed for
redemption, and on and after said date (unless the Company shall default in the
payment of such Notes at the redemption price, together with interest accrued
to, but excluding said date) interest on the Notes or portion of Notes so
called for redemption shall cease to accrue and such Notes shall cease after
the close of business on the fifth Business Day next preceding the date fixed
for redemption to be convertible into Common Stock and, except as provided in
Sections 8.5 and 13.4, to be entitled to any benefit or security under this
Indenture, and the holders thereof shall have no right in respect of such Notes
except the right to receive the redemption price thereof and unpaid interest
to, but excluding, the date fixed for redemption. On presentation and
surrender of such Notes at a place of payment in said notice specified, the
said Notes or the specified portions thereof to be redeemed shall be paid and
redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to, but excluding, the date fixed for redemption;
provided that, if the applicable redemption date is an interest payment date,
the semi-annual payment of interest becoming due on such date shall be payable
to the holders of such Notes registered as such on the relevant record date
subject to the terms and provisions of Section 2.3 hereof.

Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof,
at the expense of the Company, a new Note or Notes, of authorized
denominations, in principal amount equal to the unredeemed portion of the Notes
so presented.

Notwithstanding the foregoing, the Trustee shall not redeem any Notes
or mail any notice of optional redemption during the continuance of a default
in payment of interest or premium on the Notes or of any Event of Default of
which, in the case of any Event of Default other than under Section 7.1(a) or
(b), a Responsible Officer of the Trustee has knowledge. If any Note called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note

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shall remain convertible into Common Stock until the principal and premium, if
any, shall have been paid or duly provided for.

SECTION 3.4 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more
investment bankers or other purchasers to purchase such Notes by paying to the
Trustee in trust for the Noteholders, on or before the date fixed for
redemption, an amount not less than the applicable redemption price, together
with interest accrued to the date fixed for redemption, of such Notes.
Notwithstanding anything to the contrary contained in this Article III, the
obligation of the Company to pay the redemption price of such Notes, together
with interest accrued to, but excluding, the date fixed for redemption, shall
be deemed to be satisfied and discharged to the extent such amount is so paid
by such purchasers. If such an agreement is entered into, a copy of which will
be filed with the Trustee prior to the date fixed for redemption, any Notes 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 XV) surrendered by such purchasers for conversion, all as
of immediately prior to the close of business on the date fixed for redemption
(and the right to convert any such Notes shall be deemed to have been extended
through such time), subject to payment of the above amount as aforesaid. At
the direction of the Company, the Trustee shall hold and dispose of any such
amount paid to it in the same manner as it would monies deposited with it by
the Company for the redemption of Notes. Without the Trustee's prior written
consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Notes 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
Notes between the Company and such purchasers to which the Trustee has not
consented in writing, 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.

ARTICLE IV

SUBORDINATION OF NOTES

SECTION 4.1 AGREEMENT OF SUBORDINATION. The Company covenants
and agrees, and each holder of Notes issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article IV; and each person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.

The payment of the principal of, premium, if any, and interest on all
Notes (including, but not limited to, the redemption price or repurchase price
with respect to the

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Notes to be redeemed or repurchased, as provided in this Indenture) issued
hereunder shall, to the extent and in the manner hereinafter set forth, be
subordinated and subject in right of payment to the prior payment in full of
all Senior Indebtedness, whether outstanding at the date of this Indenture or
thereafter incurred.

No provision of this Article IV shall prevent the occurrence of any
default or Event of Default hereunder.

SECTION 4.2 PAYMENTS TO NOTEHOLDERS. In the event and during the
continuation of any default in the payment of principal, premium, interest or
any other payment due on any Senior Indebtedness (or, in the case of Senior
Indebtedness for which there is a period of grace, in the event of such a
default that continues beyond the period of grace, if any, specified in the
instrument or lease evidencing such Senior Indebtedness), then, unless and
until such default shall have been cured or waived or shall have ceased to
exist, no payment shall be made by the Company with respect to the principal
of, or premium, if any, or interest on the Notes (including, but not limited
to, the redemption price or repurchase price with respect to the Notes to be
redeemed or repurchased, as provided in this Indenture) except payments made
pursuant to Article XIII from monies deposited with the Trustee pursuant
thereto prior to the happening of such default.

In the event (i) any event of default with respect to any Senior
Indebtedness shall have occurred and be continuing which permits the holders of
such Senior Indebtedness (or a trustee or other representative 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, upon written
notice thereof to the Company and the Trustee by any holders of Senior
Indebtedness to which such event of default relates (or a trustee or other
representative on behalf of the holders thereof) (a "Senior Default Notice"),
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 (ii) any judicial proceeding shall be pending with respect to any
such event of default, then no payment shall be made by the Company, directly
or indirectly, with respect to principal of, premium, if any, or interest on
the Notes, provided, however, that clause (i) of this paragraph shall not
prevent the making of any such payment for more than 179 days after a Senior
Default Notice shall have been received by the Trustee unless the Senior
Indebtedness in respect of which such event of default exists has been declared
due and payable in its entirety, in which case no such payment may be made
until such acceleration has been rescinded or annulled or such Senior
Indebtedness has been paid in full. Notwithstanding the foregoing, no event of
default which existed or was continuing on the date of any Senior Default
Notice shall be made the basis for the giving of a second Senior Default
Notice; and, provided, further, that only one such Senior Default Notice may be
given during any period of 360 consecutive days, regardless of the number of
defaults with respect to Senior Indebtedness during such 360-day period.
Notwithstanding the foregoing, the Company may make and the Trustee may receive
and shall apply any payment in respect of the Notes (for principal, and
premium, if any, or interest) if such payment was made prior to the occurrence
of any of the contingencies specified in clauses (i) and (ii) above. In
addition, nothing in this paragraph shall prevent the Company from making or
the Trustee from receiving or applying any

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payment in connection with the redemption of the Notes if the first publication
of notice of redemption (whether by mail or otherwise in accordance with this
Indenture) has been made prior to the occurrence of any of the contingencies
specified in clauses (i) and (ii) above.

Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due upon all Senior Indebtedness shall first be paid in full, or
payment thereof provided for in money in accordance with its terms, before any
payment is made on account of the principal (and premium, if any) or interest
on the Notes (except payments made pursuant to Article XIII from monies
deposited with the Trustee pursuant thereto prior to the happening of such
dissolution, winding-up, liquidation or reorganization or bankruptcy,
insolvency, receivership or other such proceedings); and upon any such
dissolution or winding-up or liquidation or reorganization or bankruptcy,
insolvency, receivership or other such proceedings, any payment by the Company,
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holders of the Notes or the Trustee
under this Indenture would be entitled, except for the provision of this
Article IV, shall (except as aforesaid) be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holders of the Notes or by the
Trustee under this Indenture if received by them or it, directly to the holders
of Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders, or as otherwise required
by law or a court order) or their respective representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, 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, before any payment
or distribution is made to the holders of the Notes or to the Trustee under
this Indenture.

In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities (including, without limitation, by way of setoff
or otherwise), prohibited by the foregoing, shall be received by the Trustee
under this Indenture or by any holders of the Notes before all Senior
Indebtedness is paid in full, or provision is made for such payment in
accordance with its terms, such payment or distribution shall be held by the
recipient or recipients in trust for the benefit of, and shall be paid over or
delivered to, the holders of Senior Indebtedness or their respective
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in accordance with its terms, after giving effect to any concurrent payment or
distribution (or provision therefor) to or for the holders of such Senior
Indebtedness.

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For purposes of this Article IV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated (at least to the extent provided in this
Article IV with respect to the Notes) to the payment of all Senior Indebtedness
which may at the time be outstanding; provided that (i) the Senior Indebtedness
is assumed by the new corporation, if any, resulting from such reorganization
or adjustment, and (ii) the rights of the holders of Senior Indebtedness (other
than leases which are not assumed by the Company or by the new corporation, as
the case may be) are not, without the consent of such holders, altered by such
reorganization or readjustment. The consolidation of the Company with, or the
merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of all or
substantially all its property to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 4.2
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
Nothing in this Section 4.2 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to
the further provisions of Section 4.5.

SECTION 4.3 SUBROGATION OF NOTES. Subject to the payment in full
of all Senior Indebtedness, the rights of the holders of the Notes 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 IV
(equally and ratably with the holders of all indebtedness of the Company which
by its express terms is subordinated to other indebtedness of the Company to
substantially the same extent as the Notes are subordinated and is entitled to
like rights of subrogation) to the rights of the holders of Senior Indebtedness
to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Notes shall be paid in full; and, for the
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 Notes or the Trustee would be entitled except for the provisions
of this Article IV, and no payment over pursuant to the provisions of this
Article IV, to or for the benefit of the holders of Senior Indebtedness by
holders of the Notes or the Trustee, shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the holders of the
Notes, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness; and no payments or distributions of cash, property or securities
to or for the benefit of the holders of the Notes pursuant to the subrogation
provisions of this Article IV, which would otherwise have been paid to the
holders of Senior Indebtedness shall be deemed to be a payment by the Company
to or for the account of the Notes. It is understood that the provisions of
this Article IV are and are intended solely for the purposes of defining the
relative rights of the holders of the Notes, on the one hand, and the holders
of the Senior Indebtedness, on the other hand.

Nothing contained in this Article IV or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the holders of the
Notes, the obligation of the Company, which is

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absolute and unconditional, to pay to the holders of the Notes the principal of
(and premium, if any) and interest on the Notes as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Notes and creditors of
the Company other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the Trustee or the holder of any Note from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article IV of
the holders of Senior Indebtedness in respect of cash, property or securities
of the Company received upon the exercise of any such remedy.

Upon any payment or distribution of assets of the Company referred to
in this Article IV, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
Trustee or to the holders of the Notes, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article IV.

SECTION 4.4 AUTHORIZATION BY NOTEHOLDERS. Each holder of a Note
by its acceptance thereof authorizes and directs the Trustee on its behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article IV and appoints the Trustee its
attorney-in-fact for any and all such purposes.

SECTION 4.5 NOTICE TO TRUSTEE. The Company shall give prompt
written notice in the form of an Officers' Certificate to a Responsible Officer
of the Trustee and to any paying agent of any fact known to the Company which
would prohibit the making of any payment of monies to or by the Trustee or any
paying agent in respect of the Notes pursuant to the provisions of this Article
IV. Notwithstanding the provisions of this Article IV or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any Senior Indebtedness or of any default or event of default with
respect to any Senior Indebtedness or of any other facts which would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Notes pursuant to the provisions of this Article IV, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
at the Corporate Trust Office from the Company (in the form of an Officers'
Certificate) or a holder or holders of Senior Indebtedness or from any trustee
thereof who shall have been certified by the Company or otherwise established
to the reasonable satisfaction of the Trustee to be such holder or trustee; and
before the receipt of any such written notice, the Trustee, subject to the
provisions of Section 8.1, shall be entitled in all respects to assume that no
such facts exist; provided that if on a date at least two (2) Business Days
prior to the date upon which by the terms hereof any such monies may become
payable for any purpose (including, without limitation, the payment of the
principal of, or premium, if any, or interest on any Note), the Trustee shall
not have received with respect to such monies the notice provided for in this
Section 4.5, then,

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anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such monies and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such prior date.

Notwithstanding anything to the contrary hereinbefore set forth,
nothing shall prevent (a) any payment by the Company or the Trustee to the
Noteholders of amounts in connection with a redemption of Notes if (i) notice
of such redemption has been given pursuant to Article III prior to the receipt
by the Trustee of written notice as aforesaid, and (ii) such notice of
redemption is given not earlier than sixty (60) days before the redemption
date, (b) any payment by the Company or the Trustee to the Noteholders of
amounts in connection with a repurchase of Notes if (i) notice of such
repurchase has been given pursuant to Article XVI prior to the receipt by the
Trustee of written notice as aforesaid, and (ii) such notice of repurchase is
given not earlier than forty (40) days before the repurchase date, or (c) any
payment by the Trustee to the Noteholders of monies deposited with it pursuant
to Section 13.1.

The Trustee, subject to the provisions of Section 8.1, shall be
entitled to rely on the delivery to it of a written notice by a person
representing itself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of Senior Indebtedness or a trustee on behalf of any such holder or holders.
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article IV, 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 IV, 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 4.6 TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The
Trustee and any agent of the Company or the Trustee in its individual capacity
shall be entitled to all the rights set forth in this Article IV in respect of
any Senior Indebtedness at any time held by it, to the same extent as any other
holder of Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this
Indenture shall deprive the Trustee or any such agent of any of its rights as
such holder. Nothing in this Article IV shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 8.6.

With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Indebtedness and, subject to
the provisions of Section 4.2 and Section 8.1, the Trustee shall not be liable
to any holder of Senior Indebtedness if it shall pay over or deliver to holders
of Notes, the Company or any

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other person money or assets to which any holder of Senior Indebtedness shall
be entitled by virtue of this Article IV or otherwise.

SECTION 4.7 NO IMPAIRMENT OF SUBORDINATION. 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 noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.

SECTION 4.8 CERTAIN CONVERSIONS DEEMED PAYMENT. For the purposes
of this Article only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of (or
premium, if any) or interest on Notes or on account of the purchase or other
acquisition of Notes, and (2) the payment, issuance or delivery of cash (except
in satisfaction of fractional shares pursuant to Section 15.3), property or
securities (other than junior securities) upon conversion of a Note shall be
deemed to constitute payment on account of the principal of such Note. 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 payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Notes are so
subordinated aa provided in this Article. Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the holders of the Notes, the right, which is absolute and unconditional, of
the holder of any Note to convert such Note in accordance with Article XV.

ARTICLE V

PARTICULAR COVENANTS OF THE COMPANY

SECTION 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The
Company covenants and agrees that it will duly and punctually pay or cause to
be paid the principal of and premium, if any, and interest on each of the Notes
at the places, at the respective times and in the manner provided herein and in
the Notes. Each installment of interest on the Notes due on any semi-annual
interest payment date may be paid by mailing checks for the interest payable to
or upon the written order of the holders of Notes entitled thereto as they
shall appear on the Note register, provided that, with respect to any holder of
Notes with an aggregate principal amount equal to or in excess of $5,000,000,
at the request of such holder in writing to the Company (who shall then furnish
written notice to the Trustee), interest on such holder's Notes shall be paid
by wire transfer in immediately available funds in accordance with the wire
transfer instructions supplied by such holder to the Trustee and paying agent
(if different from Trustee).

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SECTION 5.2 MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Notes may be surrendered for registration of transfer or exchange or
for presentation for payment or for conversion, redemption or repurchase and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company will give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office or the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York.

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

The Company hereby initially designates the Trustee as paying agent,
Note registrar, Custodian and conversion agent and the Corporate Trust Office
and the office or agency of the Trustee in the Borough of Manhattan, The City
of New York (which shall initially be State Street Bank and Trust Company,
N.A., an Affiliate of the Trustee, at 61 Broadway, Concourse Level, Corporate
Trust Window, New York, New York, 10006) as one such office or agency of the
Company for each of the aforesaid purposes.

So long as the Trustee is the Note registrar, the Trustee agrees to
mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the
third paragraph of Section 8.11.

SECTION 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so
that there shall at all times be a Trustee hereunder.

SECTION 5.4 PROVISIONS AS TO PAYING AGENT.

(a) If the Company shall appoint a paying agent other than the
Trustee or if the Trustee shall appoint such a paying agent, it will
cause such paying agent to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject
to the provisions of this Section 5.4:

(1) that it will hold all sums held by it as such
agent for the payment of the principal of and premium, if any,
or interest on the Notes (whether such sums have been paid to
it by the Company or by any other obligor on the Notes) in
trust for the benefit of the holders of the Notes;

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(2) that it will give the Trustee notice of any
default by the Company (or by any other obligor on the Notes)
in the making of any payment of the principal of and premium,
if any, or interest on the Notes when the same shall be due
and payable; and

(3) that at any time during the continuance of any
such default, upon request of the Trustee, it will forthwith
pay to the Trustee all sums so held in trust.

The Company shall, on or before each due date of the principal
of, premium, if any, or interest on the Notes, deposit with the paying
agent a sum sufficient to pay such principal, premium, if any, or
interest, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of any failure to take such action,
provided that if such deposit is made on the due date, such deposit
must be received by the paying agent by 10:00 a.m., New York City
time, on such date.

(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or
interest on the Notes, set aside, segregate and hold in trust for the
benefit of the holders of the Notes a sum sufficient to pay such
principal, premium, if any, or interest so becoming due and will
notify the Trustee of any failure to take such action and of any
failure by the Company (or any other obligor under the Notes) to make
any payment of the principal of, premium, if any, or interest on the
Notes when the same shall become due and payable.

(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of
obtaining a satisfaction and discharge of this Indenture, or for any
other reason, pay or cause to be paid to the Trustee all sums held in
trust by the Company or any paying agent hereunder as required by this
Section 5.4, such sums to be held by the Trustee upon the trusts
herein contained and upon such payment by the Company or any paying
agent to the Trustee, the Company or such paying agent shall be
released from all further liability with respect to such sums.

(d) Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in
this Section 5.4 is subject to Sections 13.3 and 13.4.

SECTION 5.5 EXISTENCE. Subject to Article XII, the Company will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence.

SECTION 5.6 RULE 144A INFORMATION REQUIREMENT. During the period
beginning on the latest date of the original issuance of any of the Notes and
ending on the date that is three years from such date, the Company covenants
and agrees that it shall, during any period in which it is not subject to
Section 13 or 15(d) under the Exchange Act, make

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available to any holder or beneficial holder of Notes or any Common Stock
issued upon conversion thereof, in each case which continue to be Restricted
Securities, in connection with any sale thereof and any prospective purchaser
(as identified by such holder or beneficial holder) of Notes or such Common
Stock from such holder or beneficial holder, the information required pursuant
to Rule 144A(d)(4) under the Securities Act upon the request of any holder or
beneficial holder of the Notes or such Common Stock and it will take such
further action as any holder or beneficial holder of such Notes or such Common
Stock may reasonably request, all to the extent required from time to time to
enable such holder or beneficial holder to sell its Notes or Common Stock
without registration under the Securities Act within the limitation of the
exemption provided by Rule 144A, as such rule may be amended from time to time.
Upon the request of any holder or any beneficial holder of the Notes or such
Common Stock, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.

SECTION 5.7 STAY, EXTENSION AND USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal
of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and the Company (to the extent it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law has been
enacted.

SECTION 5.8 COMPLIANCE CERTIFICATE. 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 31, 1996) an Officers'
Certificate stating whether or not the signers know of any Event of Default
that occurred during such period. If they do, such Officers' Certificate shall
describe the Event of Default and its status.

SECTION 5.9 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.

ARTICLE VI

NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

SECTION 6.1 NOTEHOLDERS' LISTS. The Company covenants and agrees
that it will furnish or cause to be furnished to the Trustee, semi-annually,
not more than fifteen (15) days after each March 15 and September 15 in each
year beginning with March 15, 1997,

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and at such other times as the Trustee may request in writing, within thirty
(30) days after receipt by the Company of any such request (or such lesser time
as the Trustee may reasonably request in order to enable it to timely provide
any notice to be provided by it hereunder), a list in such form as the Trustee
may reasonably require of the names and addresses of the holders of Notes as of
a date not more than fifteen (15) days (or such other date as the Trustee may
reasonably request in order to so provide any such notices) prior to the time
such information is furnished, except that no such list need be furnished so
long as the Trustee is acting as Note registrar.

SECTION 6.2 PRESERVATION AND DISCLOSURE OF LISTS.

(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses
of the holders of Notes contained in the most recent list furnished to
it as provided in Section 6.1 or maintained by the Trustee in its
capacity as Note registrar, if so acting. The Trustee may destroy any
list furnished to it as provided in Section 6.1 upon receipt of a new
list so furnished.

(b) The rights of Noteholders to communicate with other
holders of Notes with respect to their rights under this Indenture or
under the Notes and the corresponding rights and duties of the
Trustee, shall be as provided by the Trust Indenture Act.

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

SECTION 6.3 REPORTS BY TRUSTEE.

(a) Within 60 days after September 15 of each year commencing
with the year 1997, the Trustee shall transmit to holders of Notes
such reports dated as of September 15 of the year in which such
reports are made concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust Indenture Act at
the times and in the manner provided pursuant thereto.

(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each
stock exchange and automated quotation system upon which the Notes are
listed and with the Company. The Company will notify the Trustee when
the Notes are listed on any stock exchange or automated quotation
system and when any such listing is discontinued.

SECTION 6.4 REPORTS BY COMPANY. The Company shall file with the
Trustee (and the Commission if at any time after the Indenture becomes
qualified under the Trust Indenture Act) for transmission to holders of Notes
such information, documents and other

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reports and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall
be filed with the Trustee within 15 days after the same is so required to be
filed with the Commission.

The Company will deliver to the Trustee (a) as soon as available and
in any event within ninety (90) days after the end of each fiscal year of the
Company (i) a consolidated balance sheet of the Company and its subsidiaries as
of the end of such fiscal year and the related consolidated statements of
operations, stockholders' equity and cash flows for such fiscal year, all
reported on by an independent public accountant of nationally recognized
standing and (ii) a report containing a management's discussion and analysis of
the financial condition and results of operations and a description of the
business and properties of the Company and (b) as soon as available and in any
event within forty five (45) days after the end of each of the first three
quarters of each fiscal year of the Company (i) an unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of each such
quarter and the related consolidated statements of operations and cash flows
for such fiscal quarter and (ii) a report containing a management's discussion
and analysis of the financial condition and results of operations of the
Company for such quarter; provided that the foregoing statements and reports
shall not be required for any fiscal year or quarter, as the case may be, with
respect to which the Company files or expects to file with the Trustee an
annual report or quarterly report, as the case may be, pursuant to the
preceding paragraph of this Section 6.4. The Trustee shall have no liability
as regards the substance of the information provided by the Company or its
agents pursuant to this Section 6.4.

ARTICLE VII

DEFAULTS AND REMEDIES

SECTION 7.1 EVENTS OF DEFAULT. In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:

(a) default in the payment of the principal of and premium on
any of the Notes as and when the same shall become due and payable
either at maturity or in connection with any redemption, by
declaration or otherwise, whether or not such payment is prohibited by
the provisions of Article IV; or

(b) default in the payment of any installment of interest upon
any of the Notes as and when the same shall become due and payable,
and continuance of such default for a period of thirty (30) days,
whether or not such payment is prohibited by the provisions of Article
IV; or

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(c) a default in the payment of the Repurchase Price in
respect of any Note on the repurchase date therefor in accordance with
the provisions of Article XVI, whether or not such payment is
prohibited by the provisions of Article IV; or

(d) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Notes or in this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with) continued for a period of
sixty (60) days after the date on which written notice of such
failure, requiring the Company to remedy the same, shall have been
given to the Company by the Trustee, or to the Company and a
Responsible Officer of the Trustee by the holders of at least 25% in
aggregate principal amount of the outstanding Notes at the time
outstanding determined in accordance with Section 9.4; or

(e) failure by the Company or any Significant Subsidiary to
make any payment when due and payable, including any applicable grace
period, in respect of indebtedness, which term as used herein means
obligations (other than the Notes or non-recourse obligations) of, or
guaranteed or assumed by, the Company, or any Significant Subsidiary,
for borrowed money or evidenced by bonds, debentures, notes or other
similar instruments ("Indebtedness") in an amount in excess of
$15,000,000 or the equivalent thereof in any other currency or
composite currency and such failure shall have continued for thirty
(30) days after written notice thereof shall have been given to the
Company by the Trustee or to the Company and a Responsible Officer of
the Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Notes at the time outstanding determined in
accordance with Section 9.4; or

(f) a default by the Company or any Significant Subsidiary
with respect to any Indebtedness, which default results in the
acceleration of Indebtedness in an amount in excess of $15,000,000 or
the equivalent thereof in any other currency or composite currency
without such Indebtedness having been discharged or such acceleration
having been cured, waived, rescinded or annulled for a period of
thirty (30) days after written notice thereof shall have been given to
the Company by the Trustee or to the Company and the Responsible
Officer of the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Notes at the time outstanding
determined in accordance with Section 9.4; or

(g) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due; or

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(h) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of ninety (90)
consecutive days;

then, and in each and every such case (other than an Event of Default specified
in Section 7.1(g) or (h)), unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding hereunder
determined in accordance with Section 9.4, by notice in writing to the Company
(and to a Responsible Officer of the Trustee if given by Noteholders), may
declare the principal of and premium, if any, on all the Notes and the interest
accrued thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Notes contained to the contrary
notwithstanding. If an Event of Default specified in Section 7.1(g) or (h)
occurs and is continuing, the principal of all the Notes and the interest
accrued thereon shall be immediately due and payable. This provision, however,
is subject to the conditions that if, at any time after the principal of the
Notes shall have been so declared due and payable, and before any judgment or
decree for the payment of the monies due shall have been obtained or entered as
hereinafter provided, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay all matured installments of interest upon all Notes and
the principal of and premium, if any, on any and all Notes which shall have
become due otherwise than by acceleration (with interest on overdue
installments of interest (to the extent that payment of such interest is
enforceable under applicable law) and on such principal and premium, if any, at
the rate borne by the Notes, to the date of such payment or deposit) and
amounts due to the Trustee pursuant to Section 8.6, and if any and all defaults
under this Indenture, other than the nonpayment of principal of and premium, if
any, and accrued interest on Notes which shall have become due by acceleration,
shall have been cured or waived pursuant to Section 7.7, then and in every such
case the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and to a Responsible Officer of
the Trustee, may waive all defaults or Events of Default and rescind and annul
such declaration and its consequences; but no such waiver or rescission and
annulment shall extend to or shall affect any subsequent default or Event of
Default, or shall impair any right consequent thereon. The Company shall
notify the Responsible Officer of the Trustee, promptly upon becoming aware
thereof, of any Event of Default.

In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such
case the Company, the holders of Notes, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes, and the Trustee shall
continue as though no such proceeding had been instituted.

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SECTION 7.2 PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR. The
Company covenants that (a) in case default shall be made in the payment by the
Company of any installment of interest upon any of the Notes as and when the
same shall become due and payable, and such default shall have continued for a
period of thirty (30) days, or (b) in case default shall be made in the payment
of the principal of or premium, if any, on any of the Notes as and when the
same shall have become due and payable, whether at maturity of the Notes or in
connection with any redemption or repurchase, by declaration under this
Indenture or otherwise, then, upon demand of the Trustee, the Company will pay
to the Trustee, for the benefit of the holders of the Notes, the whole amount
that then shall have become due and payable on all such Notes for principal and
premium, if any, or interest, or both, as the case may be, with interest upon
the overdue principal and premium, if any, and (to the extent that payment of
such interest is enforceable under applicable law) upon the overdue
installments of interest at the rate borne by the Notes; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including reasonable compensation to the Trustee, its
agents, attorneys and counsel, and any reasonable expenses or liabilities
incurred by the Trustee hereunder other than through its negligence or bad
faith. Until such demand by the Trustee, the Company may pay the principal of
and premium, if any, and interest on the Notes to the registered holders,
whether or not the Notes are overdue.

In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.

In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative
to the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes 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 pursuant to the provisions of this Section
7.2, shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes, and, in case of any judicial proceedings, to file such proofs of claim
and other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee and of the Noteholders allowed in such judicial
proceedings relative to the Company or any other obligor on the Notes, its or
their creditors, or its or their property, and to collect and receive any
monies or other

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property payable or deliverable on any such claims, and to distribute the same
after the deduction of any amounts due the Trustee under Section 8.6; and any
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
custodian or similar official is hereby authorized by each of the Noteholders
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 Noteholders, to pay to
the Trustee any amount due it for reasonable compensation, expenses, advances
and disbursements, including counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property which the holders of the Notes may be entitled to
receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.

All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession
of any of the Notes or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.

ln any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the
holders of the Notes, and it shall not be necessary to make any holders of the
Notes parties to any such proceedings.

SECTION 7.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any
monies collected by the Trustee pursuant to this Article VII shall be applied
in the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes, and the
notation thereon of the payment, if only partially paid, and upon surrender
thereof, if fully paid:

First: To the payment of all amounts due the Trustee under Section
8.6;

Second: Subject to the provisions of Article IV, in case the principal
of the outstanding Notes shall not have become due and be unpaid, to the
payment of interest on the Notes in default in the order of the maturity of the
installments of such interest, with interest (to the extent that such interest
has been collected by the Trustee) upon the overdue installments of interest at
the rate borne by the Notes, such payments to be made ratably to the persons
entitled thereto;

Third: Subject to the provisions of Article IV, in case the principal
of the outstanding Notes shall have become due, by declaration or otherwise,
and be unpaid, to the payment of the whole amount then owing and unpaid upon
the Notes for principal and premium, if any, and interest, with interest on the
overdue principal and premium, if any, and (to the extent

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that such interest has been collected by the Trustee) upon overdue installments
of interest at the rate borne by the Notes; and in case such monies shall be
insufficient to pay in full the whole amounts so due and unpaid upon the Notes,
then to the payment of such principal and premium, if any, and interest without
preference or priority of principal and premium, if any, over interest, or of
interest over principal and premium, if any, or of any installment of interest
over any other installment of interest, or of any Note over any other Note,
ratably to the aggregate of such principal and premium, if any, and accrued and
unpaid interest; and

Fourth: Subject to the provisions of Article IV, to the payment of the
remainder, if any, to the Company or any other person lawfully entitled
thereto.

SECTION 7.4 PROCEEDINGS BY NOTEHOLDER. No holder of any Note
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to a
Responsible Officer of the Trustee written notice of an Event of Default and of
the continuance thereof, as hereinbefore provided, and unless also the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding determined in accordance with Section 9.4 shall have made written
request upon a Responsible Officer of the Trustee to institute such action,
suit or proceeding in its own name as Trustee hereunder and shall have offered
to the Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and the Trustee for
sixty (60) days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit
or proceeding and no direction inconsistent with such written request shall
have been given to the Trustee pursuant to Section 7.7; it being understood and
intended, and being expressly covenanted by the taker and holder of every Note
with every other taker and holder and the Trustee, that no one or more holders
of Notes shall have any right in any manner whatever by virtue of or by
availing of any provision of this Indenture to affect, disturb or prejudice the
rights of any other holder of Notes, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes (except as otherwise provided herein).
For the protection and enforcement of this Section 7.4, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.

Notwithstanding any other provision of this Indenture and any
provision of any Note, the right of any holder of any Note to receive payment
of the principal of and premium, if any, and interest on such Note, on or after
the respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.

Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in its own behalf and for its own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, its rights of conversion as provided herein.

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SECTION 7.5 PROCEEDINGS BY TRUSTEE. In case of an Event of
Default the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.

SECTION 7.6 REMEDIES CUMULATIVE AND CONTINUING. Except as
otherwise provided in the last paragraph of Section 2.6, all powers and
remedies given by this Article VII to the Trustee or to the Noteholders shall,
to the extent permitted by law, be deemed cumulative and not exclusive of any
thereof or of any other powers and remedies available to the Trustee or the
holders of the Notes, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained in this
Indenture, and no delay or omission of the Trustee or of any holder of any of
the Notes to exercise any right or power accruing upon any default or Event of
Default occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or any
acquiescence therein; and, subject to the provisions of Section 7.4, every
power and remedy given by this Article VII or by law to the Trustee or to the
Noteholders may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Noteholders.

SECTION 7.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY
MAJORITY OF NOTEHOLDERS. The holders of a majority in aggregate principal
amount of the Notes at the time outstanding determined in accordance with
Section 9.4 shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, however, that (a) such
direction shall not be in conflict with any rule of law or with this Indenture,
and (b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction. The holders of a majority in
aggregate principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4 may on behalf of the holders of all of the Notes
waive any past default or Event of Default hereunder and its consequences
except (i) a default in the payment of interest or premium, if any, on, or the
principal of, or any redemption price or repurchase price of, the Notes, (ii) a
failure by the Company to convert any Notes into Common Stock or (iii) a
default in respect of a covenant or provisions hereof which under Article XI
cannot be modified or amended without the consent of the holders of all Notes
then outstanding. Upon any such waiver the Company, the Trustee and the
holders of the Notes shall be restored to their former positions and rights
hereunder; but no such waiver shall extend to any subsequent or other default
or Event of Default or impair any right consequent thereon. Whenever any
default or Event of Default hereunder shall have been waived as permitted by
this Section 7.7, said default or Event of Default shall for all purposes of
the Notes and this Indenture be deemed to have been cured and to be not
continuing; but no such waiver shall extend to any subsequent or other default
or Event of Default or impair any right consequent thereon.

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SECTION 7.8 NOTICE OF DEFAULTS. The Trustee shall, within ninety
(90) days after the occurrence of a default, mail to all Noteholders, as the
names and addresses of such holders appear upon the Note register, notice of
all defaults known to a Responsible Officer, unless such defaults shall have
been cured or waived before the giving of such notice; and provided that,
except in the case of default in the payment of the principal of, or premium,
if any or interest on any of the Notes the Trustee shall be protected in
withholding such notice if and so long as a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Noteholders.

SECTION 7.9 UNDERTAKING TO PAY COSTS. All parties to this
Indenture agree, and each holder of any Note by its acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made
by such party litigant; provided that the provisions of this Section 7.9 shall
not apply to any suit instituted by the Trustee, to any suit instituted by any
Noteholder, or group of Noteholders, holding in the aggregate more than 10% in
principal amount of the Notes at the time outstanding determined in accordance
with Section 9.4, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or premium, if any, or interest
on any Note (including, but not limited to, the redemption price or repurchase
price with respect to the Notes being redeemed or repurchased as provided in
this Indenture) on or after the due date expressed in such Note or to any suit
for the enforcement of the right to convert any Note in accordance with the
provisions of Article XV.

SECTION 7.10 DELAY OR OMISSION NOT WAIVER. No delay or omission
of the Trustee or of any holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or any acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
holders of Notes may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the holders of Notes, as the case may
be.

ARTICLE VIII

CONCERNING THE TRUSTEE

SECTION 8.1 DUTIES AND RESPONSIBILITIES OF TRUSTEE. The Trustee,
prior to the occurrence of an Event of Default and after the curing of all
Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture. In case
an Event of Default has occurred (which has not been cured or waived) the
Trustee shall exercise such of the rights and powers vested in it by this

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Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.

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

(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have
occurred:

(1) the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Indenture and the Trust Indenture Act, and the Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into
this Indenture and the Trust Indenture Act against the
Trustee; and

(2) in the absence of bad faith and willful
misconduct on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but, in the
case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;

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

(c) the Trustee shall not be liable to any Noteholder with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the holders of not less than a
majority in principal amount of the Notes at the time outstanding
determined as provided in Section 9.4 relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and

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

None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if

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there is reasonable ground for believing that the repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.

SECTION 8.2 RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as
otherwise provided in Section 8.1:

(a) the Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, note, coupon or other paper or
document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties;

(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;

(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder
in good faith and in accordance with such advice or Opinion of
Counsel;

(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Noteholders pursuant to the
provisions of this Indenture, unless such Noteholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby;

(e) 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 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; provided,
however, that if the payment within a reasonable time to the Trustee
of the costs, expenses or liabilities likely to be incurred by it in
the making of such investigation is, in the opinion of the Trustee,
not reasonably assured to the Trustee by the security afforded to it
by the terms of this Indenture, the Trustee may require reasonable
indemnity from the Noteholders against such expenses or liability as a
condition to so proceeding; the reasonable expenses of every such
examination shall be paid by the Company or, if paid by the Trustee or
any predecessor Trustee, shall be repaid by the Company upon demand;
and

(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the

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Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed by it with due care
hereunder.

In no event shall the Trustee be liable for any consequential loss or damage of
any kind whatsoever (including but not limited to lost profits), even if the
Trustee has been advised of the likelihood of such loss or damage and
regardless of the form of action other than through the Trustee's willful
misconduct or gross negligence.

SECTION 8.3 NO RESPONSIBILITY FOR RECITALS, ETC. The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for the correctness of the same. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application
by the Company of any Notes or the proceeds of any Notes authenticated and
delivered by the Trustee in conformity with the provisions of this Indenture.

SECTION 8.4 TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR
REGISTRAR MAY OWN NOTES. The Trustee, any paying agent, any conversion agent
or Note registrar, in its individual or any other capacity, may become the
owner or pledgee of Notes with the same rights it would have if it were not
Trustee, paying agent, conversion agent or Note registrar.

SECTION 8.5 MONIES TO BE HELD IN TRUST. Subject to the
provisions of Section 13.4, all monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as may be agreed from time to time by the Company and the Trustee.

SECTION 8.6 COMPENSATION AND EXPENSES OF TRUSTEE. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity (which shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust), and the
Company will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances reasonably incurred or made by the Trustee
in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence, willful misconduct,
recklessness or bad faith. The Company also covenants to indemnify the Trustee
in any capacity under this Indenture and its agents and any authenticating
agent for, and to hold them harmless against, any loss, liability or expense
incurred without negligence, willful misconduct, recklessness or bad faith on
the part of the Trustee or such agent or authenticating agent, as the case may
be, and arising out of or in connection with the acceptance or administration
of this trust or in any other capacity hereunder, including the costs and
expenses of defending themselves against any claim of liability in the
premises. The obligations of the Company under this Section 8.6 to compensate
or indemnify the Trustee and to pay or reimburse the Trustee for expenses,

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disbursements and advances shall be secured by a lien prior to that of the
Notes upon all property and funds held or collected by the Trustee as such,
except, subject to the effect of Sections 4.3 and 7.6, funds held in trust
herewith for the benefit of the holders of particular Notes prior to the date
of the accrual of such unpaid compensation or indemnifiable claim. The
obligation of the Company under this Section shall survive the satisfaction and
discharge of this Indenture.

When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in Section
7.1(g) or (h) occurs, the expenses and the compensation for the services are
intended to constitute expenses of administration under any bankruptcy,
insolvency or similar laws.

SECTION 8.7 OFFICERS' CERTIFICATE AS EVIDENCE. Except as
otherwise provided in Section 8.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence, willful misconduct,
recklessness and bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to
the Trustee, and such Officers' Certificate, in the absence of negligence,
willful misconduct, recklessness and bad faith on the part of the Trustee,
shall be full warrant to the Trustee for any action taken or omitted by it
under the provisions of this Indenture upon the faith thereof.

SECTION 8.8 CONFLICTING INTERESTS OF TRUSTEE. If the Trustee has
or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.

SECTION 8.9 ELIGIBILITY OF TRUSTEE. There shall at all times be
a Trustee hereunder which shall be a person that is eligible pursuant to the
Trust Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000. If such person publishes reports of condition at least
annually, pursuant to law or to the requirements of any supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such person shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.

SECTION 8.10 RESIGNATION OR REMOVAL OF TRUSTEE.

(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company and by mailing notice
thereof, at the expense of the Company, to the holders of Notes at
their addresses as they shall appear on the Note register. Upon
receiving such notice of resignation, the Company shall promptly
appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the

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resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted
appointment sixty (60) days after the mailing of such notice of
resignation to the Noteholders, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor
trustee, or any Noteholder who has been a bona fide holder of a Note
or Notes for at least six months may, subject to the provisions of
Section 7.9, on behalf of itself and all others similarly situated
petition any such court for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.

(b) In case at any time any of the following shall occur:

(1) the Trustee shall fail to comply with Section 8.8
after written request therefor by the Company or by any
Noteholder who has been a bona fide holder of a Note or Notes
for at least six months, or

(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.9 and shall fail
to resign after written request therefor by the Company or by
any such Noteholder, or

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

then, in any such case, the Company may remove the Trustee and appoint
a successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor
trustee, or, subject to the provisions of Section 7.9, any Noteholder
who has been a bona fide holder of a Note or Notes for at least six
months may, on behalf of itself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.

(c) The holders of a majority in aggregate principal amount of
the Notes at the time outstanding may at any time remove the Trustee
and nominate a successor trustee which shall be deemed appointed as
successor trustee unless within ten (10) days after notice to the
Company of such nomination the Company objects thereto, in which case
the Trustee so removed or any Noteholder, upon the terms and
conditions and otherwise as in Section 8.10(a) provided, may petition
any court of competent jurisdiction for an appointment of a successor
trustee.

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(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this
Section 8.10 shall become effective upon acceptance of appointment by
the successor trustee as provided in Section 8.11.

SECTION 8.11 ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor
trustee appointed as provided in Section 8.10 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect
as if originally named as trustee herein; but, nevertheless, on the written
request of the Company or of the successor trustee, the trustee ceasing to act
shall, upon payment of any amounts then due it pursuant to the provisions of
Section 8.6, execute and deliver an instrument transferring to such successor
trustee all the rights and powers of the trustee so ceasing to act. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming
to such successor trustee all such rights and powers. Any trustee ceasing to
act shall, nevertheless, retain a lien upon all property and funds held or
collected by such trustee as such, except for funds held in trust for the
benefit of holders of particular Notes, to secure any amounts then due it
pursuant to the provisions of Section 8.6.

No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.

Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, the Company (or the former trustee at the written direction
of the Company) shall mail or cause to be mailed notice of the succession of
such trustee hereunder to the holders of Notes at their addresses as they shall
appear on the Note register. If the Company fails to mail such notice within
ten (10) days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.

SECTION 8.12 SUCCESSION BY MERGER, ETC. Any corporation or other
entity into which the Trustee may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or
other entity succeeding to all or substantially all of the corporate trust
business of the Trustee (including any trust created by this Indenture), shall
be the successor to the Trustee hereunder without the execution or filing of
any paper or any further act on the part of any of the parties hereto, provided
that in the case of any corporation succeeding to all or substantially all of
the corporate trust business of the Trustee such corporation shall be qualified
under the provisions of Section 8.8 and eligible under the provisions of
Section 8.9.

In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been
authenticated but not delivered, any such

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successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee or authenticating agent appointed by such predecessor
trustee, and deliver such Notes so authenticated; and in case at that time any
of the Notes shall not have been authenticated, any successor to the Trustee or
an authenticating agent appointed by such successor trustee may authenticate
such Notes either in the name of any predecessor trustee hereunder or in the
name of the successor trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Trustee shall have; provided, however,
that the right to adopt the certificate of authentication of any predecessor
Trustee or to authenticate Notes in the name of any predecessor Trustee shall
apply only to its successor or successors by merger, conversion or
consolidation.

SECTION 8.13 LIMITATION ON RIGHTS OF TRUSTEE AS CREDITOR. If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Notes), the Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of the claims against the Company
(or any such other obligor).

ARTICLE IX

CONCERNING THE NOTEHOLDERS

SECTION 9.1 ACTION BY NOTEHOLDERS. Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Noteholders in person or by agent or proxy appointed in writing, or (b) by the
record of the holders of Notes voting in favor thereof at any meeting of
Noteholders duly called and held in accordance with the provisions of Article
X, or (c) by a combination of such instrument or instruments and any such
record of such a meeting of Noteholders. Whenever the Company or the Trustee
solicits the taking of any action by the holders of the Notes, the Company or
the Trustee may fix in advance of such solicitation, a date as the record date
for determining holders entitled to take such action. The record date shall be
not more than fifteen (15) days prior to the date of commencement of
solicitation of such action.

SECTION 9.2 PROOF OF EXECUTION BY NOTEHOLDERS. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or its agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Notes shall be proved by the Note register or by a certificate of
the Note registrar. The record of any Noteholders' meeting shall be proved in
the manner provided in Section 10.6.

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SECTION 9.3 WHO ARE DEEMED ABSOLUTE OWNERS. The Company, the
Trustee, any paying agent, any conversion agent and any Note registrar may deem
the person in whose name such Note shall be registered upon the Note register
to be, and may treat such person as, the absolute owner of such Note (whether
or not such Note shall be overdue and notwithstanding any notation of ownership
or other writing thereon) for the purpose of receiving payment of or on account
of the principal of, premium, if any, and interest on such Note, for conversion
of such Note and for all other purposes; and neither the Company nor the
Trustee nor any paying agent nor any conversion agent nor any Note registrar
shall be affected by any notice to the contrary. All such payments so made to
any holder for the time being, or upon its order, shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for monies payable upon any such Note.

SECTION 9.4 COMPANY-OWNED NOTES DISREGARDED. In determining
whether the holders of the requisite aggregate principal amount of Notes have
concurred in any direction, consent, waiver or other action under this
Indenture, Notes which are owned by the Company or any other obligor on the
Notes or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company or any other obligor
on the Notes shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; provided that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, consent, waiver or other action only Notes which a Responsible
Officer knows are so owned shall be so disregarded. Notes so owned which have
been pledged in good faith may be regarded as outstanding for the purposes of
this Section 9.4 if the pledgee shall establish to the satisfaction of the
Trustee the pledgee's right to vote such Notes and that the pledgee is not the
Company, any other obligor on the Notes or a person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any such other obligor. In the case of a dispute as to such
right, any decision by the Trustee taken upon the advice of counsel shall be
full protection to the Trustee. Upon request of the Trustee, the Company shall
furnish to the Trustee promptly an Officers' Certificate listing and
identifying all Notes, if any, known by the Company to be owned or held by or
for the account of any of the above described persons; and, subject to Section
8.1, the Trustee shall be entitled to accept such Officers' Certificate as
conclusive evidence of the facts therein set forth and of the fact that all
Notes not listed therein are outstanding for the purpose of any such
determination.

SECTION 9.5 REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any
time prior to (but not after) the evidencing to the Trustee, as provided in
Section 9.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note which is shown by the
evidence to be included in the Notes the holders of which have consented to
such action may, by filing written notice with the Trustee at its Corporate
Trust Office and upon proof of holding as provided in Section 9.2, revoke such
action so far as concerns such Note. Except as aforesaid, any such action
taken by the holder of any Note shall be conclusive and binding upon such
holder and upon all future holders and owners of such Note and of any Notes
issued in exchange or substitution therefor, irrespective of whether

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any notation in regard thereto is made upon such Note or any Note issued in
exchange or substitution therefor.

ARTICLE X

NOTEHOLDERS' MEETINGS

SECTION 10.1 PURPOSE OF MEETINGS. A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:

(1) to give any notice to the Company or to the Trustee or to
give any directions to the Trustee permitted under this Indenture, or
to consent to the waiving of any default or Event of Default hereunder
and its consequences, or to take any other action authorized to be
taken by Noteholders pursuant to any of the provisions of Article VII;

(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VIII;

(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2;

(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Notes under any other provision of this Indenture or under
applicable law; or

(5) to take any other action authorized by this Indenture or
under applicable law.

SECTION 10.2 CALL OF MEETINGS BY TRUSTEE. The Trustee may at any
time call a meeting of Noteholders to take any action specified in Section
10.1, to be held at such time and at such place in the Borough of Manhattan,
The City of New York, as the Trustee shall determine. Notice of every meeting
of the Noteholders, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting and the
establishment of any record date pursuant to Section 9.1, shall be mailed to
holders of Notes at their addresses as they shall appear on the Note register.
Such notice shall also be mailed to the Company. Such notices shall be mailed
not less than twenty (20) nor more than ninety (90) days prior to the date
fixed for the meeting.

Any meeting of Noteholders shall be valid without notice if the
holders of all Notes then outstanding are present in person or by proxy or if
notice is waived before or after the meeting by the holders of all Notes
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.

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SECTION 10.3 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS. In case
at any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least 10% in aggregate principal amount of the Notes then
outstanding, shall have requested the Trustee to call a meeting of Noteholders,
by written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice of such
meeting within twenty (20) days after receipt of such request, then the Company
or such Noteholders may determine the time and the place in the Borough of
Manhattan, City of New York, for such meeting and may call such meeting to take
any action authorized in Section 10.1, by mailing notice thereof as provided in
Section 10.2.

SECTION 10.4 QUALIFICATIONS FOR VOTING. To be entitled to vote at
any meeting of Noteholders a person shall (a) be a holder of one or more Notes
on the record date pertaining to such meeting or (b) be a person appointed by
an instrument in writing as proxy by a holder of one or more Notes. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.

SECTION 10.5 REGULATIONS. Notwithstanding any other provisions of
this Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.

The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Notes represented at the meeting and entitled to
vote at the meeting.

Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by it; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other
than by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the proxy to vote on behalf of other Noteholders. Any
meeting of Noteholders duly called pursuant to the provisions of Section 10.2
or 10.3 may be adjourned from time to time by the holders of a majority of the
aggregate principal amount of Notes represented at the meeting, whether or not
constituting a quorum, and the meeting may be held as so adjourned without
further notice.

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SECTION 10.6 VOTING. The vote upon any resolution submitted to
any meeting of Noteholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Notes or of their representatives
by proxy and the principal amount of the Notes held or represented by them.
The permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record in duplicate
of the proceedings of each meeting of Noteholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was
mailed as provided in Section 10.2. The record shall show the principal
amount of the Notes voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.

Any record so signed and verified shall be conclusive evidence of the
matters therein stated.

SECTION 10.7 NO DELAY OF RIGHTS BY MEETING. Nothing in this
Article X contained shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of Noteholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any right or rights conferred upon or reserved to the Trustee or to
the Noteholders under any of the provisions of this Indenture or of the Notes.

ARTICLE XI

SUPPLEMENTAL INDENTURES

SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS. The Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:

(a) to make provision with respect to the conversion
rights of the holders of Notes pursuant to the requirements of Section
15.6;

(b) subject to Article IV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;

(c) to evidence the succession of another corporation to
the Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligations of
the Company pursuant to Article XII;

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(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and
the Trustee shall consider to be for the benefit of the holders of
Notes, and to make the occurrence, or the occurrence and continuance,
of a default in any such additional covenants, restrictions or
conditions a default or an Event of Default permitting the enforcement
of all or any of the several remedies provided in this Indenture as
herein set forth; provided, however, that in respect of any such
additional covenant, restriction or condition such supplemental
indenture may provide for a particular period of grace after default
(which period may be shorter or longer than that allowed in the case
of other defaults) or may provide for an immediate enforcement upon
such default or may limit the remedies available to the Trustee upon
such default;

(e) to accommodate the issuance, if any, of Notes in
book-entry or definitive form and matters related thereto that do not
adversely affect the interest of the holders of the Notes;

(f) to modify the restrictions on, and procedures for,
resale and other transfers of the Notes to the extent required by any
change in applicable law or regulation (or the interpretation thereof)
or in practice relating to the resale or transfer of restricted
securities generally or in connection with the registration under the
Securities Act of the Notes;

(g) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture which
shall not materially adversely affect the interests of the holders of
the Notes;

(h) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the
Notes; or

(i) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualifications of this Indenture under the Trust Indenture Act, or
under any similar federal statute hereafter enacted.

The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

Any supplemental indenture authorized by the provisions of this
Section 11.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Notes at the time outstanding, notwithstanding any
of the provisions of Section 11.2.

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SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent (evidenced as provided in Article IX) of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
outstanding (determined in accordance with Section 9.4), the Company, when
authorized by the resolutions of the Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or any
supplemental indenture or of modifying in any manner the rights of the holders
of the Notes; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or reduce any amount payable on redemption or repurchase
thereof, impair, or change in any respect adverse to the holder of Notes, the
obligation of the Company to repurchase any Note at the option of the holder
upon the happening of a Designated Event, or impair or adversely affect the
right of any Noteholder to institute suit for the payment thereof, or make the
principal thereof or interest or premium, if any, thereon payable in any coin
or currency other than that provided in the Notes, or change or impair the
right to convert the Notes into Common Stock subject to the terms set forth
herein, including Section 15.6, or modify the provisions of this Indenture with
respect to the subordination of the Notes in a manner adverse to the
Noteholders, without the consent of the holder of each Note so affected, or
(ii) reduce the aforesaid percentage of Notes, the holders of which are
required to consent to any such supplemental indenture, without the consent of
the holders of all Notes then outstanding.

Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in is discretion, but shall not be obligated to, enter
into such supplemental indenture.

It shall not be necessary for the consent of the Noteholders under
this Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.

SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES. Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect; provided that this Section
11.3 shall not require such supplemental indenture or the Trustee to be
qualified under the Trust Indenture Act prior to the time such qualification is
in fact required under the terms of the Trust Indenture Act or the Indenture
has been qualified under the Trust Indenture Act, nor shall it constitute any
admission or acknowledgment by any party to such supplemental indenture that
any such qualification is required prior to the time such qualification is in
fact required under the terms of the Trust Indenture Act or the Indenture has
been qualified under the Trust Indenture Act. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article XI, this

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Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.

SECTION 11.4 NOTATION ON NOTES. Notes authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions of
this Article XI may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may, at the Company's
expense, be prepared and executed by the Company, authenticated by the Trustee
(or an authenticating agent duly appointed by the Trustee pursuant to Section
17.11) and delivered in exchange for the Notes then outstanding, upon surrender
of such Notes then outstanding.

SECTION 11.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO
BE FURNISHED TRUSTEE. The Trustee, subject to the provisions of Sections 8.1
and 8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.

ARTICLE XII

CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

SECTION 12.1 COMPANY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
Subject to the provisions of Section 12.2, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of the Company
with or into any other corporation or corporations (whether or not affiliated
with the Company), or successive consolidations or mergers in which the Company
or its successor or successors shall be a party or parties, or shall prevent
any sale, conveyance or lease (or successive sales, conveyances or leases) of
all or substantially all of the property of the Company, to any other
corporation (whether or not affiliated with the Company), authorized to acquire
and operate the same and which shall be organized under the laws of the United
States of America, any state thereof or the District of Columbia; provided,
however, and the Company hereby covenants and agrees, that (i) upon any such
consolidation with, merger into, or sale, conveyance or lease to another
corporation, the due and punctual payment of the principal of and premium, if
any, and interest on all of the Notes, according to their tenor, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by the Company, shall be expressly assumed,
by supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee by the corporation

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(if other than the Company) formed by such consolidation, or into which the
Company shall have been merged, or by the corporation which shall have acquired
or leased such property, (ii) such supplemental indenture shall provide for the
applicable conversion rights set forth in Section 15.6 and the repurchase
rights set forth in Article XVI; and (iii) the said consolidation, merger,
sale, conveyance or lease shall not result in the occurrence of an Event of
Default or, after notice or lapse of time result in an Event of Default.

SECTION 12.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of
any such consolidation with, merger into, or sale, conveyance or lease to
another corporation in accordance with Section 12.1 and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of S3 Incorporated any or all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Notes which previously shall
have been signed and delivered by the officers of the Company to the Trustee
for authentication, and any Notes which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All
the Notes so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Notes theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Notes had
been issued at the date of the execution hereof. In the event of any such
consolidation, merger, sale, conveyance or lease, the person named as the
"Company" in the first paragraph of this Indenture or any successor which shall
thereafter have become such in the manner prescribed in this Article XII may be
dissolved, wound up and liquidated at any time thereafter and such person shall
be released from its liabilities as obligor and maker of the Notes and from its
obligations under this Indenture.

In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.

SECTION 12.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee
subject to Sections 8.1 and 8.2, shall receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance or lease and any such assumption complies with the provisions
of this Article XII.

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ARTICLE XIII

SATISFACTION AND DISCHARGE OF INDENTURE

SECTION 13.1 DISCHARGE OF INDENTURE. When (a) the Company shall
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which have been destroyed, lost or stolen and in lieu of
or in substitution for which other Notes shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Notes not theretofore
canceled or delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and the Company shall
deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon
redemption of all of the Notes (other than any Notes which shall have been
mutilated, destroyed, lost or stolen and in lieu of or in substitution for
which other Notes shall have been authenticated and delivered) not theretofore
canceled or delivered to the Trustee for cancellation, including principal and
premium, if any, and interest due or to become due to such date of maturity or
redemption date, as the case may be, and if in either case the Company shall
also pay or cause to be paid all other sums payable hereunder by the Company,
then this Indenture shall cease to be of further effect (except as to (i)
remaining rights of registration of transfer, substitution and exchange and
conversion of Notes, (ii) rights hereunder of Noteholders to receive payments
of principal of and premium, if any, and interest on, the Notes and the other
rights, duties and obligations of Noteholders, as beneficiaries hereof with
respect to the amounts, if any, so deposited with the Trustee and (iii) the
rights, obligations and immunities of the Trustee hereunder), and the Trustee,
on demand of the Company accompanied by an Officers' Certificate and an Opinion
of Counsel as required by Section 17.5 and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; the Company, however, hereby agreeing to reimburse
the Trustee for any costs or expenses thereafter reasonably and properly
incurred by the Trustee and to compensate the Trustee for any services
thereafter reasonably and properly rendered by the Trustee in connection with
this Indenture or the Notes.

SECTION 13.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.
Subject to Section 13.4, all monies deposited with the Trustee pursuant to
Section 13.1 shall be held in trust and applied by it to the payment,
notwithstanding the provisions of Article IV, either directly or through any
paying agent (including the Company if acting as its own paying agent), to the
holders of the particular Notes for the payment or redemption of which such
monies have been deposited with the Trustee, of all sums due and to become due
thereon for principal and interest and premium, if any.

SECTION 13.3 PAYING AGENT TO REPAY MONIES HELD. Upon the
satisfaction and discharge of this Indenture, all monies then held by any
paying agent of the Notes (other than the Trustee) shall, upon demand of the
Company or the Trustee, be repaid to the Company or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability with
respect to such monies.

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SECTION 13.4 RETURN OF UNCLAIMED MONIES. Subject to the
requirements of applicable law, any monies deposited with or paid to the
Trustee for payment of the principal of, premium, if any, or interest on Notes
and not applied but remaining unclaimed by the holders of Notes for two years
after the date upon which the principal of, premium, if any, or interest on
such Notes, as the case may be, shall have become due and payable, shall be
repaid to the Company by the Trustee on demand and all liability of the Trustee
shall thereupon cease with respect to such monies; and the holder of any of the
Notes shall thereafter look only to the Company for any payment which such
holder may be entitled to collect unless an applicable abandoned property law
designates another person.

SECTION 13.5 REINSTATEMENT. If (i) the Trustee or the paying
agent is unable to apply any money in accordance with Section 13.2 by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application and (ii) the holders of
at least a majority in principal amount of the then outstanding Notes so
request by written notice to the Trustee, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 13.1 until such time as the Trustee or the
paying agent is permitted to apply all such money in accordance with Section
13.2; provided, however, that if the Company makes any payment of interest on
or principal of any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Notes to
receive such payment from the money held by the Trustee or paying agent.

ARTICLE XIV

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS

SECTION 14.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS. No
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture or in any supplemental indenture or in any Note, or because
of the creation of any indebtedness represented thereby, shall be had against
any incorporator, stockholder, employee, agent, officer or director or
subsidiary, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of the Notes.

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ARTICLE XV

CONVERSION OF NOTES

SECTION 15.1 RIGHT TO CONVERT. Subject to and upon compliance
with the provisions of this Indenture, the holder of any Note shall have the
right, at its option, at any time on or after sixty (60) days following the
latest date of original issuance of the Notes and prior to the close of
business on October 1, 2003 (except that, with respect to any Note or portion
of a Note which shall be called for redemption, such right shall terminate,
except as provided in Section 3.4 and the fourth paragraph of Section 15.2, at
the close of business on the fifth Business Day prior to the date fixed for
redemption of such Note or portion of a Note unless the Company shall default
in payment due upon redemption thereof) to convert the principal amount of any
such Note, or any portion of such principal amount which is $1,000 or an
integral multiple thereof, into that number of fully paid and non-assessable
shares of Common Stock (as such shares shall then be constituted) obtained by
dividing the principal amount of the Note or portion thereof surrendered for
conversion by the Conversion Price in effect at such time, by surrender of the
Note so to be converted in whole or in part in the manner provided in Section
15.2. A holder of Notes is not entitled to any rights of a holder of Common
Stock until such holder has converted its Notes to Common Stock, and only to
the extent such Notes are deemed to have been converted to Common Stock under
this Article XV.

SECTION 15.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON
STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to
exercise the conversion privilege with respect to any Note in certificated
form, the holder of any such Note to be converted in whole or in part shall
surrender such Note, duly endorsed, at an office or agency maintained by the
Company pursuant to Section 5.2, accompanied by the funds, if any, required by
the penultimate paragraph of this Section 15.2, and shall give written notice
of conversion in the form provided on the Notes (or such other notice which is
acceptable to the Company) to the office or agency that the holder elects to
convert such Note or such portion thereof specified in said notice. Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued, and shall be accompanied by transfer taxes,
if required pursuant to Section 15.7. Each such Note surrendered for
conversion shall, unless the shares issuable on conversion are to be issued in
the same name as the registration of such Note, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Company duly
executed by, the holder or its duly authorized attorney.

In order to exercise the conversion privilege with respect to any
interest in a Note in global form, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depositary's
book-entry conversion program, deliver by book-entry delivery an interest in
such Note in global form, furnish appropriate endorsements and transfer
documents if required by the Company or the Trustee or conversion agent, and
pay the funds, if any, required by the penultimate paragraph of this Section
15.2 and any transfer taxes, if required pursuant to Section 15.7.

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As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or
Notes (or portion thereof) so converted), the Company shall issue and shall
deliver to such holder at the office or agency maintained by the Company for
such purpose pursuant to Section 5.2, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such Note
or portion thereof in accordance with the provisions of this Article and a
check or cash in respect of any fractional interest in respect of a share of
Common Stock arising upon such conversion, as provided in Section 15.3. In
case any Note of a denomination greater than $1,000 shall be surrendered for
partial conversion, and subject to Section 2.3, the Company shall execute and
the Trustee shall authenticate and deliver to the holder of the Note so
surrendered, without charge to such holder, a new Note or Notes in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.

Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 15.2 have been satisfied as to such Note (or portion thereof),
and the person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but
such conversion shall be at the Conversion Price in effect on the date upon
which such Note shall be surrendered.

Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date through the close of business on the Business Day next preceding such
interest payment date shall (unless such Note or portion thereof being
converted shall have been called for redemption during the period from the
close of business on such record date to the close of business on the Business
Day next preceding such interest payment date) be accompanied by payment, in
New York Clearing House funds or other funds acceptable to the Company, of an
amount equal to the interest otherwise payable on such interest payment date on
the principal amount being converted; provided, however, that no such payment
need be made if there shall exist at the time of conversion a default in the
payment of interest on the Notes. An amount equal to such payment shall be
paid by the Company on such interest payment date to the holder of such Note at
the close of business on such record date; provided, however, that if the
Company shall default in the payment of interest on such interest payment date,
such amount shall be paid to the person who made such required payment. Except
as provided above in this Section 15.2, no adjustment shall be made for
interest accrued on any Note converted or for dividends on any shares issued
upon the conversion of such Note as provided in this Article.

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Upon the conversion of an interest in a Note in global form, the
Trustee, or the Custodian at the direction of the Trustee, shall make a
notation on such Note in global form as to the reduction in the principal
amount represented thereby.

SECTION 15.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered for conversion. If any fractional
share of stock otherwise would be issuable upon the conversion of any Note or
Notes, the Company shall make an adjustment therefor in cash at the current
market value thereof to the holder of Notes. For these purposes, the current
market value of a share of Common Stock shall be the Closing Price on the first
Trading Day immediately preceding the day on which the Notes (or specified
portions thereof) are deemed to have been converted and such Closing Price
shall be determined as provided in Section 15.5(g).

SECTION 15.4 CONVERSION PRICE. The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached
as Exhibit A hereto, subject to adjustment as provided in this Article XV.

SECTION 15.5 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be adjusted from time to time by the Company as follows:

(a) In case the Company shall hereafter pay a dividend or
make a distribution to all holders of the outstanding Common Stock in
shares of Common Stock, the Conversion Price in effect at the opening
of business on the date following the date fixed for the determination
of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by
a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the Record Date
(as defined in Section 15.5(g)) fixed for such determination and the
denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of
business on the day following the Record Date. If any dividend or
distribution of the type described in this Section 15.5(a) is declared
but not so paid or made, the Conversion Price shall again be adjusted
to the Conversion Price which would then be in effect if such dividend
or distribution had not been declared.

(b) In case the Company shall issue rights or warrants to
all holders of its outstanding shares of Common Stock entitling them
(for a period expiring within forty-five (45) days after the date
fixed for the determination of stockholders entitled to receive such
rights or warrants) to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price (as
defined in Section 15.5(g)) on the Record Date fixed for the
determination of stockholders entitled to receive such rights or
warrants, the Conversion Price shall be adjusted so that the

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same shall equal the price determined by multiplying the Conversion
Price in effect at the opening of business on the date after such
Record Date by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the
Record Date plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such
Current Market Price, and of which the denominator shall be the number
of shares of Common Stock outstanding on the close of business on the
Record Date plus the total number of additional shares of Common Stock
so offered for subscription or purchase. Such adjustment shall become
effective immediately after the opening of business on the day
following the Record Date fixed for determination of stockholders
entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered pursuant to such rights or
warrants, upon the expiration or termination of such rights or
warrants the Conversion Price shall be readjusted to the Conversion
Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery
of only the number of shares of Common Stock actually delivered. In
the event that such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such date fixed for the determination
of stockholders entitled to receive such rights or warrants had not
been fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such rights or warrants,
the value of such consideration if other than cash, to be determined
by the Board of Directors.

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

(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of
capital stock of the Company (other than any dividends or
distributions to which Section 15.5(a) applies) or evidences of its
indebtedness, cash or other assets (including securities, but
excluding (1) any rights or warrants referred to in Section 15.5(b),
(2) dividends and distributions paid exclusively in cash and (3) any
capital stock, evidences of indebtedness, cash or assets distributed
upon a merger or consolidation to which Section 15.6 applies) (the
foregoing hereinafter in this Section 15.5(d) called the
"Securities")) (unless the Company elects to reserve such Securities
for distribution

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to the Noteholders upon conversion of the Notes so that any such
holder converting Notes will receive upon such conversion, in addition
to the shares of Common Stock to which such holder is entitled, the
amount and kind of such Securities which such holder would have
received if such holder had converted its Notes into Common Stock
immediately prior to the Record Date (as defined in Section 15.5(g)
for such distribution of the Securities)), then, in each such case,
the Conversion Price shall be reduced so that the same shall be equal
to the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the Record Date (as
defined in Section 15.5(g)) with respect to such distribution by a
fraction of which the numerator shall be the Current Market Price
(determined as provided in Section 15.5(g)) on such date less the fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution)
on such date of the portion of the Securities so distributed
applicable to one share of Common Stock and the denominator shall be
such Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day following the
Record Date; provided, however, that in the event the then fair market
value (as so determined) of the portion of the Securities so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price on the Record Date, in lieu of
the foregoing adjustment, adequate provision shall be made so that
each Noteholder shall have the right to receive upon conversion of a
Note (or any portion thereof) the amount of Securities such holder
would have received had such holder converted such Note (or portion
thereof) immediately prior to such Record Date. In the event that
such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price which would
then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value
of any distribution for purposes of this Section 15.5(d) by reference
to the actual or when issued trading market for any securities
comprising all or part of such distribution, it must in doing so
consider the prices in such market over the same period (the
"Reference Period") used in computing the Current Market Price
pursuant to Section 15.5(g) to the extent possible, unless the Board
of Directors in a board resolution determines in good faith that
determining the fair market value during the Reference Period would
not be in the best interest of the Noteholder.

Rights or warrants distributed by the Company to all holders
of Common Stock entitling the holders thereof to subscribe for or
purchase shares of the Company's capital stock (either initially or
under certain circumstances), which rights or warrants, until the
occurrence of a specified event or events ("Trigger Event"): (i) are
deemed to be transferred with such shares of Common Stock; (ii) are
not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been
distributed for purposes of this Section 15.5(d) (and no adjustment to
the Conversion Price under this Section 15.5(d) will be required)
until the occurrence of the earliest Trigger Event. If such right or
warrant is subject to subsequent events, upon the occurrence of which
such right or warrant shall become exercisable to purchase different
securities, evidences of indebtedness or other assets or entitle the
holder to purchase a different number or amount of the

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foregoing or to purchase any of the foregoing at a different purchase
price, then the occurrence of each such event shall be deemed to be
the date of issuance and record date with respect to a new right or
warrant (and a termination or expiration of the existing right or
warrant without exercise by the holder thereof). In addition, in the
event of any distribution (or deemed distribution) of rights or
warrants, or any Trigger Event or other event (of the type described
in the preceding sentence) with respect thereto, that resulted in an
adjustment to the Conversion Price under this Section 15.5(d), (1) in
the case of any such rights or warrants which shall all have been
redeemed or repurchased without exercise by any holders thereof, the
Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Trigger Event, as
the case may be, as though it were a cash distribution, equal to the
per share redemption or repurchase price received by a holder of
Common Stock with respect to such rights or warrant, (assuming such
holder had retained such rights or warrants), made to all holders of
Common Stock as of the date of such redemption or repurchase, and (2)
in the case of such rights or warrants all of which shall have expired
or been terminated without exercise, the Conversion Price shall be
readjusted as if such rights and warrants had never been issued.

For purposes of this Section 15.5(d) and Sections 15.5(a) and
(b), any dividend or distribution to which this Section 15.5(d) is
applicable that also includes shares of Common Stock, or rights or
warrants to subscribe for or purchase shares of Common Stock to which
Section 15.5(b) applies (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets,
shares of capital stock, rights or warrants other than such shares of
Common Stock or rights or warrants to which Section 15.5(b) applies
(and any Conversion Price reduction required by this Section 15.5(d)
with respect to such dividend or distribution shall then be made)
immediately followed by (2) a dividend or distribution of such shares
of Common Stock or such rights or warrants (and any further Conversion
Price reduction required by Sections 15.5(a) and (b) with respect to
such dividend or distribution shall then be made, except (A) the
Record Date of such dividend or distribution shall be substituted as
"the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution", "Record Date fixed for
such determinations" and "Record Date" within the meaning of Section
15.5(a) and as "the date fixed for the determination of stockholders
entitled to receive such rights or warrants", "the Record Date fixed
for the determination of the stockholders entitled to receive such
rights or warrants" and "such Record Date" within the meaning of
Section 15.5(b) and (B) any shares of Common Stock included in such
dividend or distribution shall not be deemed "outstanding at the close
of business on the date fixed for such determination" within the
meaning of Section 15.5(a).

(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash
that is distributed upon a merger or consolidation to which Section
15.6 applies or as part of a distribution referred to in Section
15.5(d)), in an aggregate amount that, combined together with

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(1) the aggregate amount of any other such distributions to all
holders of Common Stock made exclusively in cash within the twelve
(12) months preceding the date of payment of such distribution, and in
respect of which no adjustment pursuant to this Section 15.5(e) has
been made, and (2) the aggregate of any cash plus the fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) of
consideration payable in respect of any tender offer by the Company or
any of its subsidiaries for all or any portion of the Common Stock
concluded within the twelve (12) months preceding the date of payment
of such distribution, and in respect of which no adjustment pursuant
to Section 15.5(f) has been made, exceeds 10.0% of the product of the
Current Market Price (determined as provided in Section 15.5(g)) on
the Record Date with respect to such distribution times the number of
shares of Common Stock outstanding on such date, then and in each such
case, immediately after the close of business on such date. the
Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such Record Date by a
fraction (i) the numerator of which shall be equal to the Current
Market Price on the Record Date less an amount equal to the quotient
of (x) the excess of such combined amount over such 10.0% and (y) the
number of shares of Common Stock outstanding on the Record Date and
(ii) the denominator of which shall be equal to the Current Market
Price on such date, provided, however, that in the event the portion
of the cash so distributed applicable to one share of Common Stock is
equal to or greater than the Current Market Price of the Common Stock
on the Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Noteholder shall have the right
to receive upon conversion of a Note (or any portion thereof) the
amount of cash such holder would have received had such holder
converted such Note (or portion thereof) immediately prior to such
Record Date. In the event that such dividend or distribution is not
so paid or made, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such dividend or
distribution had not been declared. Any cash distribution to all
holders of Common Stock as to which the Company makes the election
permitted by Section 15.5(m) and as to which the Company has complied
with the requirements of such Section shall be treated as not having
been made for all purposes of this Section 15.5(e).

(f) In case a tender offer made by the Company or any of
its subsidiaries for all or any portion of the Common Stock shall
expire and such tender offer (as amended upon the expiration thereof)
shall require the payment to stockholders (based on the acceptance (up
to any maximum specified in the terms of the tender offer) of
Purchased Shares (as defined below)) of an aggregate consideration
having a fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board
Resolution) that combined together with (1) the aggregate of the cash
plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender offer, of
consideration payable in respect of any other tender offers, by the
Company or any of its subsidiaries for all or any portion of the
Common Stock expiring within the twelve (12) months

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preceding the expiration of such tender offer and in respect of which
no adjustment pursuant to this Section 15.5(f) has been made and (2)
the aggregate amount of any distributions to all holders of the
Company's Common Stock made exclusively in cash within twelve (12)
months preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to Section 15.5(e) has been made, exceeds
10.0% of the product of the Current Market Price (determined as
provided in Section 15.5(g)) as of the last time (the "Expiration
Time") tenders could have been made pursuant to such tender offer (as
it may be amended) times the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time,
then, and in each such case, immediately prior to the opening of
business on the day after the date of the Expiration Time, the
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to close of business on the date of the Expiration
Time by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time multiplied by the Current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time
and the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in
the terms of the tender offer) of all shares validly tendered and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up
to any such maximum, being referred to as the "Purchased Shares") and
(y) the product of the number of shares of Common Stock outstanding
(less any Purchased Shares) on the Expiration Time and the Current
Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time, such reduction (if any) to become effective
immediately prior to the opening of business on the day following the
Expiration Time. In the event that the Company is obligated to
purchase shares pursuant to any such tender offer, but the Company is
permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price
shall again be adjusted to be the Conversion Price which would then be
in effect if such tender offer had not been made. If the application
of this Section 15.5(f) to any tender offer would result in an
increase in the Conversion Price, no adjustment shall be made for such
tender offer under this Section 15.5(f). Any cash distribution to all
holders of Common Stock as to which the Company has made the election
permitted by Section 15.5(m) and as to which the Company has complied
with the requirements of such Section shall be treated as not having
been made for all purposes of this Section 15.5(f).

(g) For purposes of this Section 15.5, the following
terms shall have the meaning indicated:

(1) "Closing Price" with respect to any
securities on any day shall mean the closing sale price
regular way on such day or, in case no such sale takes place
on such day, the average of the reported closing bid and asked
prices, regular way, in each case on the Nasdaq National
Market or New York Stock Exchange, as applicable, or, if such
security is not listed or

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admitted to trading on such National Market or Exchange, on the
principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading,
or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the average
of the closing bid and asked prices of such security on the
over-the-counter market on the day in question as reported by
the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or if not so available,
in such manner as furnished by any New York Stock Exchange
member firm selected from time to time by the Board of
Directors for that purpose, or a price determined in good faith
by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution.

(2) "Current Market Price" shall mean the average
of the daily Closing Prices per share of Common Stock for the
ten (10) consecutive Trading Days immediately prior to the
date in question; provided, however, that (1) if the "ex" date
(as hereinafter defined) for any event (other than the
issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to
Section 15.5(a), (b), (c), (d), (e) or (f) occurs during such
ten (10) consecutive Trading Days, the Closing Price for each
Trading Day prior to the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the same
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (2) if the "ex" date
for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d),
(e) or (f) occurs on or after the "ex" date for the issuance
or distribution requiring such computation and prior to the
day in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the reciprocal of the
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, and (3) if the "ex"
date for the issuance, distribution requiring such computation
is prior to the day in question, after taking into account any
adjustment required pursuant to clause (1) or (2) of this
proviso, the Closing Price for each Trading Day on or after
such "ex" date shall be adjusted by adding thereto the amount
of any cash and the fair market value (as determined by the
Board of Directors in a manner consistent with any
determination of such value for purposes of Section 15.5(d) or
(f), whose determination shall be conclusive and described in
a Board Resolution) of the evidences of indebtedness, shares
of capital stock or assets being distributed applicable to one
share of Common Stock as of the close of business on the day
before such "ex" date. For purposes of any computation under
Section 15.5(f), the Current Market Price of the Common Stock
on any date shall be deemed to be the average of the daily
Closing Prices per share of Common Stock for such day and the
next two succeeding Trading Days; provided, however, that if
the "ex" date for any event (other than the tender offer
requiring such computation) that requires an

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adjustment to the Conversion Price pursuant to Section 15.5(a),
(b), (c), (d), (e) or (f) occurs on or after the Expiration
Time for the tender or exchange offer requiring such
computation and prior to the day in question, the Closing Price
for each Trading Day on and after the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by
the reciprocal of the fraction by which the Conversion Price is
so required to be adjusted as a result of such other event.
For purposes of this paragraph, the term "ex" date, (1) when
used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the
relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any
subdivision or combination of shares of Common Stock, means the
first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such
subdivision or combination becomes effective, and (3) when used
with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such
exchange or in such market after the Expiration Time of such
offer. Notwithstanding the foregoing, whenever successive
adjustments to the Conversion Price are called for pursuant to
this Section 15.5, such adjustments shall be made to the
Current Market Price as may be necessary or appropriate to
effectuate the intent of this Section 15.5 and to avoid unjust
or inequitable results as determined in good faith by the Board
of Directors.

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

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

(5) "Trading Day" shall mean (x) if the
applicable security is listed or admitted for trading on the
New York Stock Exchange or another national security exchange,
a day on which the New York Stock Exchange or another national
security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a
day on which trades may be made thereon or (z) if the
applicable security is not so listed, admitted for trading or
quoted, any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.

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(h) The Company may make such reductions in the
Conversion Price, in addition to those required by Sections 15.5(a),
(b), (c), (d), (e) or (f), as the Board of Directors considers to be
advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.

To the extent permitted by applicable law, the Company from
time to time may reduce the Conversion Price by any amount for any
period of time if the period is at least twenty (20) days, the
reduction is irrevocable during the period and the Board of Directors
shall have made a determination that such reduction would be in the
best interests of the Company, which determination shall be conclusive
and described in a Board Resolution. Whenever the Conversion Price is
reduced pursuant to the preceding sentence, the Company shall mail to
the holder of each Note at its last address appearing on the Note
register provided for in Section 2.5 a notice of the reduction at
least fifteen (15) days prior to the date the reduced Conversion Price
takes effect, and such notice shall state the reduced Conversion Price
and the period during which it will be in effect.

(i) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, that any adjustments
which by reason of this Section 15.5(i) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article XV shall be made by
the Company and shall be made to the nearest cent or to the nearest
one hundredth of a share, as the case may be. No adjustment need be
made for a change in the par value or no par value of the Common
Stock.

(j) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare
a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment
becomes effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each Note at its last address
appearing on the Note register provided for in Section 2.5, within
twenty (20) days of the effective date of such adjustment. Failure to
deliver such notice shall not affect the legality or validity of any
such adjustment.

(k) In any case in which this Section 15.5 provides that
an adjustment shall become effective immediately after a Record Date
for an event, the Company may defer until the occurrence of such event
(i) issuing to the holder of any Note converted after such Record Date
and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon

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such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash in lieu of any fraction
pursuant to Section 15.3.

(l) For purposes of this Section 15.5, the number of
shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions
of shares of Common Stock. The Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury
of the Company.

(m) In lieu of making any adjustment to the Conversion
Price pursuant to Section 15.5(e), the Company may elect to reserve an
amount of cash for distribution to the holders of the Notes upon the
conversion of the Notes so that any such holder converting Notes will
receive upon such conversion, in addition to the shares of Common
Stock and other items to which such holder is entitled, the full
amount of cash which such holder would have received if such holder
had, immediately prior to the Record Date for such distribution of
cash, converted its Notes into Common Stock, together with any
interest accrued with respect to such amount, in accordance with this
Section 15.5(m). The Company may make such election by providing an
Officers' Certificate to the Trustee to such effect on or prior to the
payment date for any such distribution and depositing with the Trustee
on or prior to such date an amount of cash equal to the aggregate
amount the holders of the Notes would have received if such holders
had, immediately prior to the Record Date for such distribution,
converted all of the Notes into Common Stock. Any such funds so
deposited by the Company with the Trustee shall be invested by the
Trustee in marketable obligations issued or fully guaranteed by the
United States government with a maturity not more than three (3)
months from the date of issuance. Upon conversion of Notes by a
holder, the holder will be entitled to receive, in addition to the
Common Stock issuable upon conversion, an amount of cash equal to the
amount such holder would have received if such holder had, immediately
prior to the Record Date for such distribution, converted its Note
into Common Stock, along with such holder's pro rata share of any
accrued interest earned as a consequence of the investment of such
funds. Promptly after making an election pursuant to this Section
15.5(m), the Company shall give or shall cause to be given notice to
all Noteholders of such election, which notice shall state the amount
of cash per $1,000 principal amount of Notes such holders shall be
entitled to receive (excluding interest) upon conversion of the Notes
as a consequence of the Company having made such election.

SECTION 15.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common

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Stock or (iii) any sale or conveyance of the properties and assets of the
Company as, or substantially as, an entirety to any other corporation as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Company or the successor or purchasing
corporation, as the case may be, shall execute with the Trustee a supplemental
indenture (which shall comply with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture if such supplemental indenture
is then required to so comply) providing that such Note shall be convertible
into the kind and amount of shares of stock and other securities or property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance assuming such holder of Common Stock did not exercise its rights of
election, if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale
or conveyance (provided that, if the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory exchange,
sale or conveyance is not the same for each share of Common Stock in respect of
which such rights of election shall not have been exercised ("non-electing
shares"), then for the purposes of this Section 15.6 the kind and amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance for each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. If, in the case of any such
reclassification, change, consolidation, merger, combination, sale or
conveyance, the stock or other securities and assets receivable thereupon by a
holder of shares of Common Stock includes shares of stock or other securities
and assets of a corporation other than the successor or purchasing corporation,
as the case may be, in such reclassification, change, consolidation, merger,
combination, sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the holders of the Notes as the Board of Directors
shall reasonably consider necessary by reason of the foregoing, including to
the extent practicable the provisions providing for the repurchase rights set
forth in Article XVI herein.

The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at its address appearing on the
Note register provided for in SECTION 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.

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

If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.

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SECTION 15.7 TAXES ON SHARES ISSUED. The issue of stock
certificates on conversions of Notes shall be made without charge to the
converting Noteholder for any tax in respect of the issue thereof. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of stock in any name other
than that of the holder of any Note converted, and the Company shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

SECTION 15.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
LISTING OF COMMON STOCK. The Company shall provide, free from preemptive
rights, out of its authorized but unissued shares or shares held in treasury,
sufficient shares to provide for the conversion of the Notes from time to time
as such Notes are presented for conversion.

Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon conversion of the Notes, the Company will take all
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue shares of such Common
Stock at such adjusted Conversion Price.

The Company covenants that all shares of Common Stock issued upon
conversion of Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.

The Company further covenants that if at any time the Common Stock
shall be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system the Company will, if permitted by the
rules of such exchange or automated quotation system, list and keep listed
within fifteen days after the date of this Indenture, so long as the Common
Stock shall be so listed on such exchange or automated quotation system, all
Common Stock issuable upon conversion of the Notes.

SECTION 15.9 RESPONSIBILITY OF TRUSTEE. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed,
in making the same. The Trustee and any other conversion agent shall not be
accountable with respect to the validity or value (or the kind or amount) of
any shares of Common Stock, or of any securities or property, which may at any
time be issued or delivered upon the conversion of any Note; and the Trustee
and any other conversion agent make no representations with respect thereto.
Subject to the provisions of Section 8.1, neither the Trustee nor any
conversion agent shall be responsible for any failure of the Company to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
securities or property or cash upon the surrender of any note for the purpose
of conversion or to comply with any of the duties, responsibilities or
covenants of the Company contained in this Article. Without limiting the
generality of the foregoing, neither

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the Trustee nor any conversion agent shall be under any responsibility to
determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 15.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to
in such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with
the Trustee prior to the execution of any such supplemental indenture) with
respect thereto.

SECTION 15.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case:

(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (that would require an adjustment in
the Conversion Price pursuant to Section 15.5); or

(b) the Company shall authorize the granting to all or
substantially all of the holders of record of its Common Stock of
rights or warrants to subscribe for or purchase any share of any class
or any other rights or warrants; or

(c) of any reclassification of the Common Stock of the
Company (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par
value, or from no par value to par value), or of any consolidation or
merger to which the Company is a party and for which approval of any
stockholders of the Company is required, or of the sale or transfer of
all or substantially all of the assets of the Company; or

(d) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company;

the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at its address appearing on the Note register, provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at
least fifteen days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined, or (y)
the date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or
occur, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.

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ARTICLE XVI

REPURCHASE UPON A DESIGNATED EVENT

SECTION 16.1 REPURCHASE RIGHT.

(a) If, at any time prior to October 1, 2003 there shall
occur a Designated Event, then each Noteholder shall have the right,
at such holder's option, but subject to the provisions of Section
16.2, to require the Company to repurchase all of such holder's Notes,
or any portion thereof (in principal amounts of $1,000 or integral
multiples thereof), on the repurchase date fixed by the Company that
is not less than 30 days nor more than 45 days after the date of the
Company Notice (as defined in Section 16.2 below) of such Designated
Event (or, if such 45th day is not a Business Day, the next succeeding
Business Day). The repurchase price shall be equal to 100% of the
principal amount of Notes, together with accrued interest, if any, to,
but excluding, the repurchase date (the "Repurchase Price"); provided
that if such repurchase date is April 1 or October 1, then the
interest payable on such date shall be paid to the holder of record of
the Note on the next preceding March 15 or September 15, respectively.
No Notes may be repurchased at the option of holders upon a Designated
Event if there has occurred and is continuing an Event of Default,
other than a default in the payment of the Repurchase Price with
respect to such Notes on the repurchase date. At the option of the
Company, the Repurchase Price may be paid in cash or, subject to the
fulfillment by the Company of the conditions set forth in Section
16.2, by delivery of shares of Common Stock having a fair market value
equal to the Repurchase Price as described in Section 16.2(a).
Whenever in this Indenture there is a reference, in any context, to
the principal of any Note as of any time, such reference shall be
deemed to include reference to the Repurchase Price payable in respect
of such Note to the extent that such Repurchase Price is, was or would
be so payable at such time, and express mention of the Repurchase
Price in any provision of this Indenture shall not be construed as
excluding the Repurchase Price in those provisions of this Indenture
when such express mention is not made; provided, however, that for the
purposes of Article Four, such reference shall be deemed to include
reference to the Repurchase Price only if the Repurchase Price is
payable in cash.

SECTION 16.2 CONDITIONS TO THE COMPANY'S ELECTION TO PAY THE
REPURCHASE PRICE IN COMMON STOCK. The Company may elect to pay the
Repurchase Price by delivery of shares of Common Stock pursuant to
Section 16.1 if and only if the following conditions have been
satisfied:

(a) The shares of Common Stock deliverable in payment of
the Repurchase Price shall have a fair market value as of the
repurchase date of not less than the Repurchase Price. For purposes
of this Section 16.2, the fair market value of shares of Common Stock
shall be determined by the Company and shall be equal to 95% of the
average of the Closing Prices of the Common Stock for the five

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consecutive Trading Days ending on and including the third Trading Day
immediately preceding the repurchase date;

(b) In the event any shares of Common Stock to be issued
upon repurchase of Notes hereunder require registration under any
Federal securities law before such shares may be freely transferrable
without being subject to any transfer restrictions under the
Securities Act upon repurchase, such registration shall have been
completed and shall have become effective prior to the repurchase
date;

(c) In the event any shares of Common Stock to be issued
upon repurchase of Notes hereunder require registration with or
approval of any governmental authority under any State law or any
other Federal law before such shares may be validly issued or
delivered upon repurchase, such registration shall have been
completed, have become effective and such approval shall have been
obtained, in each case, prior to the repurchase date;

(d) The shares of Common Stock deliverable in payment of
the Repurchase Price shall have been quoted on the Nasdaq National
Market or listed on a national securities exchange, in either case,
prior to the repurchase date; and

(e) All shares of Common Stock deliverable in payment of
the Repurchase Price shall be issued out of the Company's authorized
but unissued Common Stock and will, upon issue, be duly and validly
issued and fully paid and non-assessable and free of any preemptive
rights.

If all of the conditions set forth in this Section 16.2 are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.

SECTION 16.3 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.

(a) Unless the Company shall have theretofore called for
redemption all of the outstanding Notes, on or before the fifteenth
(15th) calendar day after the occurrence of a Designated Event, the
Company or, at the request and expense of the Company, the Trustee,
shall mail to all holders a notice (the "Company Notice") of the
occurrence of the Designated Event and of the repurchase right set
forth herein arising as a result thereof. The Company shall also
deliver a copy of such notice of a repurchase right to the Trustee and
cause a copy of such notice of a repurchase right, or a summary of the
information contained therein, to be published in a newspaper of
general circulation in The City of New York. The Company Notice shall
contain the following information:

(1) the repurchase date,

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

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(3) the last date by which the election to
require repurchase, if submitted, may be revoked,

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

(5) a description of the procedure which a holder
must follow to exercise a repurchase right, and

(6) the Conversion Price then in effect, the date
on which the right to convert the principal amount of the
Notes to be repurchased will terminate and the place or places
where Notes may be surrendered for conversion.

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

If any of the foregoing provisions are inconsistent with
applicable law, such law shall govern.

(b) To exercise a repurchase right, a holder shall
deliver to the Trustee on or before the close of business on the
second Business Day preceding the repurchase date (i) written notice
to the Company (or agent designated by the Company for such purpose)
of the holder's exercise of such right, which notice shall set forth
the name of the holder, the principal amount of the Notes to be
repurchased, a statement that an election to exercise the repurchase
right is being made thereby, and, in the event that the Repurchase
Price shall be paid in shares of Common Stock, the name or names (with
addresses) in which the certificate or certificates for shares of
Common Stock shall be issued, and (ii) the Notes with respect to which
the repurchase right is being exercised, duly endorsed for transfer to
the Company. Election of repurchase by a holder shall be revocable at
any time prior to, but excluding, the repurchase date, by delivering
written notice to that effect to the Trustee prior to the close of
business on the second Business Day prior to the repurchase date.

(c) In the event the repurchase right shall be exercised
in accordance with the terms hereof, the Company shall pay or cause to
be paid to the Trustee the Repurchase Price in cash or shares of
Common Stock, as provided above, for payment to the Holder on the
repurchase date or, if shares of Common Stock are to be issued, as
promptly after the repurchase date as practicable.

(d) If the Company fails to repurchase on the repurchase
date any Notes (or portions thereof) as to which the repurchase right
has been properly exercised, then the principal of such Notes shall,
until paid, bear interest to the extent permitted by applicable law
from the repurchase date at the rate borne by the Note and each such
Note shall be convertible into Common Stock in accordance with this
Indenture

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(without giving effect to Section 16.2(b)) until the principal of such
Note shall have been paid or duly provided for.

(e) Any Note which is to be repurchased only in part
shall be surrendered to the Trustee (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Trustee duly
executed by, the holder thereof or its attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the holder of such Note without service
charge a new Note or Notes, containing identical terms and conditions,
of any authorized denomination as requested by such holder in
aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Note so surrendered.

(f) On or prior to the repurchase date, the Company shall
deposit with the Trustee or with a paying agent (or, if the Company is
acting as its own paying agent, segregate and hold in trust as
provided in Section 5.4) an amount of money sufficient to pay the
Repurchase Price of the Notes that are to be repaid on the repurchase
date, provided that if such payment is made on the repurchase date it
must be received by the Trustee or paying agent, as the case may be,
by 10:00 a.m., New York City time, on such date.

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

(h) No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon repurchase of
Notes. If more than one Note shall be repurchased from the same
holder and the Repurchase Price shall be payable in shares of Common
Stock, the number of full shares which shall be issued upon repurchase
shall be computed on the basis of the aggregate principal amount of
the Notes (or specified portions thereof to the extent permitted
hereby) so repurchased. If any fractional share of stock otherwise
would be issuable upon repurchase of any Note or Notes, the Company
shall make an adjustment therefor in cash at the current market value
thereof to the holder of Notes. For these purposes, the current
market value of a share of Common Stock shall be the Closing Price on
the first Trading

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Day immediately preceding the repurchase date and such Closing Price
shall be determined as provided in Section 15.5(g).

(i) The issue of stock certificates on repurchase of
Notes shall be made without charge to the holder of Notes being
repurchased for any tax in respect of the issue thereof. The Company
shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of stock in
any name other than that of the holder of any Note repurchased, and
the Company shall not be required to issue or deliver any such stock
certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such
tax has been paid.

SECTION 16.4 CERTAIN DEFINITIONS. For purposes of this Article
XVI:

(a) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 and 13d-5, as in effect on the date of the
original execution of this Indenture, promulgated by the Commission
pursuant to the Exchange Act;

(b) the term "person" or "group" shall include any
syndicate or group which would be deemed to be a "person" under
Section 13(d)(3) and 14(d) of the Exchange Act as in effect on the
date of the original execution of this Indenture;

(c) the term "Continuing Director" means at any date a
member of the Company's Board of Directors (i) who was a member of
such board on September 12, 1996 or (ii) who was nominated or elected
by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election or whose election to the
Company's Board of Directors was recommended or endorsed by at least a
majority of the directors who were Continuing Directors at the time of
such nomination or election. (Under this definition, if the current
Board of Directors of the Company were to approve a new director or
directors and then resign, no Change in Control would occur even
though the current Board of Directors would thereafter cease to be in
office);

(d) the term "Designated Event" means a Change of Control
or a Termination of Trading;

(e) the term "Change of Control" means an event or series
of events as a result of which (i) any person or group is or becomes
the beneficial owner of shares representing more than 50% of the
combined voting power of the then outstanding securities entitled to
vote generally in elections of directors of the Company (the "Voting
Stock"), (ii) the Company consolidates with or merges into any other
corporation, or conveys, transfers or leases all or substantially all
of its assets to any person, or any other corporation merges into the
Company, and, in the case of any such transaction, the outstanding
common stock of the Company is changed or exchanged into or for other
assets or securities as a result, unless the stockholders of

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the Company immediately before such transaction own, directly or
indirectly immediately following such transaction, at least a majority
of the combined voting power of the outstanding voting securities of
the corporation resulting from such transaction in substantially the
same proportion as their ownership of the Voting Stock immediately
before such transaction, or (iii) any time Continuing Directors do not
constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation to the Company); provided,
however, that a Change of Control shall not be deemed to have occurred
if either (x) the Closing Price (as defined in Section 15.5) of the
Common Stock for any five (5) Trading Days within a period of ten (10)
Trading Days ending immediately before the Change of Control is at
least equal to 105% of the Conversion Price of the Notes in effect on
each such Trading Day or (y) at least 90% of the consideration
(excluding cash payments for dissenting and fractional shares) in the
transaction or transactions constituting the Change of Control
consists of common stock traded on a United States national securities
exchange or quoted on The Nasdaq Stock Market (or which will be so
traded or quoted when issued or exchanged in connection with such
Change of Control) and as a result of such transaction or transactions
such Notes become convertible solely into such common stock; or

(f) a "Termination of Trading" shall have occurred if the
Common Stock of the Company (or other common stock into which the
Notes are then convertible) is neither listed for trading on a United
States national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the United
States.

ARTICLE XVII

MISCELLANEOUS PROVISIONS

SECTION 17.1 PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All the
covenants, stipulations, promises and agreements of the Company in this
Indenture contained shall bind its successors and assigns whether so expressed
or not.

SECTION 17.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.

SECTION 17.3 ADDRESSES FOR NOTICES, ETC. Any notice or demand
which by any provision of this Indenture is required or permitted to be given
or served by the Trustee or by the holders of Notes on the Company shall be
deemed to have been sufficiently given or made, for all purposes if given or
served by being deposited postage prepaid by registered or certified mail in a
post office letter box addressed (until another address is filed by the Company
with the Trustee) to S3 Incorporated, 2770 San Tomas Expressway, Santa Clara,

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California 95054, Attention: Chief Financial Officer. Any notice, direction,
request or demand hereunder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or served by being
deposited postage prepaid by registered or certified mail in a post office
letter box addressed to the Corporate Trust Office, which office is, at the
date as of which this Indenture is dated, located at 725 South Figueroa Street,
Suite 3100, Los Angeles, California 90017, Attention: Corporate Trust
Department (S3 Incorporated, 5-3/4% Convertible Subordinated Notes due 2003).

The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.

Any notice or communication mailed to a Noteholder shall be mailed to
it by first class mail, postage prepaid, at its address as it appears on the
Note register and shall be sufficiently given to it if so mailed within the
time prescribed.

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

SECTION 17.4 GOVERNING LAW. This Indenture and each Note shall be
deemed to be a contract made under the laws of New York, and for all purposes
shall be construed in accordance with the laws of New York.

SECTION 17.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that
in the opinion of such counsel, all such conditions precedent have been
complied with.

Each certificate or opinion provided for by or on behalf of the
Company in this Indenture and delivered to the Trustee with respect to
compliance with a condition or covenant provided for in this Indenture shall
include (1) a statement that the person making such certificate or opinion has
read such covenant or condition; (2) a brief statement as to the nature and
scope of the examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based; (3) a statement that, in the
opinion of such person, he or she has made such examination or investigation as
is necessary to enable him or her to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (4) a statement
as to whether or not, in the opinion of such person, such condition or covenant
has been complied with.

SECTION 17.6 LEGAL HOLIDAYS. In any case where the date of
maturity of interest on or principal of the Notes or the date fixed for
redemption of any Note will not be a Business Day, then payment of such
interest on or principal of the Notes need not be made on such

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date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date of maturity or the date fixed for redemption,
and no interest shall accrue for the period from and after such date.

SECTION 17.7 NO SECURITY INTEREST CREATED. Nothing in this
Indenture or in the Notes, expressed or implied, shall be construed to
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any jurisdiction.

SECTION 17.8 TRUST INDENTURE ACT. This Indenture is hereby made
subject to, and shall be governed by, the provisions of the Trust Indenture Act
required to be part of and to govern indentures qualified under the Trust
Indenture Act; provided that this Section 17.8 shall not require that this
Indenture or the Trustee be qualified under the Trust Indenture Act prior to
the time such qualification is in fact required under the terms of the Trust
Indenture Act, nor shall it constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another provision
hereof which is required to be included in an indenture qualified under the
Trust Indenture Act, such required provision shall control.

SECTION 17.9 BENEFITS OF INDENTURE. Nothing in this Indenture or
in the Notes, expressed or implied, shall give to any person, other than the
parties hereto, any paying agent, any authenticating agent, any Note registrar
and their successors hereunder, the holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim
under this Indenture.

SECTION 17.10 TABLE OF CONTENTS, HEADINGS, ETC. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.

SECTION 17.11 AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents
and purposes as though the authenticating agent had been expressly authorized
by this Indenture and those Sections to authenticate and deliver Notes. For
all purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes "by the Trustee" and a certificate of authentication executed on behalf
of the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee's certificate of
authentication. Such authenticating agent shall at all times be a person
eligible to serve as trustee hereunder pursuant to Section 8.9.

Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger,

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consolidation or conversion to which any authenticating agent shall be a party,
or any corporation succeeding to the corporate trust business of any
authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the parties hereto or the authenticating agent or such successor
corporation.

Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at
any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case
at any time any authenticating agent shall cease to be eligible under this
Section, the Trustee shall either promptly appoint a successor authenticating
agent or itself assume the duties and obligations of the former authenticating
agent under this Indenture, and upon an appointment of a successor
authenticating agent, if made, shall give written notice of such appointment of
a successor authenticating agent to the Company and shall mail notice of such
appointment of a successor authenticating agent to all holders of Notes as the
names and addresses of such holders appear on the Note register.

The Trustee agrees to pay to the authenticating agent from time to
time reasonable compensation for its services (to the extent pre-approved by
the Company in writing), and the Trustee shall be entitled to be reimbursed for
such pre-approved payments, subject to Section 8.6.

The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11
shall be applicable to any authenticating agent.

SECTION 17.12 EXECUTION IN COUNTERPARTS. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.

State Street Bank and Trust Company of California, N.A. hereby accepts
the trusts in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly signed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first written above.

S3 INCORPORATED

By: ______________________________
Title:

Attest:

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

By: ________________________________________________________________
Title:

Attest:

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EXHIBIT A - FORM OF NOTE

[FORM OF FACE OF NOTE]

[INCLUDE IF NOTE IS A REGULATION S GLOBAL SECURITY -- THIS NOTE IS A REGULATION
S GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER.
EXCEPT IN THE CIRCUMSTANCES DESCRIBED IN SECTION 2.5(b) OF THE INDENTURE, NO
TRANSFER OR EXCHANGE OF AN INTEREST IN THIS REGULATION S GLOBAL SECURITY MAY BE
MADE FOR AN INTEREST IN THE RESTRICTED GLOBAL SECURITY DURING THE RESTRICTED
PERIOD.]

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

THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED
HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR
OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON

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TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS
TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO 2(F) ABOVE) A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THE NOTE EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE
NOTE (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR SUCCESSOR TRUSTEE AS
APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) OR 2(E)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK
AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE
EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF THREE YEARS
FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

No.______ $___________________________________________________________

A-2
<PAGE> 96
S3 INCORPORATED

5-3/4% CONVERTIBLE SUBORDINATED NOTE DUE 2003

S3 INCORPORATED, a corporation duly organized and validly existing
under the laws of the State of Delaware (herein called the "Company", which
term includes any successor corporation under the Indenture referred to on the
reverse hereof), for value received hereby promises to pay to
____________________, or registered assigns, the principal sum of
____________________ ______________________________ Dollars on October 1, 2003
and to pay interest on said principal sum semi-annually on April 1 and October
1 of each year, commencing April 1, 1997, at the rate per annum specified in
the title of this Note, accrued from the April 1 or October 1, as the case may
be, next preceding the date of this Note to which interest has been paid or
duly provided for, unless the date of this Note is a date to which interest has
been paid or duly provided for, in which case interest shall accrue from the
date of this Note, or unless no interest has been paid or duly provided for on
this Note, in which case interest shall accrue from September 18, 1996, until
payment of said principal sum has been made or duly provided for.
Notwithstanding the foregoing, if the date hereof is after any March 15 or
September 15, as the case may be, and before the following April 1 or October
1, this Note shall bear interest from such April 1 or October 1, respectively;
provided, however, that if the Company shall default in the payment of interest
due on such April 1 or October 1, then this Note shall bear interest from the
next preceding April 1 or October 1 to which interest has been paid or duly
provided for or, if no interest has been paid or duly provided for on this
Note, from September 18, 1996. The interest so payable on any April 1 or
October 1 will be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the record date,
which shall be the March 15 or September 15 (whether or not a Business Day)
next preceding such April 1 or October 1, respectively, as provided in the
Indenture; provided that any such interest not punctually paid or duly provided
for shall be payable as provided in the Indenture. Payment of the principal of
and interest accrued on this Note shall be made at the office or agency of the
Company maintained for that purpose in the Borough of Manhattan, The City of
New York, or, at the option of the holder of this Note, at the Corporate Trust
Office, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts;
provided, however, that at the option of the Company, payment of interest may
be made by check mailed to the registered address of the person entitled
thereto.

Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on this Note to the
prior payment in full of all Senior Indebtedness as defined in the Indenture
and provisions giving the holder of this Note the right to convert this Note
into Common Stock of the Company on the terms and subject to the limitations
referred to on the reverse hereof and as more fully specified in the Indenture.
Such further provisions shall for all purposes have the same effect as though
fully set forth at this place.

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<PAGE> 97
This Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State.

This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.

IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.

S3 INCORPORATED

Dated:____________________ By: _________________________________
Title:

Attest:

_________________________________

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Notes described in the within-named Indenture.

STATE STREET BANK AND TRUST

COMPANY OF CALIFORNIA, N.A., as Trustee

By:___________________________
Authorized Signatory

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<PAGE> 98
[FORM OF REVERSE OF NOTE]

S3 INCORPORATED

5-3/4% CONVERTIBLE SUBORDINATED NOTE DUE 2003

This Note is one of a duly authorized issue of Notes of the Company,
designated as its 5-3/4% Convertible Subordinated Notes due 2003 (herein called
the "Notes"), limited to the aggregate principal amount of $90,000,000 (subject
to increase as provided in the Indenture (as hereinafter defined) of up to an
additional $13,500,000 aggregate principal amount), all issued or to be issued
under and pursuant to an Indenture dated as of September 12, 1996 (herein
called the "Indenture"), between the Company and State Street Bank and Trust
Company of California, N.A. (herein called the "Trustee"), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.

In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and accrued interest on all Notes
may be declared, and upon said declaration shall become, due and payable, in
the manner, with the effect and subject to the conditions provided in the
Indenture.

The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Notes at the time outstanding, evidenced as
in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Notes; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Note, or
reduce the rate or extend the time of payment of interest thereon, or reduce
the principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption or repurchase thereof, impair, or change in any respect
adverse to the holder of Notes, the obligation of the Company to repurchase any
Note at the option of the holder upon the happening of a Designated Event, or
impair or adversely affect the right of any Noteholder to institute suit for
the payment thereof, or make the principal thereof or interest or premium, if
any, thereon payable in any coin or currency other than that provided in the
Notes, or modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the Noteholders, or impair,
or change in any respect adverse to the holders of the Notes, the right to
convert the Notes into Common Stock subject to the terms set forth in the
Indenture, including Section 15.6 thereof, without the consent of the holder of
each Note so affected or (ii) reduce the aforesaid percentage of Notes, the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of all Notes then outstanding. It is also
provided in the Indenture that, prior to any declaration accelerating the
maturity of the Notes, the holders of a majority in aggregate principal amount
of the Notes at the time outstanding may on behalf of the holders of all of the
Notes waive any

A-5
<PAGE> 99
past default or Event of Default under the Indenture and its consequences
except a default in the payment of interest or any premium on or the principal
of or any redemption price or repurchase price of any of the Notes or a failure
by the Company to convert any Notes into Common Stock of the Company. Any such
consent or waiver by the holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Note and any Notes which may be issued in exchange
or substitution hereof, irrespective of whether or not any notation thereof is
made upon this Note or such other Notes.

The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of the Company,
as defined in the Indenture, whether outstanding at the date of the Indenture
or thereafter incurred, and this Note is issued subject to the provisions of
the Indenture with respect to such subordination. Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the
Trustee his attorney in fact for such purpose.

No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and
interest on this Note at the place, at the respective times, at the rate and in
the coin or currency herein prescribed.

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

The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof. At
the office or agency of the Company referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without
payment of any service charge but with payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration or exchange of Notes, Notes may be exchanged for a like aggregate
principal amount of Notes of other authorized denominations.

The Notes will not be redeemable at the option of the Company prior to
October 8, 1999. On or after such date and prior to maturity the Notes may be
redeemed at the option of the Company as a whole, or from time to time in part,
upon mailing a notice of such redemption not less than 20 nor more than 60 days
before the date fixed for redemption to the holders of Notes at their last
registered addresses, all as provided in the Indenture, at the redemption price
(expressed in percentage of the principal amount) as set forth in the
Indenture, together in each case with accrued interest to, but excluding, the
date fixed for redemption; provided that if the date fixed for redemption is a
April 1 or October 1, then the interest payable on such date shall be paid to
the holder of record on the next preceding March 15 or September 15,
respectively.

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<PAGE> 100
The Notes are not subject to redemption through the operation of any
sinking fund.

Upon the occurrence of a "Designated Event" prior to October 1, 2003,
the Noteholder has the right, at such holder's option, to require the Company
to repurchase all or any portion of such holder's Notes on the repurchase date
established by the Company at a price equal to 100% of the principal amount of
the Notes, together in each case with accrued interest to, but excluding, the
date fixed for redemption; provided that if such repurchase date is April 1 or
October 1, then the interest payable on such date shall be paid to the holder
of record of the Note on the next preceding March 15 or September 15,
respectively. The Company shall mail to all holders of record of the Notes a
notice of the occurrence of a Designated Event, of the repurchase date (which
shall be not less than 30 nor more than 45 days after the notice) and of the
repurchase right arising as a result thereof on or before 15 calendar days
after the occurrence of such Designated Event. At the option of the Company,
the Repurchase Price may be paid in cash or, subject to the conditions provided
in the Indenture, by delivery of shares of Common Stock having a fair market
value equal to the Repurchase Price. For purposes of this paragraph, the fair
market value of shares of Common Stock shall be determined by the Company and
shall be equal to 95% of the average of the Closing Prices of the Common Stock
for the five consecutive Trading Days ending on and including the third Trading
Day immediately preceding the repurchase date. Whenever in this Note there is
a reference, in any context, to the principal of any Note as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Note to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price
in any provision of this Note shall not be construed as excluding the
Repurchase Price so payable in those provisions of this Note when such express
mention is not made; provided, however, that for the purposes of the sixth
preceding paragraph, such reference shall be deemed to include reference to the
Repurchase Price only if the Repurchase Price is payable in cash.

Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time on or after 60 days following the latest date
of original issuance of the Notes and prior to the close of business on October
1, 2003, or, as to all or any portion hereof called for redemption, prior to
the close of business on the fifth Business Day next preceding the date fixed
for redemption (unless the Company shall default in payment due upon
redemption), to convert the principal hereof or any portion of such principal
which is $1,000 or an integral multiple thereof, into that number of fully paid
and non-assessable shares of the Company's Common Stock, as said shares shall
be constituted at the date of conversion, obtained by dividing the principal
amount of this Note or portion thereof to be converted by the conversion price
of $19.22 or such conversion price as adjusted from time to time as provided in
the Indenture, upon surrender of this Note, together with a conversion notice
as provided in the Indenture and this Note, to the Company at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
The City of New York, or at the option of such holder, the Corporate Trust
Office, and, unless the shares issuable on conversion are to be issued in the
same name as this Note, duly endorsed by, or accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder or by
his duly authorized attorney. No adjustment in respect of interest or
dividends will be made upon any conversion; provided, however, that if this
Note shall be

A-7
<PAGE> 101
surrendered for conversion during the period from the close of business on any
record date for the payment of interest through the close of business on the
Business Day next preceding the following interest payment date, this Note
(unless it or the portion being converted shall have been called for redemption
during the period from the close of business on any record date through the
close of business on the Business Day next preceding the following interest
payment date) must be accompanied by an amount, in funds acceptable to the
Company, equal to the interest otherwise payable on such interest payment date
on the principal amount being converted. No fractional shares of Common Stock
will be issued upon any conversion, but an adjustment in cash will be paid to
the holder, as provided in the Indenture, in respect of any fraction of a share
which would otherwise be issuable upon the surrender of any Note or Notes for
conversion.

Any Notes called for redemption, unless surrendered for conversion on
or before the close of business on the date fixed for redemption, may be deemed
to be purchased from the holder of such Notes at an amount equal to the
applicable redemption price, together with accrued interest to the date fixed
for redemption, by one or more investment bankers or other purchasers who may
agree with the Company to purchase such Notes from the holders thereof and
convert them into Common Stock of the Company and to make payment for such
Notes as aforesaid to the Trustee in trust for such holders.

Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, or at the option of the holder of this Note, at the Corporate Trust
Office, a new Note or Notes of authorized denominations for an equal aggregate
principal amount will be issued to the transferee in exchange thereof, subject
to the limitations provided in the Indenture, without charge except for any tax
or other governmental charge imposed in connection therewith.

The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note
shall be overdue and notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Company or any Note registrar), for the
purpose of receiving payment hereof, or on account hereof, for the conversion
hereof and for all other purposes, and neither the Company nor the Trustee nor
any other authenticating agent nor any paying agent nor any other conversion
agent nor any Note registrar shall be affected by any notice to the contrary.
All payments made to or upon the order of such registered holder shall, to the
extent of the sum or sums paid, satisfy and discharge liability for monies
payable on this Note.

No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, stockholder, employee, agent, officer,
director or subsidiary, as such, past, present or future, of the Company or of
any successor corporation, either directly or through the Company or any
successor corporation, whether by virtue of any constitution, statute or rule
of law or by the

A-8
<PAGE> 102
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.

Terms used in this Note and defined in the Indenture are used herein
as therein defined.

ASSIGNMENT

For value received ____________________ hereby sell(s), assign(s) and
transfer(s) unto ____________________ (Please insert social security or
Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints _____________ ____________________
attorney to transfer the said Note on the books of the Company, with full power
of substitution in the premises.

In connection with any transfer of the within Note occurring within
three years of the original issuance of such Note (unless such Note is being
transferred pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:

/ / To the Company or a subsidiary thereof; or

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

/ / To an Institutional Accredited Investor pursuant to and in
compliance with the Securities Act of 1933, as amended; or

/ / Pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or

/ / Pursuant to and in compliance with Rule 144 under the
Securities Act of 1933, as amended;

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

/ / The transferee is an Affiliate of the Company.

A-9
<PAGE> 103
Dated: ____________________________________________

___________________________________________________

___________________________________________________
Signature(s)

Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes to be delivered, other than to and in the name of the registered holder.

___________________________________________________
Signature Guarantee

NOTICE: The signature must correspond with the name as written upon the face
of the Note in every particular without alteration or enlargement or any change
whatever.

A-10
<PAGE> 104
[FORM OF CONVERSION NOTICE]

CONVERSION NOTICE

TO: S3 INCORPORATED

The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred
to in this Note, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid to the undersigned on account of interest accompanies this Note.

Dated: ____________________ __________________________________

__________________________________
Signature(s)

______________________________
Signature Guarantee

NOTICE: The signature must correspond with the name as written upon the face
of the Note in every particular without alteration or enlargement or any change
whatever.

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<PAGE> 105
Fill in for registration of shares if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:

______________________________
(Name)

______________________________
(Street Address)

______________________________
(City, State and Zip Code)

Please print name and address

Principal amount to be converted (if less than all):

$____,000

___________________________________________________
Social Security or Other Taxpayer
Identification Number

A-12
<PAGE> 106
[FORM OF OPTION TO ELECT REPAYMENT
UPON A DESIGNATED EVENT]

TO: S3 INCORPORATED

The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from S3 Incorporated (the "Company") as to the occurrence
of a Designated Event with respect to the Company and requests and instructs
the Company to repay the entire principal amount of this Note, or the portion
thereof (which is $1,000 principal amount or an integral multiple thereof)
below designated, in accordance with the terms of the Indenture referred to in
this Note, together with accrued interest to, but excluding, such date, to the
registered holder hereof, in cash or, at the Company's election and in
accordance with the Indenture, in Common Stock.

Dated:
---------------------------- ----------------------------------

----------------------------------
Signature(s)

Social Security or Other Taxpayer
Identification Number

Principal amount to be repaid
(if less than all): $______,000

NOTICE: The above signatures of the
holder(s) hereof must correspond with
the name as written upon the face of
the Note in every particular without
alteration or enlargement or any
change whatever.

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<PAGE> 107
EXHIBIT B

FORM OF PURCHASER LETTER FOR INSTITUTIONAL ACCREDITED INVESTORS

S3 Incorporated
2770 San Tomas Expressway
Santa Clara, California 95051

State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, California 90017
Attn: Corporate Trust Department
(S3 Incorporated 5-3/4% Convertible Subordinated Notes due 2003)

Re: S3 Incorporated Convertible Subordinated Notes Due 2003

Dear Ladies and Gentlemen:

The undersigned is delivering this letter in connection with
the acquisition of one or more of the 5-3/4% Convertible Subordinated Notes due
2003 (the "Notes"), which are convertible into shares of Common Stock of S3
Incorporated (the "Company"), $0.0001 par value (the "Common Stock").

The undersigned hereby confirms that:

(i) the undersigned is an "accredited investor"
within the meaning of Rule 501(a)(1), (2) or (3) under the Securities
Act of 1933 (the "Securities Act") or an entity in which all of the
equity owners are "accredited investors" within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act (an "Institutional
Accredited Investor");

(ii) (A) any purchase of Notes by the undersigned
will be for the undersigned's own account or for the account of one or
more other Institutional Accredited Investors or as fiduciary for the
account of one or more trusts, each of which is an "accredited
investor" within the meaning of Rule 501(a)(7) under the Securities
Act and for each of which the undersigned exercises sole investment
discretion or (B) the undersigned is a "bank," within the meaning of
Section 3(a)(2) of the Securities Act, or a savings and loan
"association" or other institution described in Section 3(a)(5)(A) of
the Securities Act that is acquiring Notes as fiduciary for the
account of one or more institutions for which the undersigned
exercises sole investment discretion;

(iii) in the event that the undersigned purchases
any Notes, the undersigned will acquire Notes having a minimum
principal amount of not less than

B-1
<PAGE> 108
$250,000 for its own account or for any separate account for which the
undersigned is acting;

(iv) the undersigned has such knowledge and
experience in financial and business matters that the undersigned is
capable of evaluating the merits and risks of purchasing Notes; and

(v) the undersigned is not acquiring Notes with a
view to distribution thereof or with any present intention of offering
or selling Notes or the Common Stock issuable upon conversion thereof,
except as permitted below; provided, that the disposition of the
undersigned's property and property of any accounts for which the
undersigned is acting as fiduciary shall remain at all times within
its control.

The undersigned understands that the Notes and the shares of
Common Stock issuable upon conversion thereof (collectively, the "Securities")
have not been registered under the Securities Act or any applicable state
securities laws, and the undersigned agrees, on its own behalf and on behalf of
each account for which the undersigned acquires any Securities, that if in the
future the undersigned decides to resell or otherwise transfer such Securities,
such Securities may be resold or otherwise transferred only (a) to the Company
or any subsidiary thereof, (b) inside the United States to a person who is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (c) inside the
United States to an Institutional Accredited Investor that, prior to such
transfer, furnishes to the trustee (or transfer agent, as the case may be) for
such Securities a signed letter containing certain representations and
agreements relating to the restrictions on transfer of such Securities (the
form of which letter can be obtained from such trustee, or transfer agent, as
the case may be), (d) outside the United States in a transaction meeting the
requirements of Rule 904 under the Securities Act, (e) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
applicable) or (f) pursuant to a registration statement which has been declared
effective under the Securities Act. The undersigned agrees that any such
transfer of Securities referred to in this paragraph shall be in accordance
with applicable securities laws of any State of the United States or any other
applicable jurisdiction and in accordance with the legends set forth on the
Securities. The undersigned further agrees to provide any person purchasing
any of the Securities from the undersigned a notice advising such purchaser
that resales of such securities are restricted as stated herein. The
undersigned understands that the registrar and transfer agent for the
Securities will not be required to accept for registration of transfer any
Securities, except upon presentation of evidence satisfactory to the Company
that the foregoing restrictions on transfer have been complied with. The
undersigned further understands that any Securities will be in the form of
definitive physical certificates and that such certificates will bear a legend
or legends (unless the sale of the Securities has been registered under the
Securities Act) reflecting the substances of this paragraph.

The undersigned acknowledges that the Company, the Trustee and
others will rely upon the undersigned's confirmations, acknowledgements and
agreements set forth

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<PAGE> 109
herein, and the undersigned agrees to notify you promptly in writing if any of
its representations or warranties herein ceases to be accurate and complete.

--------------------------------
(Name of Purchaser)

Dated: __________, ____ By:
-----------------------------
Name:
------------------------
Title:
-----------------------
Address:
---------------------

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

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<PAGE> 110
EXHIBIT C

FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY
(Pursuant to Section 2.5(b)(2) or (6) of the Indenture)

State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, California 90017
Attention: Corporate Trust Department
(S3 Incorporated 5-3/4% Convertible Subordinated Notes due 2003)

Dear Ladies and Gentlemen:

Reference is hereby made to the Indenture, dated as of
September 12, 1996 (the "Indenture"), between S3 Incorporated, as issuer (the
"Company") and State Street Bank and Trust Company of California, N.A., as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.

This letter relates to U.S. $__________ principal amount of
Notes which are evidenced by one or more Restricted Global Securities and held
with the Depositary in the name of ____________________ (the "Transferor").
The Transferor has requested a transfer of such beneficial interest in the
Notes to a Person who will take delivery thereof in the form of an equal
principal amount of Notes evidenced by one or more Regulation S Global
Securities, which amount, immediately after such transfer, is to be held with
the Depositary through Euroclear or CEDEL or both.

In connection with such request and in respect of such Notes,
the Transferor hereby certifies that such transfer has been effected in
compliance with the transfer restrictions applicable to the Notes and pursuant
to and in accordance with Rule 903 or Rule 904 under the United States
Securities Act of 1933, as amended (the "Securities Act"), and accordingly the
Transferor hereby further certifies that:

(1) The offer of the Notes was not made to a person in the United
States;

(2) either:

(a) at the time the buy order was originated, the
transferee was outside the United States or the
Transferor and any person acting on its behalf
reasonably believed and believes that the transferee
was outside the United States; or

(b) the transaction was executed in, on or through the
facilities of a designated offshore securities market
and neither the Transferor nor any

C-1
<PAGE> 111
person acting on its behalf knows that the transaction
was prearranged with a buyer in the United States;

(3) no directed selling efforts have been made in contravention of
the requirements of Rule 904(b) of Regulation S;

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

(5) upon completion of the transaction, the beneficial interest
being transferred as described above is to be held with the
Depositary through Euroclear or CEDEL or both.

(6) With respect to transfers made in reliance on Rule 144, the
Notes are being transferred in a transaction permitted by Rule
144 under the Securities Act; and with respect to transfer
made in reliance on Rule 144A, that such Notes are being
transferred in accordance with Rule 144A under the Securities
Act to a transferee that the Transferor reasonably believes is
purchasing the Notes for its own account or an account with
respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a
"qualified institutional buyer" within the meaning of Rule
144A, in a transaction meeting the requirements of Rule 144A
and in accordance with applicable securities laws of any state
of the United States or any other jurisdiction.

In addition, if the sale is made during a restricted period
and the provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1) of Regulation S
are applicable thereto, we confirm that such sale has been made in accordance
with the applicable provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as
the case may be.

Upon giving effect to this request to exchange a beneficial
interest in a Restricted Global Security for a beneficial interest in a
Regulation S Global Security, the resulting beneficial interest shall be
subject to the restrictions on transfer applicable to Regulation S Global
Securities pursuant to the Indenture and the Securities Act.

This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers, and
you and each of them is entitled to rely on the contents of this certificate.
Terms used in this certificate and not

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<PAGE> 112
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.

------------------------------------
[Insert Name of Transferor]

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

Dated: __________, ____

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<PAGE> 113
EXHIBIT D

FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER FROM REGULATION S
GLOBAL SECURITY
TO RESTRICTED GLOBAL SECURITY
(Pursuant to Section 2.5(b)(3) or (6) of the Indenture)

Dear Ladies and Gentlemen:

This letter relates to U.S. $__________ principal amount of
Notes which are evidenced by one or more Regulation S Global Securities and
held with the Depositary through [Euroclear] [CEDEL] in the name of
____________________ (the "Transferor"). The Transferor has requested a
transfer of such beneficial interest in the Notes to a Person who will take
delivery thereof in the form of an equal principal amount of Notes evidenced by
one or more Restricted Global Securities, to be held with the Depositary.

In connection with such request and in respect of such Notes,
the Transferor hereby certifies that:

[CHECK ONE]

[ ] such transfer is being effected pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the
Transferor hereby further certifies that the Notes are being
transferred to a Person that the Transferor reasonably
believes is purchasing the Notes for its own account, or for
one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A;

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<PAGE> 114
[ ] such transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;

[ ] such transfer is being effected pursuant to an effective
registration statement under the Securities Act;

[ ] such transfer is being effected pursuant to an exemption from
the registration requirements of the Securities Act other than
Rule 144A or Rule 144, and the Transferor hereby further
certifies that the Notes are being transferred in compliance
with the transfer restrictions applicable to the Notes and in
accordance with the requirements of the exemption claimed,
which certification is supported by such legal opinions or
other information provided by the Transferor or the transferee
(a copy of which the Transferor has attached to this
certification) in form reasonably acceptable to the Company,
to the effect that such transfer is in compliance with the
Securities Act;

and such Notes are being transferred in compliance with any applicable blue sky
securities laws of any state of the United States.

Upon giving effect to this request to exchange a beneficial
interest in Regulation S Global Securities for a beneficial interest in
Restricted Global Securities, the resulting beneficial interest shall be
subject to the restrictions on transfer applicable to Restricted Global
Securities pursuant to the Indenture and the Securities Act.

______________________________________
[Insert Name of Transferor]

By:___________________________________
Name:
Title:

Dated: __________, ____

D-2

<PAGE> 1
EXHIBIT 4.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement is made and entered into as
of September 12, 1996, by and among S3 Incorporated, a Delaware corporation
(the "Company"), and Lehman Brothers Inc., PaineWebber Incorporated and Cowen &
Company (the "Initial Purchasers") who have purchased or have the right to
purchase up to $103,500,000 in aggregate principal amount of 5-3/4% Convertible
Subordinated Notes due 2003 (the "Notes") of the Company pursuant to the
Purchase Agreement (as such term is defined below).

This Agreement is made pursuant to the Purchase Agreement,
dated September 12, 1996, among the Company and the Initial Purchasers (the
"Purchase Agreement"). In order to induce the Initial Purchasers to enter into
the Purchase Agreement, the Company has agreed to provide the registration
rights provided for in this Agreement to the Initial Purchasers and their
respective direct and indirect transferees (i) for the benefit of the Initial
Purchasers, (ii) for the benefit of the holders from time to time of the Notes
(including the Initial Purchasers) and the holders from time to time of the
Common Stock issuable or issued upon conversion of the Notes and (iii) for the
benefit of the securities constituting the Transfer Restricted Securities. The
execution of this Agreement is a condition to the closing of the transactions
contemplated by the Purchase Agreement.

The parties hereby agree as follow:

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

Advice: As defined in Section 2(d) hereof.

Affiliate: An affiliate of any specified person shall mean
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 person, means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.

Agreement: This Registration Rights Agreement, as the same
may be amended, supplemented or modified from time to time in accordance with
the terms hereof.

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<PAGE> 2
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.

Closing Date: September 18, 1996.

Common Stock: Common Stock, $.0001 par value per share, of
the Company and any other shares of common stock as may constitute "Common
Stock" for purposes of the Indenture, in each case, as issuable or issued upon
conversion of the Notes.

Company: S3 Incorporated, a Delaware corporation, and any
successor corporation thereto.

controlling person: As defined in Section 5(a) hereof.

Effectiveness Period: As defined in Section 2(a) hereof.

Effectiveness Target Date: The 180th day following the
Closing Date.

Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC pursuant thereto.

Filing Date: The 90th day after the Closing Date.

Holder: Each owner of any Transfer Restricted Securities.

Indemnified Person: As defined in Section 5(a) hereof.

Indenture: The Indenture, dated as of the date hereof,
between the Company and the Trustee thereunder, pursuant to which the Notes are
being issued, as amended, modified or supplemented from time to time in
accordance with the terms thereof.

Initial Purchasers: As defined in the first paragraph hereof.

Notes: The $90,000,000 aggregate principal amount of 5-3/4%
Convertible Subordinated Notes due 2003 of the Company being issued pursuant to
the Indenture (together with the up to $13,500,000 aggregate principal amount
of such Notes, if, and to the extent the Initial Purchasers' over allotment
option is exercised).

Proceeding: An action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as
disposition), whether commenced or threatened.

Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule

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<PAGE> 3
430A promulgated pursuant to the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the resale of any of the Transfer
Restricted Securities covered by such Registration Statement, and all other
amendments and supplements to any such prospectus, including post-effective
amendments, and all materials incorporated by reference or deemed to be
incorporated by reference, if any, in such prospectus.

Purchase Agreement: As defined in the second paragraph
hereof.

Registration Statement: Any registration statement of the
Company filed with the SEC pursuant to the Securities Act that covers the
resale of any of the Transfer Restricted Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement.

Rule 144: Rule 144 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.

Rule 144A: Rule 144A promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.

Rule 158: Rule 158 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.

Rule 174: Rule 174 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.

Rule 415: Rule 415 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.

Rule 424: Rule 424 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.

SEC: The Securities and Exchange Commission.

Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations promulgated by the SEC thereunder.

Shelf Registration Statement: As defined in Section 2(a)
hereof.

Special Counsel: Any special counsel to the holders of
Transfer Restricted Securities.

TIA: The Trust Indenture Act of 1939, as amended.

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<PAGE> 4
Transfer Restricted Securities: The Notes and the shares of
Common Stock into which the Notes are converted or convertible (including any
shares of Common Stock issued or issuable thereon upon any stock split, stock
combinations, stock dividend or the like), upon original issuance thereof, and
at all times subsequent thereto, and associated related rights, if any, until,
in the case of any such Note or share (and associated rights) (i) the date on
which the resale thereof has been registered effectively pursuant to the
Securities Act and disposed of in accordance with the Registration Statement
relating thereto, (ii) the date on which either such Note or the shares of
Common Stock issued upon conversion of such Note are distributed to the public
pursuant to Rule 144 (or any similar provisions then in effect) or are saleable
pursuant to Rule 144(k) promulgated by the SEC pursuant to the Securities Act
or (iii) the date on which it ceases to be outstanding, whichever date is
earliest.

Trustee: The Trustee under the Indenture.

Underwritten registration or underwritten offering: A
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective Registration
Statement.

References herein to the term "Holders of a majority in
aggregate principal amount of Transfer Restricted Securities" or words to a
similar effect shall mean, with respect to any request, notice, demand,
objection or other action by the holders of Transfer Restricted Securities
hereunder or pursuant hereto (each, an "Act"), registered holders of a number
of shares of then outstanding Common Stock constituting Transfer Restricted
Securities and an aggregate principal amount of then outstanding Notes
constituting Transfer Restricted Securities, such that the sum of such shares
of Common Stock and the shares of Common Stock issuable upon conversion of such
Notes constitute in excess of 50% of the sum of all of the then outstanding
shares of Common Stock constituting Transfer Restricted Securities and the
number of shares of Common Stock issuable upon conversion of then outstanding
Notes constituting Transfer Restricted Securities. For purposes of the
immediately preceding sentence, (i) any Holder may elect to take any Act with
respect to all or any portion of Transfer Restricted Securities held by it and
only the portion as to which such Act is taken shall be included in the
numerator of the fraction described in the preceding sentence and (ii) Transfer
Restricted Securities owned, directly or indirectly, by the Company or its
Affiliates shall be deemed not to be outstanding.

2. Shelf Registration Statement. (a) The Company
agrees to file with the SEC as soon as practicable after the Closing Date, but
in no event later than the Filing Date, a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Transfer Restricted Securities (the "Shelf Registration Statement"). The
Shelf Registration Statement shall be on Form S-3 under the Securities Act or
another appropriate form selected by the Company permitting registration of
such Transfer Restricted Securities for resale by the Holders in the manner or
manners reasonably designated by them (including, without limitation, one or
more underwritten offerings). The Company shall not permit any securities
other than the Transfer Restricted Securities to be included in the Shelf
Registration Statement. The Company shall use all reasonable efforts

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<PAGE> 5
to cause the Shelf Registration Statement to be declared effective pursuant to
the Securities Act as promptly as practicable following the filing thereof, but
in no event later than the Effectiveness Target Date, and to keep the Shelf
Registration Statement continuously effective under the Securities Act for 36
months after the date on which all the Notes are sold (including those sold
pursuant to the over-allotment option granted to the Initial Purchasers in the
Purchase Agreement) to the Initial Purchasers (subject to extension pursuant to
Sections 2(a), 2(b) and 2(d) hereof) (the "Effectiveness Period"), or such
shorter period ending when there cease to be outstanding any Transfer
Restricted Securities; provided that the Company shall not be deemed to have
kept a Registration Statement effective during the applicable period if it
voluntarily takes or fails to take any action that results in selling Holders
of the Transfer Restricted Securities covered thereby not being able to sell
such Transfer Restricted Securities pursuant to Federal securities laws during
that period (and the time period during which such Registration Statement is
required to remain effective hereunder shall be extended by the number of days
during which such selling Holders of Transfer Restricted Securities are not
able to sell Transfer Restricted Securities).

(b) Supplements and Amendments. The Company shall use
its reasonable efforts to keep the Shelf Registration Statement continuously
effective by supplementing and amending the Shelf Registration Statement if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration Statement, if required by
the Securities Act, or if reasonably requested by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities or by any
underwriter of such Transfer Restricted Securities; provided that the
Effectiveness Period shall be extended to the extent required to permit dealers
to comply with the applicable prospectus delivery requirements of Rule 174 and
as otherwise provided herein.

(c) Selling Securityholder Information. The Company may
require each Holder of Transfer Restricted Securities to be sold pursuant to
the Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of the Transfer Restricted Securities
as the Company may from time to time reasonably require for inclusion in the
Shelf Registration Statement, and the Company may exclude from such
registration the Transfer Restricted Securities of any Holder that unreasonably
fails to furnish such information within a reasonable time after receiving such
request. Each Holder of Transfer Restricted Securities to be sold pursuant to
a Shelf Registration Statement agrees to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not misleading.

(d) Certain Notices; Suspension of Sales. Each Holder of
Transfer Restricted Securities agrees by acquisition of such Transfer
Restricted Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(c)(ii), 3 (c)(iii),
3(c)(v) or 3(c)(vi) hereof, such Holder will forthwith discontinue disposition
of such Transfer Restricted Securities covered by such Registration Statement
or Prospectus (other than in transactions exempt from the registration
requirements under the Securities Act) until such Holder's receipt of the
copies of the

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<PAGE> 6
supplemented or amended Prospectus contemplated by Section 3(j) hereof, or
until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus. If the Company
shall give any such notice, the Effectiveness Period shall be extended by the
number of days during such period from and including the date of the giving of
such notice to and including the date when each Holder shall have received (x)
the copies of the supplemented or amended Prospectus contemplated by Section
3(j) hereof or (y) the Advice, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.

(e) Compliance. The Company shall cause the Shelf
Registration Statement and the Prospectus and any amendment or supplement
thereto, as of the effective date of the Shelf Registration Statement,
amendment or supplement, (i) to comply in all material respects with the
applicable requirements of the Securities Act and the rules and regulations of
the SEC and (ii) not to contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

3. Registration Procedures. In connection with the
Company's registration obligations hereunder, the Company shall effect such
registrations on the appropriate form selected by the Company available for the
sale of the Transfer Restricted Securities to permit the sale of Transfer
Restricted Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:

(a) No fewer than five Business Days prior to the initial
filing of a Registration Statement or Prospectus and no fewer than two Business
Days prior to the filing of any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), furnish to the registered (as of the most recent reasonably
practicable date which shall not be more than two Business Days prior to the
date such notice is personally delivered, delivered to a next-day courier,
deposited in the mail or telecopied, as the case may be) Holders of the
Transfer Restricted Securities, Special Counsel and the managing underwriters,
if any, copies of all such documents proposed to be filed, which documents
(including those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, Special Counsel and such
underwriters, if any, and cause the officers and directors of the Company,
counsel to the Company and independent certified public accountants to the
Company to respond to such inquiries as shall be necessary in connection with
such Registration Statement, in the opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file any such
Registration Statement or related Prospectus or any amendments or supplements
thereto to which the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities, Special Counsel, or the managing underwriters,
if any, shall reasonably object on a timely basis;

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<PAGE> 7
(b) Prepare and file with the SEC such amendments,
including post-effective amendments, to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective for the
applicable time period set forth in Section 2(a) hereof; and cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions then
in force) under the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement as so amended or in
such Prospectus as so supplemented;

(c) Notify the registered (as of the most recent
reasonably practicable date which shall not be more than two Business Days
prior to the date such notice is personally delivered, delivered to a next-day
courier, deposited in the mail or telecopied, as the case may be) Holders of
Transfer Restricted Securities to be sold or Special Counsel and the managing
underwriters, if any, promptly (and in the case of an event specified by clause
(i)(A) of this paragraph in no event fewer than two Business Days prior to such
filing), and (if requested by any such person), confirm such notice in writing,
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment is proposed to be filed, and, (B) with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request of the SEC or any other Federal or state governmental
authority for amendments or supplements to a Registration Statement or related
Prospectus or for additional information related thereto, (iii) of the issuance
by the SEC, any state securities commission, any other governmental agency or
any court of any stop order, order or injunction suspending or enjoining the
use or the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated by Section 3(l) hereof are not true and
correct in all material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Transfer Restricted Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, and (vi) of the existence of any fact and the happening of any event
that makes any statement made in such Registration Statement or related
Prospectus untrue in any material respect, or that requires the making of any
changes in such Registration Statement or Prospectus so that in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and that, in the case
of the Prospectus, such Prospectus will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;

(d) Use all reasonable efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of any order enjoining or suspending the
use or effectiveness of a Registration Statement or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Transfer Restricted Securities for sale in any jurisdiction, at the earliest
practicable moment;

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<PAGE> 8
(e) Subject to Section 2(c) hereof, if reasonably
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities being sold in
connection with such offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, and such Holders agree should be included therein, and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law;

(f) Furnish to each Holder who so requests, Special
Counsel and each managing underwriter, if any, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements (but excluding schedules, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits, unless requested in writing by such Holder, counsel or managing
underwriter);

(g) Deliver to each Holder, Special Counsel, and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto to such persons who reasonably request; and, unless the
Company shall have given notice to such Holder pursuant to Section 3(c)(vi),
the Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Transfer Restricted
Securities and the underwriters, if any, in connection with the offering and
sale of the Transfer Restricted Securities covered by such Prospectus and any
amendment or supplement thereto;

(h) Prior to any public offering of Transfer Restricted
Securities, use all reasonable efforts to register or qualify, or cooperate
with the Holders of Transfer Restricted Securities to be sold, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of, such Transfer Restricted Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions within the United States
as any Holder or underwriter reasonably requests in writing, keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things necessary legally to enable the disposition in
such jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however that the Company shall not
be required to qualify generally to do business in any jurisdiction where it is
not then so qualified or take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject;

(i) In connection with any sale or transfer of Transfer
Restricted Securities that will result in such securities no longer being
Transfer Restricted Securities, and unless any Transfer Restricted Securities
shall be in only book-entry form, cooperate

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<PAGE> 9
with the Holders and the managing underwriters, if any, to (A) facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold, which certificates shall not bear any
restrictive legends, shall bear a CUSIP number different from the CUSIP number
for the Transfer Restricted Securities and shall be in a form eligible for
deposit with The Depository Trust Company and (B) enable such Transfer
Restricted Securities to be in such denominations and registered in such names
as the managing underwriters, if any, or Holders may request at least two
Business Days prior to any sale of Transfer Restricted Securities;

(j) Upon the occurrence of any event contemplated by
Section 3(c)(vi) hereof, as promptly as practicable, prepare a supplement or
amendment, including, if appropriate, a post-effective amendment, to each
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, such
Prospectus 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;

(k) Prior to the effective date of the first Registration
Statement relating to the Transfer Restricted Securities, to provide a CUSIP
number for the Transfer Restricted Securities to be sold pursuant to the
Registration Statement;

(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) reasonably satisfactory to the Company and take all such other
reasonable actions in connection therewith (including those reasonably
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities being sold) in
order to expedite or facilitate the disposition of such Transfer Restricted
Securities, and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the Holders of
such Transfer Restricted Securities and the underwriters, if any, with respect
to the business of the Company and its subsidiaries (including with respect to
businesses or assets acquired or to be acquired by any of them), and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and reasonably acceptable to the Company, and confirm
the same if and when requested; (ii) seek to obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriters, if
any, and Special Counsel to the Holders of the Transfer Restricted Securities
being sold, addressed to each selling Holder of Transfer Restricted Securities
and each of the underwriters, if any, covering the matters customarily covered
in opinions requested in underwritten offerings (including any such matters as
may be reasonably requested by such Special Counsel and underwriters); (iii)
use all reasonable efforts to obtain customary "cold comfort" letters and
updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any subsidiary of the Company or of any

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<PAGE> 10
business acquired or to be acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed (where reasonably possible) to each selling
Holder of Transfer Restricted Securities and each of the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders of Transfer Restricted Securities and the underwriters, if any,
than those set forth in Section 5 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities covered by such Registration Statement and
the managing underwriters); and (v) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities being sold, Special Counsel or the
managing underwriters, if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (i) of this Section 3(l)
and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company;

(m) Make available for inspection by a representative of
the Holders of Transfer Restricted Securities being sold, any underwriter
participating in any such disposition of Transfer Restricted Securities, if
any, and any attorney, consultant or accountant retained by such selling
Holders or underwriter, at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries as they may reasonably
request (including with respect to business and assets acquired or to be
acquired to the extent that such information is available to the Company), and
cause the officers, directors, agents and employees of the Company and its
subsidiaries (including with respect to business assets acquired or to be
acquired to the extent that such information is available to the Company) to
supply all information in each case reasonably requested by any such
representative, underwriter, attorney, consultant or accountant in connection
with such Registration Statement; provided, however, that any information that
is reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons (and such persons shall so agree in writing),
unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, (ii) disclosure of such information is required by law (including
any disclosure requirements pursuant to Federal securities laws in connection
with the filing of any Registration Statement or the use of any prospectus
referred to in this Agreement), (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by any such person or (iv) such information becomes available to any
such person from a source other than the Company and such source is not bound
by a confidentiality agreement;

(n) Cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement relating to
the Transfer Restricted Securities; and in connection therewith, cooperate with
the Trustee under the Indenture and the Holders of the Transfer Restricted
Securities to effect such changes to the Indenture, if any, as may be required
for such Indenture to be so qualified in accordance with the terms

-10-
<PAGE> 11
of the TIA; and execute, and use all reasonable efforts to cause the Trustee to
execute, all customary documents as may be required to effect such changes, and
all other forms and documents (including the Form T-1) required to be filed
with the SEC to enable the Indenture to be so qualified under the TIA in a
timely manner;

(o) Comply with applicable rules and regulations of the
SEC and make generally available to its security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act), no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year), commencing on the first
day of the first fiscal quarter after the effective date of a Registration
Statement, which statement shall cover said period, consistent with the
requirements of Rule 158; and

(p) (i) list all Common Stock covered by such
Registration Statement on any securities exchange on which the Common Stock is
then listed or (ii) authorize for quotation on The Nasdaq Stock Market all
Common Stock covered by such Registration Statement if the Common Stock is then
so authorized for quotation.

4. Registration Expenses.

(a) All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by it whether
or not any Registration Statement is filed or becomes effective and whether or
not any securities are issued or sold pursuant to any Registration Statement.
The fees and expenses referred to in the foregoing sentence shall include,
without limitation, (i) all registration and filings fees (including without
limitation, fees and expenses (A) with respect to filings required to be made
with the National Association of Securities Dealers, Inc. and (B) in compliance
with securities or Blue Sky laws (including, without limitation and in addition
to that provided for in (b) below, fees and disbursements of counsel for the
underwriters or Special Counsel for the Holders in connection with Blue Sky
qualifications of the Transfer Restricted Securities and determination of the
eligibility of the Transfer Restricted Securities for investment under the laws
of such jurisdictions as the managing underwriters, if any, or Holders of a
majority in aggregate principal amount of Transfer Restricted Securities, may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Transfer Restricted Securities in a form eligible for
deposit with The Depository Trust Company and of printing Prospectuses if the
printing of Prospectuses is required by the managing underwriters, if any, or
by the Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities included in any Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders (plus any local counsel, deemed
appropriate by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities) in accordance with the provisions of Section
4(b) hereof, (v) fees and disbursements of all independent certified public
accountants referred to in Section 3(l)(iii) (including, without limitation,
the expenses of any special audit and "cold comfort" letters required by or
incident to such performance), (vi) Securities Act liability insurance, if the
Company so

-11-
<PAGE> 12
desires such insurance, and (vii) fees and expenses of all other persons
retained by the Company. In addition, the Company shall pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
an annual audit, and the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange.
Notwithstanding the foregoing or anything in this Agreement to the contrary,
each Holder shall pay all underwriting discounts and commissions of any
underwriters with respect to any Transfer Restricted Securities sold by it.

(b) In connection with any registration hereunder, the
Company shall reimburse the Holders of the Transfer Restricted Securities being
registered or tendered for in such registration for the fees and disbursements
of not more than one firm of attorneys representing the selling Holders (in
addition to any local counsel), which firm shall be chosen by the Holders of a
majority in aggregate principal amount of the Transfer Restricted Securities.
Orrick, Herrington & Sutcliffe shall be Special Counsel for all purposes hereof
unless and until another Special Counsel shall have been selected by a majority
in aggregate principal amount of the Transfer Restricted Securities and notice
hereof shall have been given to the Company.

5. Indemnification.

(a) The Company agrees to indemnify and hold harmless (i)
each of the Initial Purchasers, (ii) each Holder of Transfer Restricted
Securities, (iii) each person, if any, who controls (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) any of the
foregoing (any of the persons referred to in this clause (iii) being
hereinafter referred to as a "controlling person"), and (iv) the respective
officers, directors, partners, employees, representatives and agents of the
Initial Purchasers, each Holder of Transfer Restricted Securities, or any
controlling person (any person referred to in clause (i), (ii), (iii) or (iv)
may hereinafter be referred to as an "Indemnified Person"), from and against
any and all losses, claims, damages, liabilities, expenses and judgments caused
by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or form of Prospectus or in
any amendment or supplement thereto or in any preliminary Prospectus, or caused
by any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case
of any Prospectus or form of Prospectus or supplement thereto, in the light of
the circumstances under which they were made) not misleading, except insofar as
such losses, claims, damages, liabilities, expenses or judgments are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Indemnified Person furnished in writing
to the Company by or on behalf of such Indemnified Person expressly for use
therein; provided that the foregoing indemnity with respect to any preliminary
Prospectus shall not inure to the benefit of any Indemnified Person from whom
the person asserting such losses, claims, damages, liabilities, expenses and
judgments purchased securities if such untrue statement or omission or alleged
untrue statement or omission made in such preliminary Prospectus is eliminated
or remedied in the Prospectus and a copy of the Prospectus shall not have been
furnished to such person in a timely manner, unless such Prospectus was not
furnished because the Company failed to

-12-
<PAGE> 13
provide the Indemnified Person with sufficient copies of such corrected
Prospectus within the time period required.

(b) In case any action shall be brought against any
Indemnified Person, based upon any Registration Statement or any such
Prospectus or any amendment or supplement thereto and with respect to which
indemnity may be sought against the Company, such Indemnified Person shall
promptly notify the Company in writing and the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Person and payment of all fees and expenses. Any Indemnified
Person shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person, unless (i) the employment
of such counsel shall have been specifically authorized in writing by the
Company, (ii) the Company shall have failed to assume the defense and employ
counsel or (iii) such Indemnified Person or Persons shall have been advised by
counsel that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action or proceeding or that there may be legal defenses
available to such Indemnified Person or Persons different from or in addition
to those available to the indemnifying party or parties (in which case the
Company shall not have the right to assume the defense of such action on behalf
of such Indemnified Person, it being understood, however, that the Company
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all such Indemnified Persons, which firm shall be designated in writing by such
Indemnified Persons, and that all such fees and expenses shall be reimbursed as
they are incurred). The Company shall not be liable for any settlement of any
such action effected without its written consent but if settled with the
written consent of the Company, the Company agrees to indemnify and hold
harmless any Indemnified Person from and against any loss or liability by
reason of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.

(c) In connection with any Registration Statement in
which the Holder of Transfer Restricted Securities is participating, such
Holder of Transfer Restricted Securities agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and any
person controlling the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Indemnified Person but only with
reference to information relating to such Indemnified Person furnished in
writing by or on behalf of such Indemnified Person expressly for use in such
Registration Statement. In case any action shall be brought against the
Company, any of its directors, any such officer or any person controlling the
Company based on such Registration Statement and in respect of which

-13-
<PAGE> 14
indemnity may be sought against any Indemnified Person, the Indemnified Person
shall have the rights and duties given to the Company (except that if the
Company shall have assumed the defense thereof, such Indemnified Person shall
not be required to do so, but may employ separate counsel therein and
participate in defense thereof but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person), and the Company, its directors,
any such officers and any person controlling the Company shall have the rights
and duties given to the Indemnified Person, by Section 5(b) hereof.

(d) If the indemnification provided for in this Section 5
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities, expenses or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities, expenses and judgments (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and each Indemnified Person on the other hand from
the offering of the Transfer Restricted Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and each such
Indemnified Person in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities, expenses or judgments,
as well as any other relevant equitable considerations. The relative fault of
the Company and each such Indemnified Person shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Company or such Indemnified Person and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

The Company and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this Section 5(d) were
determined by pro rata allocation (even if the Indemnified Person were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities, expenses or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Indemnified Person shall be required to contribute any amount in
excess of the amount by which the total net profit received by it in connection
with the sale of the Transfer Restricted Securities pursuant to this Agreement
exceeds the amount of any damages which such Indemnified Person has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Indemnified Persons' obligations to contribute pursuant
to this Section 5(d) are several in proportion to the respective amount of

-14-
<PAGE> 15
Transfer Restricted Securities included in and sold pursuant to any such
Registration Statement by each Indemnified Person and not joint.

(e) The agreements contained in this Section 5 shall
survive the sale of the Transfer Restated Securities pursuant to any
Registration Statement and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Indemnified Person.

6. Rules 144 and 144A.

The Company shall use all reasonable efforts to file the
reports required to be filed by it under the Securities Act and the Exchange
Act in a timely manner and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required
by, and so long as necessary to permit sales of, its Transfer Restricted
Securities pursuant to Rule 144 and Rule 144A. Notwithstanding the foregoing,
nothing in this Section 6 shall be deemed to require the Company to register
any of its securities pursuant to the Exchange Act.

7. Underwritten Registrations.

If any of the Transfer Restricted Securities covered by any
Shelf Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be investment bankers of recognized national
standing selected by the Holders of a majority in aggregate principal amount of
such Transfer Restricted Securities included in such offering, subject to the
consent of the Company (which will not be unreasonably withheld or delayed).

No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.

8. Miscellaneous.

(a) Remedies. In the event of a breach by the Company,
or by a Holder of Transfer Restricted Securities, of any of their obligations
under this Agreement, each Holder of Transfer Restricted Securities or the
Company, respectively, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder of
Transfer Restricted Securities agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific

-15-
<PAGE> 16
performance in respect of such breach, they shall waive the defense that a
remedy at law would be adequate.

(b) No Inconsistent Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Transfer Restricted Securities in
this Agreement or otherwise conflicts with the provisions hereof. The Company
is not currently a party to any agreement granting any registration rights with
respect to any of its securities to any person which conflicts with the
Company's obligations hereunder or gives any other party the right to include
any securities in any Registration Statement filed pursuant hereto, except for
such rights and conflicts as have been irrevocably waived. Without limiting
the generality of the foregoing, without the written consent of the Holders of
a majority in aggregate principal amount of the Transfer Restricted Securities,
the Company shall not grant to any person the right to request it to register
any of its securities under the Securities Act unless the rights so granted are
subject in all respect to the prior rights of the holders of Transfer
Restricted Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.

(c) No Adverse Action Affecting the Transfer Restricted
Securities. The Company will not take any action with respect to the Transfer
Restricted Securities which would adversely affect the ability of any of the
Holders of Transfer Restricted Securities to include such Transfer Restricted
Securities in a registration undertaken pursuant to this Agreement.

(d) No Piggyback on Registrations. The Company shall not
grant to any of its security holders (other than the Holders of Transfer
Restricted Securities in such capacity) the right to include any of its
securities in any Shelf Registration Statement other than Transfer Restricted
Securities.

(e) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof, may not be given, without the written consent of the Holders
of a majority in aggregate principal amount of the Transfer Restricted
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders of Transfer Restricted Securities whose securities are being
sold pursuant to a Registration Statement and that does not directly or
indirectly affect the rights of other Holders of Transfer Restricted Securities
may be given by Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities being sold by such Holders pursuant to such
Registration Statement; provided, however, that the provisions of this sentence
may not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.

(f) Notices. All notices and other communications
provided for herein shall be made in writing by hand-delivery, next-day air
courier, certified first-class mail, return receipt requested or telecopy:

-16-
<PAGE> 17
(i) if to a Holder of Transfer Restricted
Securities, to the address of such Holder as it appears in the Note or Common
Stock register of the Company, as applicable; and

(ii) if to the Company, to:

S3 Incorporated
2770 San Tomas Expressway
Santa Clara, California 95051
Attention: Chief Financial Officer
Telecopy No.: (408) 980-5445

with a copy to:

Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, California 94025
Attention: Jorge del Calvo, Esq.
Telecopy No: (415) 233-4545

(iii) if to the Special Counsel, to:

Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
Attention: M. Peter Lillevand, Esq.
Telecopy No.: (415) 773-5759

or such other Special Counsel at such other address and telecopy number as a
majority in aggregate principal amount of the Transfer Restricted Securities
shall have given notice to the Company as contemplated by Section 4(b) hereof.

Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given, when delivered by hand,
if personally delivered; one Business Day after being timely delivered to a
next-day air courier, five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged by the recipient's
telecopier machine, if telecopied.

(g) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each existing and future
Holder of Transfer Restricted Securities. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder of Transfer Restricted Securities, other than by operation of law
pursuant to a merger or consolidation to which the Company is a party. In the
event the Notes become convertible into common stock of another person pursuant
to Section 15.6 of

-17-
<PAGE> 18
the Indenture, the Company shall cause such person to assume the Company's
obligations hereunder.

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

(i) Governing Law; Submission to Jurisdiction.

THIS AGREEMENT 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
CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF
NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY
OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.

(j) Severability. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.

(k) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. All references made in this Agreement to "Section" and
"paragraph" refer to such Section or paragraph of this Agreement, unless
expressly stated otherwise.

-18-
<PAGE> 19
(l) Attorneys' Fees. In any action or proceeding brought
to enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the
court, shall be entitled to recover its reasonable attorneys' fees in addition
to any other available remedy.

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

S3 INCORPORATED

By:
------------------------

LEHMAN BROTHERS INC.
PAINEWEBBER INCORPORATED
COWEN & COMPANY

BY LEHMAN BROTHERS INC.

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

-19-

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from S3
Incorporated Condensed Consolidated Financial Statements for the period ended
September 30, 1996 and is qualified in its entirety by reference to such 10-Q
filing.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 130,808
<SECURITIES> 13,200
<RECEIVABLES> 104,831
<ALLOWANCES> 2,026
<INVENTORY> 52,865
<CURRENT-ASSETS> 328,367
<PP&E> 44,298
<DEPRECIATION> 18,402
<TOTAL-ASSETS> 446,782
<CURRENT-LIABILITIES> 81,918
<BONDS> 103,500
0
0
<COMMON> 159,865
<OTHER-SE> 82,237
<TOTAL-LIABILITY-AND-EQUITY> 446,782
<SALES> 119,440
<TOTAL-REVENUES> 119,440
<CGS> 72,824
<TOTAL-COSTS> 101,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 338
<INCOME-PRETAX> 18,138
<INCOME-TAX> 6,350
<INCOME-CONTINUING> 11,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,788
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23

</TABLE>