S-4/A

As filed with the Securities and Exchange Commission on April 28, 2004

(S-4) Registration No. 333-113790 / (S-3) Registration No. 333-113791

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

(with respect to 6% Convertible Senior Plus Cash Notes_SM due 2009

being offered in the exchange offer)

AMENDMENT NO. 1

TO

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

(with respect to the additional 6% Convertible Senior Plus Cash Notes_SM due 2009

being offered for cash)

VIROPHARMA INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware	2834	23-2789550
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

405 Eagleview Boulevard

Exton, Pennsylvania 19341

(610) 458-7300

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive offices)

Thomas F. Doyle

Vice President and General Counsel

405 Eagleview Boulevard

Exton, Pennsylvania 19341

(610) 458-7300

(Name, address, including zip code, and telephone number, including area code,

of agent for service)

Copies to:

Jeffrey P. Libson, Esq. Pepper Hamilton LLP 400 Berwyn Park 899 Cassatt Road Berwyn, PA 19312-1183 Telephone: (610) 640-7800 Abigail Arms, Esq. Shearman & Sterling LLP 801 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Telephone: (202) 508-8000

Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this Registration Statement.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.  ¨

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

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the SEC acting pursuant to Section 8(a) may determine.

The information in this prospectus may change. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

Subject to Completion, dated April 28, 2004

Exchange Offer

6% Convertible Senior Plus Cash Notes_SM due 2009 for its

6% Convertible Subordinated Notes due 2007

and the Sale of up to

$25,000,000

6% Convertible Senior Plus Cash Notes_SM due 2009

If you elect to participate in the exchange offer, for each $1,000 principal amount of our 6% Convertible Subordinated Notes due 2007 you tender, you will receive from us $775 principal amount of our 6% Convertible Senior Plus Cash Notes_SM due 2009. The Plus Cash Notes will be issued in denominations of $1,000 and any integral multiples of $1,000. ViroPharma will pay any fractional Plus Cash Notes in cash.

You may also give an indication of your interest in participating in the new money offering in which we are offering up to $25.0 million of additional 6% Convertible Senior Plus Cash Notes_SM due 2009. The public offering price for the Plus Cash Notes issued in the new money offering is expected to be 100% of the principal amount of the Plus Cash Notes plus interest, if any, accrued from the closing date of the exchange offer. The Plus Cash Notes will be issued in denominations of $1,000 and any integral multiples of $1,000.

The exchange offer is open to all holders of our 6% Convertible Subordinated Notes due 2007.

The exchange offer will expire at 12:00 midnight, New York City time, on May 25, 2004.

Our common stock is traded on The Nasdaq National Market under the symbol “VPHM.” On April 26, 2004, the last reported sale price of our common stock on The Nasdaq National Market was $2.52 per share. The Plus Cash Notes will not be listed on The Nasdaq National Market or any national securities exchange.

We are mailing a preliminary prospectus and the letter of transmittal on April 28, 2004.

See “ Risk Factors” beginning on page 34 for a discussion of factors you should consider before deciding to participate in the exchange offer or purchase additional 6% Convertible Senior Plus Cash Notes_SM due 2009 in the new money offering.

We have retained Georgeson Shareholder Communications Inc. as our information agent to assist you in connection with the exchange offer. You may call Georgeson Shareholder Communications Inc. at (800) 259-3515 (toll free), to receive additional documents and to ask questions.

New Money Offering

	Per Note	Total
Public Offering Price(1)	100.00%	$	25,000,000
Underwriter’s Discounts and Commissions(2)	3.6%	$	900,000
Proceeds to the Company(3)	96.4%	$	24,100,000

(1) Plus interest, if any, accrued from the closing date of the exchange offer.

(2) Assumes all of the Plus Cash Notes are sold in the new money offering. See “Plan of Distribution.”

(3) Before deducting offering expenses payable by us in connection with the exchange offer and new money offering and estimated to be $850,000.

The new money offering is being offered to the public on a best efforts basis. There is no minimum purchase requirement and no arrangement to place the proceeds in an escrow, trust or similar account.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The Dealer Manager for the Exchange Offer and the Placement Agent for the New Money Offering:

Piper Jaffray

This prospectus is dated                     , 2004.

TABLE OF CONTENTS

Where You Can Find More Information	i
Summary	1
Risk Factors	34
Special Note Regarding Forward-Looking Statements	53
Ratio of Earnings to Fixed Charges	53
Use of Proceeds	53
Price Range of Common Stock	54
Dividend Policy	54
Capitalization	55
Selected Consolidated Financial Data	57
The Exchange Offer	58
New Money Offering of Additional Plus Cash Notes	65
Description of Plus Cash Notes	66
Description of Existing Notes	81
Description of Capital Stock	90
Book-Entry System – the Depository Trust Company	93
United States Federal Income Tax Considerations	95
Plan of Distribution	103
Legal Matters	105
Experts	105

You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the dealer manager and placement agent have not, authorized any other person to provide you with different information. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, or SEC. You may read and copy any document we file at the SEC’s public reference room located at: Judiciary Plaza Room 1024, 450 Fifth Street, N.W., Washington, DC 20549. You can request copies of these documents by writing to the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available at the SEC’s website at http://www.sec.gov. This website address is included in this document as an inactive textual reference only.

You may also obtain information about us, including copies of our SEC reports, through our website at http://www.viropharma.com. This website address is included in this document as an inactive textual reference only. Any documents, references, links or other materials of any kind contained or referred to on such website are not part of this prospectus or the registration statement of which this prospectus is a part.

This prospectus incorporates important business and financial information about us that is not included in or delivered with this prospectus. The SEC allows us to “incorporate by reference” the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference, although not included in or delivered with this prospectus, is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information and be deemed to be incorporated by reference into this prospectus. We incorporate

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by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act (File No. 0-21699):

• Proxy Statement for the 2004 Annual Meeting, filed with the SEC on April 14, 2004;

• Annual report on Form 10-K for the year ended December 31, 2003, as filed on March 19, 2004;

• Current report on Form 8-K announcing the status of the settlement of stockholder litigation, filed with the SEC on March 18, 2004;

• Current report on Form 8-K announcing initiation of ViroPharma’s Phase 1 hepatitis C program with HCV-086, filed with the SEC on February 25, 2004;

• Current report on Form 8-K announcing the initiation of ViroPharma’s clinical program with maribavir for the prevention of cytomegalovirus, or CMV, infection in transplant patients, filed with the SEC on February 6, 2004;

• Current report on Form 8-K announcing the restructuring of ViroPharma’s operations, filed with the SEC on January 20, 2004; and

• The description of rights to purchase preferred shares contained in the Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 21, 1998.

You may request a copy of these filings, at no cost, by writing or telephoning our Investor Relations Department at the following address:

ViroPharma Incorporated

405 Eagleview Boulevard

Exton, Pennsylvania 19341

(610) 458-7300

To obtain timely delivery, you must request this information no later than five business days before May 25, 2004.

The information contained or incorporated by reference in this prospectus is part of a registration statement we filed with the SEC. You should rely only on the information and representations provided in this prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.

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SUMMARY

This summary does not contain all of the information you should consider before exchanging your existing notes for the Plus Cash Notes or investing in additional Plus Cash Notes in the new money offering. For a more complete understanding of ViroPharma and this exchange offer and new money offering, we encourage you to read carefully this entire prospectus and the documents incorporated by reference herein. The term “Plus Cash Notes” refers to the 6% Convertible Senior Plus Cash Notes_SM due 2009 offered by this prospectus. The term “existing notes” refers to our existing 6% Convertible Subordinated Notes due 2007 to be exchanged for the Plus Cash Notes in the exchange offer. Unless otherwise indicated, “we,” “us,” “our,” “ViroPharma” and similar terms refer to ViroPharma Incorporated and its subsidiary.

Our Business

Overview

We are a pharmaceutical company dedicated to the development and commercialization of products that treat serious diseases treated by physician specialists and in hospital settings. We currently have three product candidates in clinical trials, maribavir for cytomegalovirus, or CMV, HCV-086 for the treatment of hepatitis C and intranasal pleconaril for the treatment of the common cold. The first two product candidates, maribavir and HCV-086, are our core programs and will serve as the foundation for our entry into the transplant, hepatology and gastroenterology markets. We believe that these product candidates represent high growth market opportunities and have concentrated prescribing groups that can be covered effectively by a specialty sales force. To expand our current product candidate portfolio, we intend to acquire or in-license late-stage clinical product candidates and marketed products that are currently not promoted or are under promoted. We intend to acquire or in-license products in therapeutic areas covered by physician specialists and in hospital settings.

Our Product Candidates

The following chart describes our product candidates:

Product Candidate	Disease Indication	Development Status	ViroPharma Commercialization Rights
Maribavir	CMV in transplant patients	Phase 1 in allogenic stem cell transplant patients	Worldwide, other than Japan
HCV-086	Hepatitis C	Phase 1	Co-promotion rights in the United States and Canada with Wyeth
Follow-on to HCV-086	Hepatitis C	Preclinical	Co-promotion rights in the United States and Canada with Wyeth
Intranasal–Pleconaril	Common Cold	Proof-of-concept studies	United States and Canada, subject to an option granted to Schering Corporation

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Maribavir

We are developing maribavir initially for the prevention of CMV infections in patients who have undergone allogenic stem cell (e.g., bone marrow) transplantation. Maribavir is a potent, orally active, inhibitor of the UL97 protein kinase. By inhibiting the action of a protein kinase specific to viruses like CMV, maribavir blocks the release of newly replicated virus particles from the nucleus of an infected cell and thus prevents further infection.

CMV is a member of the herpes virus group that includes the viruses which cause chicken pox, mononucleosis, herpes labialis, known as cold sores, and genitalis, known as genital herpes. Between 50% and 85% of adults in the U.S. have been infected by CMV by the time they reach 40 years of age. CMV is usually latent and causes little to no apparent illness in healthy individuals. However, CMV can reactivate in immunocompromised individuals such as newborns, HIV patients and transplant patients, which can lead to serious disease or death. At particular risk are patients who receive allogenic stem cell or solid organ transplants and have had their immune system weakened in order to reduce the risk of organ rejection. CMV infections in these patients can lead to severe conditions such as pneumonitis or hepatitis, or to complications such as acute or chronic rejection of a transplanted organ. The current standards of care for CMV are antivirals that have significant side effects including serious neutropenia, or reduction in white blood cells, that can lead to other infections. There were approximately 35,000 allogenic stem cell and organ transplants in the United States in 2003, which represented over 2.5 million potential treatment days for CMV.

Currently, the number of potential treatment days is limited due to the side effects of the approved products used in this setting. We believe that the number of potential treatment days can be increased with an antiviral that demonstrates equivalent efficacy and an improved side effect profile when compared to the current standards of care for CMV.

Maribavir has been tested in over 100 subjects in clinical trials conducted by GlaxoSmithKline, our licensor of maribavir. One of these clinical trials was in healthy males and three of these clinical trials were in HIV infected males. The results of these clinical trials demonstrated that maribavir was well tolerated with no neutropenia observed. Adverse events were predominately mild to moderate and included taste disturbance, gastrointestinal effects and rash. Furthermore, these trials included a 25-patient proof-of-concept clinical trial in which maribavir demonstrated a dose dependent reduction in CMV viral load. In-vitro studies have demonstrated that maribavir, as compared to a current leading standard of care, is more potent in inhibiting CMV, less toxic to white blood cells and active against resistant forms of CMV.

We are currently conducting two Phase 1 clinical trials with maribavir to evaluate possible drug interactions and renal impairment, respectively. In the second quarter of 2004, we intend to initiate a dose-ranging, multi-center, Phase 2 clinical trial with maribavir for the prevention of CMV infections in allogeneic stem cell transplant patients. We plan on dosing these patients for 12 weeks each to evaluate efficacy and to provide us with longer duration of safety data. We believe that having a safety profile which allows for a longer treatment duration than the current standard of care may be important for these patients.

Maribavir is the foundation on which we plan to build a franchise in the transplant market. We believe the transplant market represents an attractive commercial opportunity for several reasons, including:

• the opportunity to develop products to treat serious diseases with unmet medical needs;

• the ability to market products to a concentrated group of physician specialists with a sales force that we believe can be less than 50 people; and

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• our belief that the transplant market, as a niche market, has a relatively lower level of competition.

We entered into a license agreement in August 2003 with GlaxoSmithKline under which we acquired worldwide rights, excluding Japan, to develop and commercialize maribavir. We have the rights to develop maribavir for the prevention and treatment of CMV infections related to transplant, congenital transmission and HIV. The patents claiming maribavir expire in 2015. We paid GlaxoSmithKline a $3.5 million up-front licensing fee and will pay additional milestones based upon defined clinical development and regulatory events. We will also pay royalties to GlaxoSmithKline and its licensor on our sales of maribavir in the United States and the rest of the world, excluding Japan.

Hepatitis C Program

We have worked with Wyeth for over four years to develop jointly products for use in treating hepatitis C under a collaboration and license agreement. Under that agreement, we licensed to Wyeth worldwide rights to certain patents and know-how owned by us or created under the agreement. We have the right to co-promote these products with Wyeth in the United States and Canada. Wyeth has the right to promote the products elsewhere in the world. Any profits from the sale of products developed under the agreement with Wyeth sold in the United States and Canada will be shared equally between Wyeth and us. For sales outside the United States and Canada, Wyeth will make royalty payments to us. Wyeth is obligated to make milestone payments to us, and purchase additional shares of our common stock, upon the achievement of certain development milestones. Wyeth will also provide significant financial support for the development of our hepatitis C therapeutic product candidates. Product candidates covered under our agreement with Wyeth include HCV-086 and a follow-on compound.

Hepatitis is an inflammation of the liver that is often caused by viruses, such as hepatitis A, B, or C. Hepatitis C virus is recognized as a major cause of chronic hepatitis worldwide. According to the most recent study by the World Health Organization dated October 2000, and a study by the U.S. Centers for Disease Control and Prevention, or CDC, 170 million people worldwide and about 4 million Americans are infected with hepatitis C. The worldwide incidence of hepatitis C is approximately 3 to 4 million people each year, with the highest prevalence of hepatitis C infection occurring among males and those between ages 30 to 49. About 75% of people that are newly infected with hepatitis C progress to develop chronic infection that can lead to liver damage and liver cancer. There currently are no approved antiviral agents directed specifically against hepatitis C and no vaccine for the prevention of hepatitis C infection. The failure rate of currently available hepatitis C therapies is approximately 50%. These therapies also have substantial limitations for the treatment of chronic hepatitis C, which include poor treatment response in patients infected with a particular genotype of the hepatitis C and significant side effects that can lead to discontinuation of therapy in approximately 20% of patients. Despite the limitations of existing therapies, the sales of currently available products to treat hepatitis C is more than $1.5 billion in the United States.

HCV– 086

We are developing HCV-086 for the treatment of hepatitis C virus. HCV-086 is a small molecule antiviral designed to block an enzyme required for the replication of the hepatitis C virus.

In February 2004, together with Wyeth, we initiated a Phase 1 clinical trial in healthy subjects with HCV-086. We plan to initiate a Phase 1b dose ranging clinical trial in hepatitis C infected patients in the second quarter of 2004, with the target being continued safety data and antiviral activity data. We expect to have the results of the Phase 1b clinical trial in the fourth quarter of 2004. Should we achieve adequate levels of reduction in virus and an appropriate level of safety, we plan to initiate Phase 2 clinical trials with HCV-086 in early 2005.

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Follow-on product candidate

We are also developing a second generation small molecule antiviral from the same chemical class as HCV-086. This product candidate has demonstrated certain advantages compared to HCV-086 in preclinical studies.

These two hepatitis product candidates represent the foundation on which we are building a franchise in the gastroenterology and hepatology market. We believe that the gastroenterology and hepatology markets represent an attractive commercial opportunity for several reasons, including:

• the opportunity to develop products to treat serious diseases with unmet medical needs;

• the large market opportunity presented by hepatitis C; and

• the ability to market products to a concentrated group of physician specialists with a sales force that we believe can be less than 50 people.

Our commercialization collaboration with Wyeth enables our hepatitis C products to be marketed to not only the gastroenterology and hepatology physician specialist, but also the larger, general practitioner prescribing group. At the appropriate time, we intend to build a sales force of approximately 50 people to focus on the gastroenterology and hepatology specialists while Wyeth will use its sales force to focus on the general practitioner prescribing group.

Other Development Program

Intranasal-Pleconaril

In November 2003, we entered into an option agreement with Schering Corporation regarding our intranasal formulation of pleconaril for the treatment of the common cold in the United States and Canada. We are conducting a series of clinical studies designed to evaluate the antiviral activity, safety and other performance characteristics of the new intranasal-pleconaril formulation. We expect final results from these studies to be available in mid-2004. Upon receipt of the data, Schering will determine whether it will exercise its option to enter into a full license agreement with us under which Schering would assume responsibility for all future development and commercialization of intranasal-pleconaril in the United States and Canada.

Recent Corporate Development

In January 2004, we announced the strategic decision to focus on later stage product opportunities and restructured our operations to substantially discontinue our early stage activities, including discovery research and most internal preclinical development activities. We believe that the reduction in expenses anticipated by this restructuring should provide us with the flexibility to execute the planned development of our pipeline of antiviral programs and consider new opportunities to expand our product portfolio. We believe our reported cash and short-term investments at the end of 2003 are sufficient to fund our current business operations until at least the end of 2006.

We were incorporated in Delaware in September 1994. Our executive offices are located at 405 Eagleview Boulevard, Exton, PA 19341, our telephone number is 610-458-7300 and our website is at www.viropharma.com.

“ViroPharma,” “ViroPharma” plus design and “Picovir” are trademarks and service marks of ViroPharma or its licensors. We have obtained trademark registrations in the United States for the marks in connection with certain products and services. All other brand names or trademarks appearing in this prospectus are the property of others. Plus Cash Notes is a service mark of Piper Jaffray & Co.

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The Exchange Offer

We have summarized the terms of the exchange offer in this section. Before you decide whether to tender your existing notes in this offer, you should read the detailed description of the offer under “The Exchange Offer” and of the Plus Cash Notes under “Description of Plus Cash Notes” for further information.

Terms of the exchange offer	We are offering up to $99,122,500 principal amount of Plus Cash Notes for up to an aggregate principal amount of $127,900,000 of the existing notes. We are offering to exchange $775 principal amount of Plus Cash Notes for each $1,000 principal amount of the existing notes. Plus Cash Notes will be issued in denominations of $1,000 and any integral multiple of $1,000. Any fractional Plus Cash Notes will be settled in cash. You may tender all, some or none of your existing notes.
Conversion consideration	The Plus Cash Notes will be convertible, at the option of the holder, at any time on or prior to maturity into a number of shares of our common stock, which we call the “base shares,” and $500 in cash, which we call the “plus cash amount,” for every $1,000 in principal amount of Plus Cash Notes converted. We may, solely at our option, pay the plus cash amount in shares of our common stock, as described under “Description of Plus Cash Notes — Voluntary Conversion of Plus Cash Notes” below. If we elect to pay the plus cash amount with shares of our common stock, we may be entitled to reduce the number of shares to be issued to pay the plus cash amount under certain circumstances described under “Description of Plus Cash Notes—Voluntary Conversion of Plus Cash Notes” below. If we do so, we will be obligated to pay in cash the portion of the plus cash amount not paid for with shares of our common stock. The number of base shares will be fixed as of the second trading day immediately preceding the expiration date of the exchange offer and will be equal to the lesser of: (A) 452.38, and (B) the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount from $952.38, by (ii) the simple average of the closing bid price of our common stock for the five trading days ending on and including the second trading day immediately preceding the expiration date of the exchange offer, which we refer to as the “threshold price.”
	The number of base shares will be 452.38 only if the threshold price is $1.00 or lower. In all other cases, the number of base shares will be fixed such that they have a market value, determined in the manner described above, equal to $452.38.

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	Based on the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding April 27, 2004, which equaled $2.44, the number of base shares would have been 185.40.
	The number of base shares is subject to adjustment upon certain events as described under “Description of Plus Cash Notes –Conversion Amount Adjustment” below.
	Please see “—Comparison of Plus Cash Notes and Existing Notes –Voluntary conversion” and “—Comparison of Plus Cash Notes and Existing Notes–Auto-conversion” for a description of our ability to use shares of our common stock to settle the $500 plus cash amount.
Deciding whether to participate in the exchange offer	Neither we nor our officers or directors make any recommendation as to whether you should tender or refrain from tendering all or any portion of your existing notes in the exchange offer. Further, we have not authorized anyone to make any such recommendation. You must make your own decision whether to tender your existing notes in the exchange offer and, if so, the aggregate amount of existing notes to tender. You should read this prospectus and the letter of transmittal and consult with your advisers, if any, to make that decision based on your own financial position and requirements. In particular, you should know that there are certain significant adverse tax consequences that could result from the exchange of existing notes or the holding, conversion or other disposition of the Plus Cash Notes. Investors considering the exchange of existing notes for Plus Cash Notes should discuss the tax consequences with their own tax advisors. See “The Exchange Offer – Terms of the exchange offer – Tax consequences” in this Summary, “Risk Factors – Risks related to this offering – You may experience significant adverse tax consequences by participating in the exchange offer or purchasing Plus Cash Notes” and “United States Federal Income Tax Considerations.”
Expiration date; extension; termination	The exchange offer and withdrawal rights will expire at 12:00 midnight, New York City time, on May 25, 2004, or any subsequent time or date to which the exchange offer is extended. We may extend the expiration date or amend any of the terms or conditions of the exchange offer for any reason. In the case of an extension, we will issue a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. If we extend the expiration date, you must tender your existing notes prior to the date identified in the press release or public

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	announcement if you wish to participate in the exchange offer. In the case of an amendment, we will issue a press release or other public announcement. We have the right to:
	·	extend the expiration date of the exchange offer and retain all tendered existing notes, subject to your right to withdraw your tendered existing notes; and
	·	waive any condition or otherwise amend any of the terms or conditions of the exchange offer in any respect, other than the condition that the registration statement be declared effective.
Conditions to the exchange offer	The exchange offer is subject to the registration statement, and any post-effective amendment to the registration statement covering the Plus Cash Notes, being effective under the Securities Act of 1933, as amended, or the Securities Act. Further, the exchange offer is subject to the condition, which we may waive as to all holders, that we are not obligated to complete the exchange offer if any person or any group (as the term “group” is used in Section 13(d)(3) of the Exchange Act) would, as a result of the exchange offer, acquire beneficial ownership of more than 19.9% of our common stock. The exchange offer is also subject to customary conditions, which we may waive. The satisfaction or waiver of the conditions, other than those that relate to governmental or regulatory conditions necessary to the consummation of the exchange offer, will be determined as of May 25, 2004, the expiration date of the exchange offer.
Withdrawal rights	You may withdraw a tender of your existing notes at any time before the exchange offer expires by delivering a written notice of withdrawal to U.S. Bank National Association, the exchange agent, before the expiration date. If you change your mind, you may retender your existing notes by again following the exchange offer procedures before the exchange offer expires. In addition, if we have not accepted your tendered existing notes for exchange, you may withdraw your existing notes at any time after June 25, 2004.
Procedures for tendering outstanding existing notes	If you hold existing notes through a broker, dealer, commercial bank, trust company or other nominee, you should contact that person promptly if you wish to tender your existing notes. Tenders of your existing notes will be effected by book-entry transfers through The Depository Trust Company.
	If you hold existing notes through a broker, dealer, commercial bank, trust company or other nominee, you may also comply with the procedures for guaranteed delivery.

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	Please do not send letters of transmittal to us. You should send letters of transmittal to U.S. Bank National Association, the exchange agent, at one of its offices as indicated under “The Exchange Offer” at the end of this prospectus or in the letter of transmittal. The exchange agent can answer your questions regarding how to tender your existing notes.
Accrued interest on existing notes	Existing note holders will receive accrued and unpaid interest on any existing notes accepted in the exchange offer. The amount of accrued interest will be calculated from the last interest payment date up to, but excluding, the closing date of the exchange offer.
Interest on Plus Cash Notes	Interest on the Plus Cash Notes will be payable at a rate of 6% per year, payable on June 1 and December 1 of each year, commencing on December 1, 2004. We may pay interest in cash or, solely at our option, in shares of our common stock, provided that we will not pay interest in shares of our common stock unless the simple average of the daily volume weighted average prices, which we call the “daily VWAPs,” of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the interest payment date equals or exceeds the threshold price. If we elect to pay interest in common stock, the shares of common stock will be valued at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the interest payment date. Interest on the Plus Cash Notes will begin to accrue as of the closing date of the exchange offer.
	We will provide the holders of Plus Cash Notes with notice of our intention to pay interest in common stock no later than the “regular record date,” which is each May 15 and November 15, respectively, preceding the applicable interest payment date.
	Interest on Plus Cash Notes will begin to accrue as of the closing date of the exchange offer. Interest on any tendered existing notes will accrue up to but not including the closing date of the exchange offer. Such accrued and unpaid interest on any tendered existing notes will be paid on the closing date of the exchange offer, the same date the Plus Cash Notes to be offered in the exchange offer will be issued. Accordingly, there will not be a gap in the interest accrual on existing notes exchanged in the exchange offer.
Trading	Our common stock is traded on The Nasdaq National Market under the symbol “VPHM.”

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Information agent	Georgeson Shareholder Communications Inc.
Exchange agent	U.S. Bank National Association
Dealer manager	Piper Jaffray & Co.
Risk factors	You should carefully consider the matters described under “Risk Factors,” as well as other information set forth in this prospectus and in the letter of transmittal.
Consequences of not exchanging existing notes	The liquidity and trading market for existing notes not tendered in the exchange offer could be adversely affected to the extent a significant number of the existing notes are tendered and accepted in the exchange offer. For a period of 18 months following the first issuance of the Plus Cash Notes, but only for so long as any of the Plus Cash Notes remain outstanding, we will be prohibited from engaging in any private or open market repurchases, debt-for-equity swaps or similar transactions with respect to the existing notes.
Tax consequences	See “United States Federal Income Tax Considerations” for a summary of certain United States federal income tax consequences or potential consequences that may result from the exchange of existing notes for Plus Cash Notes and from the ownership and disposition of the Plus Cash Notes and common stock received in connection with the Plus Cash Notes.
	As discussed in that summary, there are certain significant adverse consequences that could result from the exchange of existing notes or the holding, conversion or other disposition of Plus Cash Notes. Among other consequences, the exchange of existing notes for Plus Cash Notes may be treated as a fully taxable exchange of existing notes for Plus Cash Notes; and in the event of conversion (including auto-conversion) of the Plus Cash Notes, the receipt of our common stock and cash (or additional shares of our common stock in lieu of the plus cash amount) may be treated at the time of conversion as a fully taxable exchange of Plus Cash Notes for our common stock and cash.
	We intend to take the position that the Plus Cash Notes constitute “contingent payment debt instruments” for United States federal income tax purposes. As such, among other potential adverse consequences: (i) investors will be required to include amounts in taxable income each year as “original issue discount,” or OID, which is taxed as ordinary income similar to interest, (ii) the value of the stock received upon conversion (including auto-conversion) of the Plus Cash Notes will be treated as an additional payment taxable as ordinary income (subject to potential adjustments); and

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	(iii) gain recognized upon a sale, exchange, redemption, or retirement of the Plus Cash Notes also will generally be treated as ordinary income (subject to potential adjustments and exceptions).
	If the IRS were to assert successfully that our determination of the OID is not correct, a U.S. Holder may be required to include interest on the Plus Cash Notes at a rate substantially in excess of the stated rate. Investors considering the exchange of existing notes for Plus Cash Notes or the purchase of additional Plus Cash Notes in the new money offering should discuss these and other potential adverse consequences with their own tax advisors. These consequences may be materially different from the consequences that may be expected by investors in considering an investment in other convertible debt investments. See “Risk Factors – Risks related to this offering – You may experience adverse tax consequences by participating in the exchange offer or purchasing Plus Cash Notes” and “United States Federal Income Tax Considerations.”
Insufficiency of earnings to cover fixed charges	Earnings were insufficient to cover fixed charges by the following amounts: $36.9 million in the fiscal year ended December 31, 2003; $26.6 million in fiscal 2002; and $78.5 million in fiscal 2001.
The New Money Offering
Terms of the new money offering	We are separately offering to the public up to $25,000,000 aggregate principal amount of Plus Cash Notes for cash. Beneficial ownership as used in this prospectus shall be determined in accordance with Section 13(d)(3) of the Exchange Act.
Use of proceeds	We intend to use the net proceeds received from the sale for cash of these Plus Cash Notes, if any, for potential strategic acquisitions of product candidates or entities and for general corporate purposes, including clinical development, payments of milestone and licensing fees, and working capital.
Placement agent	Piper Jaffray & Co.
Indications of interest	If you would be interested in participating in the new money offering of Plus Cash Notes, you should give your indication of interest directly to the placement agent at (415) 984-5142, attention Jeffrey Winaker or Brian Sullivan. All sales of the Plus Cash Notes will be made at the sole discretion of the placement agent in consultation with us. You need not participate in the exchange offer in order to deliver an indication of interest to participate in the new money offering.

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Allocation of Plus Cash Notes in the new money offering

Neither we nor our placement agent may confirm an allocation on any indication of interest or offer to buy Plus Cash Notes until the registration statement relating to the new money offering, of which this prospectus is a part, has become effective. You may withdraw or change your indication of interest or offer to buy Plus Cash Notes, without obligation or commitment of any kind, at any time prior to being contacted by the placement agent, informed of your allocation and asked to confirm your allocation or withdraw your indication of interest after the effective date of the registration statement of which this prospectus is a part. You will not be obligated to buy Plus Cash Notes by indicating an interest or offering to buy Plus Cash Notes. Even if you indicate your interest in buying Plus Cash Notes, you may not receive any allocation of Plus Cash Notes or your allocation may be for an amount substantially less than the amount of your indication of interest. Allocations of Plus Cash Notes may not be proportional to the total indications of interest that are made in the new money offering. Allocation decisions will be at the discretion of the placement agent who will consider various factors such as, but not limited to, investment interest in ViroPharma, investment objectives, and investor diversification. Neither we nor our placement agent will consider whether or not you are a holder of the existing notes or participate in the exchange offer as a relevant factor when determining the allocation of the Plus Cash Notes in the new money offering.

Deciding whether to participate in the new money offering

Neither we nor our officers or directors make any recommendation as to whether you should or should not indicate your interest in participating in the new money offering. Further, we have not authorized anyone to make any such recommendation. You must make your own decision whether to indicate your interest in purchasing Plus Cash Notes, and if so, whether to purchase the total amount of Plus Cash Notes that may be allocated to you. You should read this prospectus and consult with your advisers, if any, to make that decision based on your own financial position and requirements. In particular, you should know that there are certain significant adverse tax consequences that could result from the holding, conversion or other disposition of the Plus Cash Notes. Investors considering the purchase of Plus Cash Notes in the new money offering should discuss the tax consequences with their own tax advisers. See “The Exchange Offer – Terms of the exchange offer – Tax consequences” in this Summary, “Risk Factors – Risks related to this offering – You may experience significant adverse tax consequences by participating in the exchange offer or purchasing Plus Cash Notes” and “United States Federal Income Tax Considerations.”

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COMPARISON OF PLUS CASH NOTES AND EXISTING NOTES

The following is a brief summary of the terms of the Plus Cash Notes and the existing notes. For a more detailed description of the Plus Cash Notes and existing notes, see “Description of Plus Cash Notes” and “Description of Existing Notes,” respectively.

	Plus Cash Notes	Existing Notes
Securities	Up to $124,122,500 principal amount of 6% Convertible Senior Plus Cash Notes due June 1, 2009, of which up to $99,122,500 are being offered in the exchange offer and up to $25,000,000 are being separately offered in the new money offering. The Plus Cash Notes will be issued in principal amounts of $1,000 and integral multiples of $1,000.	As of the date of this prospectus, there is $127,900,000 in principal amount of our existing 6% Convertible Subordinated Notes due March 1, 2007 outstanding.
Issuer	ViroPharma Incorporated	ViroPharma Incorporated
Maturity	June 1, 2009	March 1, 2007
Interest	Interest on the Plus Cash Notes will be payable at a rate of 6% per year, payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2004.	Interest on the existing notes is payable at a rate of 6% per year, payable semi-annually on March 1 and September 1 of each year.
	We may pay interest in cash or, solely at our option, in shares of our common stock, provided that we will not pay interest in shares of our common stock unless the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the interest payment date equals or exceeds the threshold price.	We pay interest only in cash.
	If we elect to pay interest in common stock, the shares of common stock will be valued at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the interest payment date.
	We will provide the holders of Plus Cash Notes with notice of our intention to pay interest in common stock no later than the “regular record date,” which is each May 15 and November 15, respectively, preceding the applicable interest payment date.

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	Plus Cash Notes	Existing Notes
	If we elect to pay interest in common stock, holders of Plus Cash Notes will not receive a cash interest payment, and instead will receive common stock valued in the manner described above. The existing notes do not permit the payment of interest in common stock, at a discount or otherwise, and require that interest be paid solely in cash.
	All calculations concerning the simple average of the daily VWAP are subject to adjustment upon certain events as described under “Description of Plus Cash Notes —Conversion Consideration Adjustment” below.
	Interest on Plus Cash Notes will begin to accrue as of the closing date of the exchange offer. Interest on any tendered existing notes will accrue up to but excluding the closing date of the exchange offer. Such accrued and unpaid interest on any tendered existing notes will be paid in cash on the closing date of the exchange offer, the same date the Plus Cash Notes to be issued in the exchange offer will be issued. Accordingly, there will not be a gap in the interest accrual on existing notes exchanged in the exchange offer.
Voluntary conversion – general	The Plus Cash Notes will be convertible, at the option of the holder, at any time on or prior to maturity, other than after an auto-conversion or on a redemption date, into a number of shares of our common stock, which we call the “base shares,” and cash in an amount equal to $500, which we call the “plus cash amount,” for every $1,000 in principal amount of Plus Cash Notes converted. If a holder elects to convert voluntarily all or any portion of the Plus Cash Notes prior to June 1, 2006 and if the conditions described under “Description of Plus Cash Notes—Voluntary Conversion – Make-Whole Payment” below are satisfied, then we will pay in cash, or solely at our option, in shares of our common stock, the additional interest described under	The existing notes are convertible, at the option of the holder, at any time on or prior to maturity, into shares of our common stock at a conversion price of $109.15 per share. The conversion rate is subject to adjustment.

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Plus Cash Notes	Existing Notes
“Description of Plus Cash Notes—Voluntary Conversion—Make-Whole Payment” below. We call this additional interest the “make-whole payment.”
In the event that we elect to pay the plus cash amount, the make-whole amount, if any, or both, in shares of our common stock and the total number of shares of our common stock to be issued to you or any group (as the term “group” is used in Section 13(d)(3) of the Exchange Act) of which you are a part as a result of such election, plus the total number of base shares to be issued to you as a result of the voluntary conversion, plus the total number of shares of our common stock beneficially owned by you or any such group, would, in the absence of our ability to reduce the number of shares described below, exceed 19.9% of our then outstanding shares of common stock, then we shall be entitled to reduce the number of shares of common stock to be issued to you or any such group as described under “Description of Plus Cash Notes—Voluntary Conversion of Plus Cash Notes” below. If we so reduce the number of shares to be issued to you or any group of which you are a part, then we shall be obligated to pay the portion of the plus cash amount not paid for with shares of our common stock in cash. Beneficial ownership as used in this prospectus shall be determined in accordance with Section 13(d)(3) of the Exchange Act.	There is no limitation as to the principal amount of the existing notes you can convert at any time.
The number of base shares will be fixed as of the second trading day immediately preceding the expiration date of the exchange offer and will be equal to the lesser of: (A) 452.38, and
(B) the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount from $952.38, by (ii) the threshold price. The number of base shares will be 452.38 only if the threshold price is $1.00 or lower.

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Plus Cash Notes	Existing Notes
In all other cases, the number of base shares will be fixed such that they have a market value, determined in the manner described above, equal to $452.38. Based on the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding April 27, 2004, which equaled $2.44, the number of base shares would have been 185.40.
The number of base shares is subject to adjustment upon certain events as described under “Description of Plus Cash Notes —Conversion Consideration Adjustment” below.
The existing notes are convertible into common stock at a conversion price of $109.15 per share, which is significantly greater than recent market prices. See “Price Range of Common Stock.”
The $500 plus cash amount also payable upon conversion is fixed, and will not fluctuate based on market prices. This plus cash feature effectively puts a floor of $500 on the consideration payable upon conversion. The existing notes will not be in-the-money until the market price of our common stock exceeds $109.15 per share.
In addition, if a holder elects to convert voluntarily any Plus Cash Notes prior to June 1, 2006 and if the conditions described under “—Voluntary conversion – make-whole provision” below are satisfied, we will pay in cash, or solely at our option, in shares of our common stock, additional interest described under the heading “—Voluntary conversion – make-whole provision.” We refer to this additional interest, if any, as the “make-whole payment.”
As promptly as practicable after the conversion date, but in no event later than three trading days after the conversion date, we will issue and deliver to the holder a

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	Plus Cash Notes	Existing Notes
	certificate or certificates for the number of full shares of common stock issuable upon voluntary conversion, together with a check or cash for the plus cash amount, if applicable, and any payment to be made in lieu of fractional shares.
Voluntary conversion – payment of plus cash amount in stock	Upon voluntary conversion we may, at our option, pay the $500 plus cash amount in shares of our common stock valued at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date, provided that, we shall not pay the $500 plus cash amount in shares of our common stock unless the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price.	None.
	If we elect to pay the $500 plus cash amount in common stock, holders of Plus Cash Notes will receive common stock, valued in the manner described above, which may be at a discount to then current market prices. The existing notes do not contain a plus cash feature.
Voluntary conversion –make–whole provision	If voluntary conversion occurs prior to June 1, 2006 and if the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date is greater than the threshold price, we will pay or provide for the make-whole payment equal to two years’ worth of interest, less any interest paid or provided for, on the principal amount so converted, prior to the date of voluntary conversion. The make-whole payment, if any, shall be paid in cash or, solely at our option, in shares of our common stock,	None.

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	Plus Cash Notes	Existing Notes
	provided that, we shall not pay the make-whole payment in shares of our common stock unless the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price. If we pay the make-whole payment in shares of our common stock, such stock will be valued at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the date of voluntary conversion.
Voluntary conversion –ownership certification	Upon a voluntary conversion of all or any portion of the Plus Cash Notes, you will be required to certify to us the total number of shares which represents the sum of (i) the number of shares of our common stock beneficially owned by you or any group of which you are a part, plus (ii) the number of shares of our common stock into or for which all securities beneficially owned by you or any such group are, directly or indirectly, convertible, exercisable or exchangeable.	None.
Auto-conversion – general	We have the right to automatically convert some or all of the Plus Cash Notes at any time on or prior to maturity if the daily VWAP of our common stock has exceeded the auto-conversion price, as defined below, for each of any 20 trading days during any consecutive 30 trading day period ending within one trading day prior to the notice of auto-conversion. We refer to this as an “auto-conversion” and the date upon which the Plus Cash Notes are auto-converted as the “auto-conversion date.”	None.
	If we elect to auto-convert some or all of the Plus Cash Notes, we will issue a notice of auto-conversion identifying the auto-conversion date, which date shall be seven

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	Plus Cash Notes	Existing Notes
	calendar days from the date of our notice, provided that if the seventh calendar day is not a trading day, the auto-conversion date shall be the next trading day.
	If we auto-convert some or all of the Plus Cash Notes, holders will receive, for each $1,000 in principal amount of Plus Cash Notes so converted, the base shares and the $500 plus cash amount in cash, subject to our right to pay the plus cash amount in stock described under “—Auto-conversion — auto-conversion stock substitution general” below.
	In addition, if we effect an auto-conversion prior to June 1, 2006, we will pay additional interest described under the heading “—Auto-conversion —auto-conversion make-whole provision” subject to our right to pay the additional interest in stock as described under “auto-conversion stock substitution general” below.” We refer to this additional interest, if any, as the “make-whole payment.”
	Any auto-conversion of less than all of the Plus Cash Notes will be made on a pro rata basis with reference to the aggregate principal amount held by each holder of Plus Cash Notes relative to the aggregate principal amount held by all holders of Plus Cash Notes on the auto-conversion date, rounded up to the nearest $1,000 in principal amount on a holder-by-holder basis.
Auto-conversion – auto-conversion price	The auto-conversion price will be determined by the following formula: the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount from $1,500, by (ii) the number of base shares.	None.
	The auto-conversion price is subject to adjustment upon certain events as described under “Description of Plus Cash Notes—Conversion Consideration Adjustment” below.

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	Plus Cash Notes	Existing Notes
Auto-conversion – auto-conversion stock substitution general	We may elect to auto-convert some or all of our Plus Cash Notes and pay the plus cash amount in shares of our common stock. If we elect this option, we must provide advance notice and satisfy all of the conditions discussed under “—Auto-conversion —auto-conversion stock substitution procedure” below. When these conditions are satisfied, we will be obligated to auto-convert the specified percentage of our Plus Cash Notes and pay the plus cash amount in shares of our common stock. In addition, if we elect to effect an auto-conversion prior to June 1, 2006 and we are obligated to pay the plus cash amount in shares of our common stock, we will be obligated to pay the make-whole payment, if any, and all accrued interest on the principal amount auto-converted in shares of our common stock.	None.

	Our obligation to pay the plus cash amount, interest required to be paid, if any, and the make-whole payment, if any, in shares of our common stock is subject to certain limitations described under “Description of Plus Cash Notes—Auto-conversion- Stock Substitution —Beneficial Ownership Limitation” below.
Auto-conversion – auto-conversion stock substitution procedure	If we choose to implement the stock substitution procedure, we must provide notice in advance. This stock substitution notice will be provided to all holders of Plus Cash Notes and will be filed with the SEC as an exhibit to a current report on Form 8-K.	None.
	The stock substitution notice must specify the percentage of the outstanding Plus Cash Notes that we will auto-convert upon satisfaction of the conditions for stock substitution discussed below.

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Plus Cash Notes		Existing Notes
The stock substitution notice must also specify a stock price which we refer to as the “stock substitution reference price.” The stock substitution reference price may be any price equal to or greater than the auto-conversion price.
After we have provided a stock substitution notice (which notice we have not withdrawn or modified as described below), the “stock substitution period” will commence on the first trading day on which the daily VWAP of our common stock is greater than the stock substitution reference price.
We refer to the first trading day on which the daily VWAP of our common stock is greater than the stock substitution reference price as the “stock substitution period commencement date.”
During any stock substitution period, if the daily VWAP of our common stock for each of any 20 trading days, which 20 trading days we refer to as the “valuation days,” during any consecutive 30 trading day period exceeds the stock substitution reference price, we will be obligated to:
·	auto-convert the Plus Cash Notes (in the percentage that we have specified in the stock substitution notice);
·	substitute shares of our common stock for the plus cash amount, in the manner described below; and
·	satisfy the make-whole payment, if any, in cash or, solely at our option, in shares of our common stock;
	in all events, subject to the limitations described under “Description of Plus Cash Notes—Auto Conversion—Stock Substitution—Beneficial Ownership Limitation” below.

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Plus Cash Notes	Existing Notes
Within one trading day after the 20th valuation day, we will issue a notice of auto-conversion identifying the auto-conversion date, which date shall be seven calendar days from the date of our notice, provided that if the seventh calendar day is not a trading day, the auto-conversion date shall be the next trading day.
Any auto-conversion of less than all of the Plus Cash Notes pursuant to the stock substitution provision will be made on a pro rata basis with reference to the aggregate principal amount held by each holder of Plus Cash Notes relative to the aggregate principal amount outstanding as of the auto-conversion date, rounded up to the nearest $1,000 in principal amount on a holder-by-holder basis.

	The substituted shares shall be valued at 95% of the simple average of the daily VWAPs of our common stock for the 20 valuation days, which average we refer to as the “stock substitution price.”
	Promptly after the auto-conversion date, we will provide notice to all holders of outstanding Plus Cash Notes stating the aggregate principal amount of Plus Cash Notes that were auto-converted and describing the conversion consideration paid therefor. A copy of that notice will be promptly filed with the SEC as an exhibit to a current report on Form 8-K.
Auto-conversion – stock substitution – withdrawal or modification	After any stock substitution period commencement date, we cannot withdraw or modify the stock substitution notice until the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading days is less than the stock substitution reference price then in effect.	None.

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	Plus Cash Notes	Existing Notes
	Prior to the close of trading on The Nasdaq National Market on the stock substitution period commencement date, we may withdraw or modify the auto-conversion and stock substitution notice at any time.
	Any notice of withdrawal or modification will be provided to all holders of Plus Cash Notes and will be filed with the SEC as an exhibit to a current report on Form 8-K.
Auto-conversion –auto-conversion make-whole provision	If an auto-conversion occurs prior to June 1, 2006, we will pay or provide for the make-whole payment equal to two years’ worth of interest, less any interest paid or provided for, on the principal amount so converted, prior to the date of auto-conversion. The make-whole payment, if any, shall be paid in cash or, solely at our option, in shares of our common stock. If we pay the make-whole payment in shares of our common stock, such stock will be valued at the stock substitution price.	None.
Optional redemption	We may redeem some or all of the Plus Cash Notes on or after June 1, 2006 in cash at 100% of the principal amount, plus accrued and unpaid interest.	We may redeem some or all of the existing notes in cash at declining redemption prices, plus accrued and unpaid interest.
Repurchase at holder’s option upon a fundamental change	You may require us to repurchase your Plus Cash Notes upon a fundamental change, as described under “—Description of Plus Cash Notes—Repurchase at Option of Holder upon Fundamental Change”, in cash at 100% of the principal amount, plus accrued and unpaid interest.	You may require us to repurchase your existing notes upon a fundamental change, as described below, in cash at 100% of the principal amount, plus accrued and unpaid interest.

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	Plus Cash Notes	Existing Notes
Ranking	The Plus Cash Notes are unsecured and unsubordinated obligations and will rank on a parity in right of payment with all our existing and future unsecured and unsubordinated indebtedness, but will rank senior to the existing notes. Upon any distribution of our assets upon any insolvency, dissolution or reorganization, the payment of the principal of, and interest on, our secured indebtedness will be distributed from those of our assets that represent the security for the secured indebtedness before any payment is made from such assets on account of our unsecured indebtedness. The Plus Cash Notes are effectively subordinated to all existing and future liabilities of our existing subsidiary and any future subsidiary. Any right of ours to receive assets of any subsidiary upon its insolvency, dissolution or reorganization, and the consequent right of the holders of the Plus Cash Notes to participate in the assets, will be subject to the claims of that subsidiary’s creditors. The indenture for the Plus Cash Notes does not prevent us or any subsidiary from incurring additional indebtedness, which may be secured by some or all of our assets, or other obligations. We currently operate substantially all of our business through ViroPharma Incorporated. Our subsidiary currently has no outstanding indebtedness through lines of credit or other forms of funded or secured debt.	The existing notes are unsecured and subordinated in right of payment with all our existing and future senior indebtedness, including the Plus Cash Notes. The indenture under which the existing notes were issued does not prevent us or our existing subsidiary or any future subsidiary from incurring additional indebtedness, which may be secured by some or all of our assets, or other obligations.

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	Plus Cash Notes	Existing Notes
Prohibition on certain transactions by ViroPharma involving existing notes	For a period of 18 months following the first issuance of the Plus Cash Notes, but only for so long as any of the Plus Cash Notes remain outstanding, we will be prohibited from engaging in any private or open market repurchases, debt-for-equity swaps or similar transactions with respect to the existing notes.	None.
Prohibition on certain transactions by holders of Plus Cash Notes	By your acceptance of any Plus Cash Notes, you will be deemed to have agreed that you have not (and have not caused or permitted any group of which you are a part to) engage in any transaction that, immediately after giving effect to the completion of the exchange offer and the new money offering, would result in the number of base shares into which the principal amount of all Plus Cash Notes legally or beneficially owned by you or any such group is convertible, plus the total number of shares of our common stock beneficially owned by you or any such group, to exceed 19.9% of our then outstanding shares of common stock.	None.

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Questions and Answers About the Exchange Offer and New Money Offering

Why is the company doing the exchange offer and the new money offering?

We believe that the exchange offer and the new money offering are important steps in re-calibrating our capital structure to be better suited for the current market environment and our current strategic focus. If the exchange offer and the new money offering are fully subscribed, they will:

• position us to auto-convert substantially all of our debt into either common stock or a combination of cash and common stock;

• extend the maturity date of our debt to be more consistent with our current business plan;

• eliminate approximately $29 million principal amount of our indebtedness through the exchange offer, and raise up to $25 million of additional capital through the new money offering; and

• give us the flexibility to make interest payments, at our option, in common stock.

What will I receive in exchange for my existing notes?

If you tender your existing notes in the exchange offer, you will receive Plus Cash Notes with the following characteristics:

• For each $1,000 in principal amount of your existing notes exchanged, you will receive $775 in principal amount of our Plus Cash Notes;

• Interest will accrue on the Plus Cash Notes at a rate of 6% per year. Interest payable at a rate of 6% per year with respect to each $775 in principal amount of Plus Cash Notes is approximately equal to the interest that would otherwise accrue and be payable at a rate of 4.65% per year on each corresponding $1,000 in principal amount of your existing notes exchanged; and

• Each $1,000 in principal amount of Plus Cash Notes will be convertible into a number of shares of our common stock, which we call the base shares, plus $500 in cash, which we call the “plus cash amount,” or, solely at our option and subject to certain limitations, we may pay the plus cash amount in shares of our common stock. The number of base shares will be fixed as of the second trading day immediately preceding the expiration date of the exchange offer and will be equal to the lesser of: (A) 452.38, and (B) the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount from $952.38, by (ii) the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding the expiration date of the exchange offer, which we refer to as the “threshold price.” The existing notes are convertible into shares of our common stock at a conversion price of $109.15 per share, which is significantly greater than recent market prices.

These are only some of the material terms of the Plus Cash Notes, and you should read the “Questions and Answers About Voluntary Conversion of the Plus Cash Notes,” “Question and Answers About Auto-Conversion of the Plus Cash Notes” and the detailed description of the Plus Cash Notes under “Description of Plus Cash Notes” for further information.

If we elect to auto-convert all or a portion of your Plus Cash Notes prior to June 1, 2006, you will also receive the make-whole payment described below in cash or, solely at our option, in shares of our common stock.

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Are there any limitations in the amount of Plus Cash Notes I can receive in the new money offering?

On September 10, 1998, our board of directors adopted a stockholder rights plan. The shareholder rights plan is described under “Description of Capital Stock—Stockholder Rights Plan” below. The preferred share purchase rights granted under the stockholder rights plan are exercisable if, among other triggering events, a person or group (as the term group is used in Section 13(d)(3) of the Exchange Act) acquires beneficial ownership of 20% or more of our then outstanding shares of common stock. Accordingly, you will not be entitled to purchase Plus Cash Notes in the new money offering to the extent that, immediately after giving effect to the completion of the exchange offer and the new money offering, the number of base shares, as described below, into which the principal amount of all Plus Cash Notes legally or beneficially owned by you or any group of which you are a part is convertible, plus the total number of shares of our common stock beneficially owned by you or any such group, would exceed 19.9% of our then outstanding shares of common stock.

How and when will the number of base shares be determined?

The number of base shares will be fixed as of the second trading day immediately preceding the expiration date of the exchange offer and will be equal to the lesser of:

(A) 452.38, and

(B) the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount from $952.38, by (ii) the threshold price.

For example, if the expiration date of the exchange offer were April 27, 2004, the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding April 27, 2004, would have been:

Date	Closing Bid Price
April 23, 2004	$	2.43
April 22, 2004		2.43
April 21, 2004		2.46
April 20, 2004		2.42
April 19, 2004		2.46

The simple average of these closing bid prices equals $2.44 and therefore, the number of base shares would have been 185.40 if the expiration date of the exchange offer were April 27, 2004. If the threshold price were $1.00 or lower, the number of base shares would have been 452.38.

How is daily VWAP determined?

The daily volume weighted average price, which we call the “daily VWAP,” of our common stock will be calculated with reference to the normal trading hours of the applicable trading day on The Nasdaq National Market or principal national or regional securities exchange or over-the-counter market on which our common stock is then traded, as reported by Bloomberg L.P. or such other similarly nationally recognized information source satisfactory to the trustee under the indenture governing the Plus Cash Notes. There is no minimum or maximum volume requirement with respect to the calculation of the daily VWAP. The calculation of the daily VWAP is subject to appropriate adjustment as described under “Description of Plus Cash Notes—Conversion Consideration Adjustment” below.

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How is the simple average of the daily VWAPs determined?

The simple average of the daily VWAPs is the quotient which equals the sum of the daily VWAPs for each of the relevant 10 trading day period, determined as described above, divided by 10. For example, using the following daily VWAPs for the 10 trading days ending on and including April 26, 2004, the simple average of such daily VWAPs is $2.49.

Date	Daily VWAP
April 26, 2004	$	2.52
April 23, 2004		2.46
April 22, 2004		2.51
April 21, 2004		2.45
April 20, 2004		2.47
April 19, 2004		2.55
April 16, 2004		2.47
April 15, 2004		2.43
April 14, 2004		2.43
April 13, 2004		2.60

What will the conversion consideration be at the time the company determines the number of base shares?

At the time that we determine the number of base shares prior to the expiration of the exchange offer, the value of the consideration payable upon the conversion of $1,000 in principal amount of the Plus Cash Notes will be less than $1,000. In the event that the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day preceding the expiration of the exchange offer is $1.00 or higher, the conversion value of each $1,000 in principal amount of the Plus Cash Notes when the number of base shares is determined will be equal to $952.38 (representing the $500 plus cash amount plus a number of base shares having a market value equal to $452.38, determined in the manner described above). In the event that the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day preceding the expiration of the exchange offer is less than $1.00, the conversion value of each $1,000 in principal amount of the Plus Cash Notes when the number of base shares is determined would be less than $952.38 (representing the $500 plus cash amount plus the market value of 452.38 base shares).

When will the conversion consideration equal or exceed the $1,000 principal amount?

Assuming that the number of base shares is less than 452.38, the conversion consideration of each $1,000 in principal amount of the Plus Cash Notes would only equal or exceed $1,000 if the market value of our common stock appreciates by approximately 10.5% from the market value of our common stock used to establish the number of base shares, determined in the manner described above. Based upon a number of base shares equal to 185.40, using the simple average of the closing bid prices provided above of $2.44, the per share market value of our common stock would have to appreciate $0.26 to $2.70 in order for the conversion consideration to equal the $1,000 principal amount of the Plus Cash Notes. Assuming that the number of base shares is equal to 452.38, the conversion consideration of each $1,000 in principal amount of the Plus Cash Notes would only equal or exceed $1,000 if the market value of our common stock appreciated to approximately $1.11 at the time of conversion.

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Is the exchange offer conditioned upon a minimum number of existing notes being tendered in the exchange or Plus Cash Notes being purchased for cash?

No, the exchange offer is not conditioned upon any minimum number of existing notes being tendered or Plus Cash Notes being purchased for cash. The exchange offer is subject to customary conditions, which we may waive.

How soon must I act if I decide to participate in the exchange offer?

Unless we extend the expiration date, the exchange offer will expire on May 25, 2004 at 12:00 midnight, New York City time. The exchange agent must receive all required documents and instructions on or before May 25, 2004 or you will not be able to participate in the exchange offer.

What happens if I do not participate in the exchange offer?

The decision of a holder of existing notes not to participate in the exchange offer will not affect his or her eligibility to indicate interest for additional Plus Cash Notes in the new money offering. If a significant number of the existing notes are tendered and accepted in the exchange offer, the liquidity and the trading market for existing notes will likely be impaired. We and the placement agent will not consider whether or not a holder of the existing notes participates in the exchange offer as a relevant factor when determining the allocation of the Plus Cash Notes in the new money offering. Also, for a period of 18 months following the first issuance of the Plus Cash Notes, but only for so long as any of the Plus Cash Notes remain outstanding, we will be prohibited from engaging in any private or open-market repurchases, debt-for-equity swaps or similar transactions with respect to the existing notes.

How do I indicate my interest for additional Plus Cash Notes for cash in the new money offering?

If you are interested in purchasing additional Plus Cash Notes for cash, please contact Jeffrey Winaker or Brian Sullivan at Piper Jaffray at (415) 984-5142. If ViroPharma and the placement agent decide to go forward with the new money offering, allocations of additional Plus Cash Notes will be made by the placement agent, after consultation with us, in its sole discretion. The closing of the new money offering is anticipated to occur on the same day as the closing of the exchange offer.

How will fractional Plus Cash Notes be settled in the exchange offer?

We will exchange $775 principal amount of Plus Cash Notes for each $1,000 principal amount of the existing notes that are tendered in the exchange. We will issue Plus Cash Notes only in denominations of $1,000 and integral multiples of $1,000. We will settle any fractional Plus Cash Notes in cash. For example, if you tender three existing notes ($3,000 aggregate principal amount), you will receive two Plus Cash Notes ($2,000 aggregate principal amount) and $325 in cash in lieu of fractional Plus Cash Notes ($3,000 aggregate principal amount of existing notes x 0.775 = $2,325, which you would receive in the form of two Plus Cash Notes and $325 in cash).

What should I do if I have additional questions about the exchange offer or the new money offering?

If you have any questions, need additional copies of the offering material, or otherwise need assistance, please contact the information agent for the offering:

Georgeson Shareholder Communications Inc.

17 State Street, 10^th Floor

New York, New York 10004

(800) 259-3515

To receive copies of our recent SEC filings, you can contact us by mail or refer to the other sources described under “Where You Can Find More Information.”

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Questions and Answers About Voluntary Conversion of the Plus Cash Notes

When can I voluntarily convert my Plus Cash Notes?

Unless we call some or all of the Plus Cash Notes for redemption, you can voluntarily convert all or a portion of your Plus Cash Notes at any time on or prior to maturity of the Plus Cash Notes other than after an auto-conversion. If we call some or all of the Plus Cash Notes for redemption and you want to voluntarily convert your Plus Cash Notes, you must convert your Plus Cash Notes before the close of business on the last business day prior to the redemption date or auto-conversion date, as applicable.

What will I receive when I voluntarily convert my Plus Cash Notes?

For each $1,000 in principal amount of Plus Cash Notes you convert, you will receive the base shares and $500 in cash, which we call the “plus cash amount.” If you voluntarily convert all or a portion of your Plus Cash Notes, we may pay the plus cash amount in cash unless we decide, solely at our option, to pay the plus cash amount in additional shares of our common stock, provided that the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price. In addition, if you elect to convert voluntarily all or any portion of your Plus Cash Notes prior to June 1, 2006 and if the conditions described below are satisfied, we will pay the make-whole payment described below in cash or, solely at our option, in shares of our common stock. If we elect to pay the plus cash amount with shares of our common stock, we will be entitled to reduce the number of shares to be issued to pay the plus cash amount under certain circumstances described under “Description of Plus Cash Notes—Voluntary Conversion of Plus Cash Notes” below. If we do so, we will be obligated to pay in cash the portion of the plus cash amount not satisfied with shares of our common stock.

What will I receive if I elect to voluntarily convert my Plus Cash Notes prior to June 1, 2006?

If you elect to voluntarily convert all or a portion of your Plus Cash Notes prior to June 1, 2006 and if the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date is greater than the threshold price, we also will pay or provide for a make-whole payment equal to two years’ worth of interest, less any interest paid or provided for, on the principal amount so converted prior to the date on which you auto-convert the Plus Cash Notes. The make-whole payment, if any, shall be paid in cash or, solely at our option, in shares of our common stock, provided that, we shall not pay the make-whole payment in shares of our common stock unless the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price. If we elect to pay the make-whole payment with shares of our common stock, we will be entitled to reduce the number of shares to be issued to pay the make-whole payment under certain circumstances described under “Description of Plus Cash Notes—Voluntary Conversion of Plus Cash Notes” below. If we do so, we will be obligated to pay in cash the portion of the make-whole payment not paid with shares of our common stock.

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Questions and Answers About Auto-Conversion of the Plus Cash Notes

(You may want to refer to the graphical illustration of the auto-conversion provision on page 33 of this prospectus while reviewing the following questions and answers.)

When can the company auto-convert my Plus Cash Notes?

We may elect, at our sole option, to auto-convert all or a portion of your Plus Cash Notes at any time prior to maturity of the Plus Cash Notes, if the daily VWAP of our common stock has exceeded the auto-conversion price for each of any 20 trading days during any consecutive 30 trading day period ending within one trading day prior to the notice of auto-conversion. The auto-conversion price will be fixed on the expiration date of the exchange offer.

What will I receive if the company auto-converts my Plus Cash Notes?

If we auto-convert all or a portion of your Plus Cash Notes, you will receive, for each $1,000 in principal amount of Plus Cash Notes so converted, the base shares and the $500 plus cash amount. We may pay the plus cash amount in cash or, if we comply with the procedures for stock substitution, in shares of our common stock. If we elect to auto-convert less than all of the outstanding Plus Cash Notes, we will effect the auto-conversion on a pro rata basis with reference to the aggregate principal amount of Plus Cash Notes held by you relative to the aggregate principal amount of Plus Cash Notes held by all holders of Plus Cash Notes, rounded up to the nearest $1,000 in principal amount on a holder-by-holder basis. If we elect to auto-convert all or a portion of your Plus Cash Notes prior to June 1, 2006, you will also receive the make-whole payment described below in cash or solely at our option, in shares of our common stock.

When will I receive cash for the plus cash amount upon an auto-conversion of my Plus Cash Notes?

If we auto-convert all or a portion of your Plus Cash Notes, you will receive the base shares and the $500 plus cash amount in cash if:

• there is no stock substitution notice in effect; or

• we have issued a stock substitution notice and the stock substitution period, as described below, has not yet begun.

When does the stock substitution period begin?

The stock substitution period begins on the first day after we have issued a stock substitution notice during which the daily VWAP of our common stock has exceeded the stock substitution reference price. We refer to this day as the stock substitution period commencement date. Beginning on that date we cannot withdraw or modify the stock substitution notice until the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading day period is less than the stock substitution reference price.

During the stock substitution period, we may not auto-convert any of the Plus Cash Notes until satisfaction of the stock substitution conditions described above.

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When does the stock substitution period end?

Prior to the close of trading on The Nasdaq National Stock Market on the stock substitution period commencement date, we may withdraw or modify the stock substitution notice at any time. After the stock substitution period commencement date, the stock substitution period ends only upon:

• satisfaction of the stock substitution notice by auto-converting the percentage of the principal amount of the outstanding Plus Cash Notes we specified in the stock substitution notice and paying the plus cash amount with shares of our common stock upon such auto-conversion of the Plus Cash Notes; or

• notification of our withdrawal or modification of the stock substitution notice, which would be effective only once the daily VWAP of our common stock is less than the stock substitution reference price for each of any 20 trading days during any consecutive 30 trading days.

When will I receive shares of the company’s common stock for the plus cash amount upon an auto-conversion of my Plus Cash Notes?

We must provide a stock substitution notice giving advance notice of our election to pay the plus cash amount in shares of our common stock if we desire to auto-convert all or a portion of your Plus Cash Notes and to pay the plus cash amount in shares of our common stock. This stock substitution notice will be provided to all holders of Plus Cash Notes and will be filed with the SEC as an exhibit to a current report on Form 8-K. The stock substitution notice must specify:

• a stock substitution reference price as selected by us, which price must be equal to or greater than the auto-conversion price; and

• the percentage of the aggregate principal amount of the outstanding Plus Cash Notes that we will convert.

We may only issue one stock substitution notice at a time. Upon satisfaction of a stock substitution notice for less than 100% of the Plus Cash Notes, we may issue a new stock substitution notice for some or all of the remaining Plus Cash Notes.

If the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading day period exceeds the stock substitution reference price, which 20 trading days are referred to as valuation days, we must:

• auto-convert the percentage of the principal amount of the outstanding Plus Cash Notes we specified in the stock substitution notice;

• pay the plus cash amount with shares of our common stock upon such auto-conversion of the Plus Cash Notes; and

• satisfy the make-whole payment, if any, in cash or, solely at our option, in shares of our common stock;

in all events, subject to the limitations described under “Description of Plus Cash Notes Auto-Conversion—Stock Substitution—Beneficial Ownership Limitation” below.

Within one trading day after the 20^th valuation day, we will issue a notice of auto-conversion identifying the auto-conversion date, which date shall be seven calendar days from the date of our notice, provided that if the seventh calendar day is not a trading day, the auto-conversion date shall be the next trading day.

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The shares of our common stock used to pay the plus cash amount shall be valued at 95% of the simple average of the daily VWAP of our common stock for each of the 20 valuation days, which we refer to as the stock substitution price.

Can I voluntarily convert my Plus Cash Notes after the company has issued a stock substitution notice?

Yes, you can elect, at your option, to voluntarily convert all or a portion of your Plus Cash Notes at any time on or prior to maturity of the Plus Cash Notes other than after the 20th valuation day or on a redemption date. The principal amount of any Plus Cash Notes with respect to which a stock substitution notice has been given cannot be voluntarily converted at any time from and after the 20th valuation day relating to such stock substitution notice. If we elect to pay the plus cash amount with shares of our common stock, we will be entitled to reduce the number of shares to be issued to satisfy the plus cash amount under certain circumstances described under “Description of Plus Cash Notes—Voluntary Conversion of Plus Cash Notes” below. If we do so, we will be obligated to pay in cash the portion of the plus cash amount not satisfied with shares of our common stock.

Why do the stock substitution procedures require that the company deliver a stock substitution notice prior to its effecting an auto-conversion in connection with which the company elects to pay the plus cash amount with shares of its common stock?

We believe that the stock substitution procedures, in particular the requirement that we deliver a notice of stock substitution prior to auto-conversion, will help to provide transparency to our investors, including the holders of our common stock and the holders of our Plus Cash Notes. Once the daily VWAP of our common stock exceeds the stock substitution reference price, investors will be on notice that an auto-conversion in which we will pay the plus cash amount with shares of our common stock may occur. The stock substitution procedures also require us to auto-convert the Plus Cash Notes to the extent and in the manner provided in the stock substitution notice, providing additional transparency to our investors.

What factors will the company consider when determining the stock substitution reference price?

We will determine, in our sole discretion, the stock substitution reference price after due consideration of various factors including among others the then market price of our common stock, the potential effect of a stock issuance upon the market price of our stock, our financial condition and prospects and general economic and market conditions. The stock substitution reference price must be equal to or greater than the auto-conversion price.

What will I receive if the company auto-converts my Plus Cash Notes prior to June 1, 2006?

If we elect to auto-convert all or a portion of your Plus Cash Notes prior to June 1, 2006, we also will pay or provide for a make-whole payment in cash equal to two years’ worth of interest, less any interest paid or provided for, on the principal amount so converted prior to the date on which we auto-convert the Plus Cash Notes. The make-whole payment, if any, shall be paid in cash or, solely at our option, in shares of our common stock. If we pay the make-whole payment in shares of our common stock upon our auto-conversion of all or a portion of Plus Cash Notes, such stock will be valued at the stock substitution price.

Can the company reduce the number of shares of common stock required to be issued to me in the event of an auto-conversion where a stock substitution notice is given and the stock substitution conditions are satisfied?

Our obligation to pay the plus cash amount, interest required to be paid, if any, and the make-whole payment, if any, in shares of our common stock in the event of an auto-conversion where a stock

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substitution is given and the stock substitution conditions are satisfied is subject to certain limitations described under “Description of Plus Cash Notes – Auto-Conversion- Stock Substitution – Beneficial Ownership Limitation” below.

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RISK FACTORS

You should carefully consider the risks described below before you decide to exchange your existing notes for Plus Cash Notes or buy for cash additional Plus Cash Notes. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business operations.

If any of the following risks actually occur, they could materially adversely affect our business, financial condition or operating results. In that case, the trading price of our common stock and the existing notes could decline.

Risks Related to ViroPharma

Our success depends on our ability to enhance our existing pipeline of product candidates through the in-license or other acquisition of late stage clinical development candidates or marketed products, and if our business development efforts are not successful, our ability to achieve profitability will depend on the successful development of our earlier stage product candidates and our ability to finance the development of such product candidates.

Our current product portfolio consists of early stage compounds. For example, our most advanced product candidate is maribavir, which we expect will enter phase 2 clinical trials in the second quarter of 2004. We intend to pursue aggressively the in-license or the acquisition of products in late stage clinical development and marketed products that are under-promoted or not currently promoted, to expand our current portfolio. Such products may be intended to treat, or are currently used to treat, the patient populations in which we hope our cytomegalovirus, or CMV, and hepatitis C product candidates will be used, or may be products to treat other diseases for which patients are treated by physician specialists and in hospital settings. If we are not successful in acquiring products in late stage clinical development, or marketed products that are under-promoted or not currently promoted, then we will be dependent upon our ability to raise financing for, and the successful development and commercialization of, our product candidates in our CMV and hepatitis C programs.

Many other large and small companies within the pharmaceutical and biotechnology industry seek to establish collaborative arrangements for product research and development, or otherwise acquire products, in competition with us. We face additional competition from public and private research organizations, academic institutions and governmental agencies in establishing collaborative arrangements for product development. Many of the companies and institutions that compete against us have substantially greater capital resources, research and development staffs and facilities than we have, and substantially greater experience in conducting business development activities. These entities represent significant competition to us as we seek to expand our pipeline through the in-license or acquisition of products in a late stage of clinical development, or that are currently on the market but are under-promoted or not currently promoted. Moreover, while it is not feasible to predict the actual cost of acquiring additional product candidates, that cost could be substantial. We may need additional financing in order to acquire new products. Our existing notes and Plus Cash Notes may make it more difficult for us to raise additional financing.

We have a history of losses and our future profitability is uncertain.

We are a development stage company with no current source of product revenue. We have incurred losses in each year since our inception in 1994. As of December 31, 2003, we had an accumulated deficit of approximately $257.6 million. Our ability to achieve profitability is dependent on a number of factors, including our ability to acquire additional product candidates to expand our product portfolio, develop and obtain regulatory approvals for our product candidates, successfully commercialize those product candidates, generate revenues from the sale of products from existing and potential future collaborative agreements, and secure contract manufacturing, distribution and logistics services. We do not know when or if we will acquire additional products to expand our product portfolio, complete our product development efforts, receive regulatory approval of any of our product candidates or successfully commercialize any approved products. As a result, we are unable to accurately predict

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the extent of any future losses or the time required to achieve profitability, if at all. Moreover, we expect to incur additional operating losses over the next several years, primarily due to development activities with our CMV and hepatitis C programs, and business development activities seeking new opportunities to expand our product pipeline.

Our restructuring plan may not achieve the intended benefits.

We restructured our company in January 2004, and we had previously restructured our company in August 2002 following the termination of our pleconaril copromotion agreement with Aventis Pharmaceuticals Inc. Our restructuring efforts have placed and may continue to place a significant strain on our managerial, operational, financial and other resources. Additionally, the restructuring may negatively affect our employee turnover, recruitment and retention of employees. We cannot assure you that our restructuring efforts will make us more efficient or will provide sufficient resources to enable us to in-license or otherwise acquire additional product opportunities to expand our product portfolio as a result of our business development efforts.

None of our product candidates is approved for commercial use and if our product candidates do not receive regulatory approval, or if we are unable to comply with applicable regulations and maintain our products’ regulatory approval, we will be limited in our ability to commercialize these products and may never achieve profitability.

We have not received regulatory approval to commercialize any of our product candidates. In May 2002, we received a “not approvable” letter from the Food and Drug Administration, or the FDA, in connection with an oral formulation of pleconaril to treat the common cold. Our other product candidates are at early stages of development and may not be shown to be safe or effective. We may never receive regulatory approvals for these product candidates. We will need to complete preclinical and clinical testing of each of our product candidates before submitting marketing applications. Negative, inconclusive or inconsistent clinical trial results could prevent regulatory approval, increase the cost and timing of regulatory approval or cause us to perform additional studies or to file for a narrower indication than planned. In 2001, the FDA enacted new regulations requiring the development and submission of pediatric use data for new drug products. Our failure to obtain these data, or to obtain a deferral of, or exemption from, this requirement could adversely affect our chances of receiving regulatory approval, or could result in regulatory or legal enforcement actions.

The development of any of our product candidates is subject to many risks, including that:

• the product candidate is found to be ineffective or unsafe;

• the clinical test results for a product candidate delay or prevent regulatory approval;

• the FDA forbids us to initiate or continue testing of our product candidates in human clinical trials;

• the product candidate cannot be developed into a commercially viable product;

• the product candidate is difficult or costly to manufacture;

• the product candidate later is discovered to cause adverse effects that prevent widespread use, require withdrawal from the market, or serve as the basis for product liability claims;

• third party competitors hold proprietary rights that preclude us from marketing the product; and

• third party competitors market a more clinically effective or more cost-effective product.

Even if we believe that the clinical data demonstrates the safety and efficacy of our product candidate, regulators may disagree with us, which could delay, limit or prevent the approval of our product candidates. As a result, we may not obtain regulatory approval, or even if a product is approved, we may not obtain the labeling claims we believe are necessary or desirable for the promotion of the product. In addition, regulatory approval may take longer than we expect as a result of a number of factors, including failure to qualify for priority review of our

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application. All statutes and regulations governing the approval of our product candidates are subject to change in the future. These changes may increase the time or cost of regulatory approval, limit approval, or prevent it completely.

Even if we receive regulatory approval for our product candidates, or acquire an already approved product, the later discovery of previously unknown problems with a product, manufacturer or facility may result in adverse consequences, including withdrawal of the product from the market. Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and may be subject to continuous review.

If we are unable to commercialize our product candidates as anticipated, we will not have a source of continuing revenue and we will be unable to achieve profitability and be able to service our debt requirements.

Our long-term success depends upon our ability to develop and commercialize drug product candidates and if our drug development programs are not successful, we may not be able to achieve profitability.

We have not completed the development of any of our product candidates. Our failure to develop and commercialize product candidates successfully may cause us to cease operations. We are performing clinical research on a product candidate for the prevention and treatment of CMV, preclinical and clinical research on product candidates for the treatment of hepatitis C and clinical research on an intranasal product for the treatment of the common cold. Our potential therapies under development for the treatment of CMV and hepatitis C will require significant additional development efforts by us and regulatory approvals prior to any commercializations. We cannot be certain that our efforts in this regard will lead to commercially viable products. We may abandon further development efforts of the follow-on compound in our hepatitis C program even before such compound enters clinical trials. We do not know what the final cost to manufacture our CMV and hepatitis C product candidates in commercial quantities will be, or the dose required to treat patients and consequently, what the total cost of goods for a treatment regimen will be.

We are performing proof-of-concept studies with an intranasal formulation of pleconaril to treat the common cold. In November 2003, we entered into an option agreement with Schering Corporation regarding this formulation. Based on its assessment of the product’s performance in these proof-of-concept studies, Schering has the option to enter into a full license agreement with us under which Schering would assume responsibility for all future development and commercialization of intranasal pleconaril in the United States and Canada. Schering’s failure to exercise this option may cause us to abandon development work on this indication.

We do not know whether any of our development products ultimately will be shown to be safe and effective. Moreover, governmental authorities may enact new legislation or regulations that could limit or restrict our development efforts. We may receive unfavorable results from ongoing clinical trials of these product candidates in clinical development, which may cause us to abandon further development efforts. If we are unable to successfully develop our product candidates, and if we are unable to acquire marketed products through our business development efforts, we will not have a source of revenue and will not achieve profitability and be able to service our debt requirements.

We may need substantial additional funding and may not have access to capital. If we are unable to raise capital when needed, we may need to delay, reduce or eliminate our clinical development and business development activities, which would delay the achievement of profitability.

We will need to raise substantial additional funds to continue our business activities and fund our debt service obligations. We have incurred losses from operations since inception and we expect to incur additional operating losses over at least the next several years. We expect to continue to incur losses due primarily from limited revenues and costs associated with our CMV and hepatitis C programs, and business development activities seeking new opportunities to expand our product pipeline. We believe that we may require additional capital by 2007. However, if a substantial portion of the existing notes are not exchanged in the exchange offer and we are

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otherwise not able to restructure these notes, we will require additional capital by 2007. In addition, the amount and timing of our actual capital requirements as well as our ability to finance such requirements will depend upon numerous factors, including:

• the cost of acquiring products in late stage clinical development;

• the cost of acquiring commercialized products;

• the cost of commercializing our products;

• our ability to generate revenue and positive cash flow through our collaboration agreement with Wyeth;

• the cost and progress of our development programs;

• the cost of milestone payments that may be due to GlaxoSmithKline under our license agreement with them for maribavir, if defined clinical and regulatory events are achieved;

• the time and cost involved in obtaining regulatory approvals;

• the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

• the cost of reducing the principal amount of our debt;

• the effect of competing technological and market developments;

• whether Schering exercises its options to continue the development and commercialization of intranasal-pleconaril for the treatment of the common cold;

• if Schering does exercise its option, whether we receive the milestone payments and royalties associated with certain events along the development and commercialization lifecycle of that program;

• our ability to license our early stage and other non-core assets to a third party;

• the effect of changes and developments in our existing collaborative, licensing and other relationships; and

• the outcome of our ongoing securities class action litigation.

We may be unable to raise sufficient funds to complete our development, marketing and sales activities for any of our product candidates. Potential funding sources include:

• public and private securities offerings;

• debt financing, such as bank loans; and

• collaborative, licensing and other arrangements with third parties.

We may not be able to find sufficient debt or equity funding on acceptable terms. If we cannot, we may need to delay, reduce or eliminate development programs, as well as other aspects of our business. The sale by us of additional equity securities or the expectation that we will sell additional equity securities may have an adverse effect on the price of our common stock. In addition, collaborative arrangements may require us to grant product development programs or licenses to third parties for products that we might otherwise seek to develop or commercialize ourselves.

We have significant indebtedness and debt service payments which could negatively impact our liquidity.

We are highly leveraged and have significant debt service requirements. We currently have $127.9 million in principal amount of indebtedness outstanding in the form of our 6% Convertible Subordinated Notes due 2007.

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If we are successful in completing this exchange offer and the new money offering, we will still have as much as $124.1 million in principal amount of indebtedness outstanding. The level of our indebtedness, among other things, could:

• make it difficult for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;

• limit our flexibility in planning for, or reacting to changes in, our business; and

• make us more vulnerable in the event of a downturn in our business.

Currently, we are not generating sufficient cash flow from operations to satisfy the annual debt service payments for the existing notes. This will require us to use a portion of our working capital to pay interest or borrow additional funds or sell additional equity to meet our debt service obligations. If we are unable to satisfy our debt service requirements, substantial liquidity problems could result, which would negatively impact our future prospects.

Our ability to meet our debt service obligations and to reduce our total indebtedness depends on our future operating performance and on economic, financial, competitive, regulatory and other factors affecting our operations. Many of these factors are beyond our control and our future operating performance could be adversely affected by some or all of these factors. We historically have been unable to generate sufficient cash flow from operations to meet our operating needs and have relied on equity, debt and capital lease financings to fund our operations.

We may not be able to pay our debt and other obligations.

There can be no assurance that we will be able to meet our debt service obligations, including our obligations to pay principal and interest under the existing notes or the Plus Cash Notes. If our cash, cash equivalents, short and long term investments and operating cash flows are inadequate to meet our obligations, we could face substantial liquidity problems. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the existing notes, the Plus Cash Notes or our other obligations, we would be in default under the terms thereof, which would permit the holders of the existing notes and the Plus Cash Notes to accelerate their maturities and which could also cause defaults under any future indebtedness we may incur. Any such default would have a material adverse effect on our business, prospects, financial condition and operating results. We cannot be sure that we would be able to repay amounts due in respect of the existing notes and the Plus Cash Notes if payment of those notes were to be accelerated following the occurrence of an event of default as defined in the respective indentures of the existing and the Plus Cash Notes. In addition, if a significant percentage of our Plus Cash Notes are voluntarily converted when the simple average of the daily VWAPs of our common stock ending on and including the second trading day immediately preceding the conversion date is less than the threshold price, we will be restricted from using our common stock to settle the Plus Cash amount. As a result, we may be required to use all or a significant portion of our available cash, which could have a material adverse effect on our business, prospects, financial condition and operating results.

We depend on collaborations with third parties, which may reduce our product revenues or restrict our ability to commercialize products, and also ties our success to the success of certain of our collaborators.

We have entered into, and may in the future enter into additional, sales and marketing, distribution, manufacturing, development, licensing and other strategic arrangements with third parties. For example, in November 2003, we entered into an option agreement with Schering Corporation regarding our intranasal formulation of pleconaril for the treatment of the common cold in the United States and Canada. ViroPharma is conducting a series of clinical studies designed to evaluate the antiviral activity, safety and other performance characteristics of the new intranasal pleconaril formulation. Based on Schering’s assessment of the product’s performance in these characterization studies, Schering has the option to enter into a full license agreement with us. If Schering chooses to exercise its option, we expect to receive an initial license fee of $10 million, payments for our existing inventory of bulk drug substance, milestone payments upon achievement of certain targeted events and royalties on products sales, if any. However, Schering would thereafter have responsibility for all

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future development and commercialization of intranasal pleconaril in the United States and Canada. Sanofi- Synthelabo also has exclusive rights to market and sell pleconaril in countries other than the United States and Canada for which we will receive a royalty.

In August 2003, we entered into a license agreement with GlaxoSmithKline under which we acquired worldwide rights, excluding Japan, from GlaxoSmithKline to an antiviral compound, maribavir, for the prevention and treatment of CMV infections related to transplant (including solid organ and hematopoietic stem cell transplantation), congenital transmission, and in patients with HIV infection. GlaxoSmithKline has the exclusive right to market and sell products covered by these patents and patent applications in Japan.

In December 1999, we entered into an agreement with Wyeth to develop jointly products for use in treating the effects of hepatitis C virus in humans. Under the agreement, we licensed to Wyeth worldwide rights under patents and know-how owned by us or created under the agreement. While we have the right to co-promote these products in the United States and Canada, Wyeth will promote the products elsewhere in the world. Wyeth also has the right to manufacture any commercial products developed under the agreement.

If our partners do not successfully market and sell products in their territories, we will not receive revenue from royalties on their sales of products.

We are currently engaged in additional discussions relating to other arrangements. We cannot be sure that we will be able to enter into any such arrangements with third parties on terms acceptable to us or at all. Third party arrangements may require us to grant certain rights to third parties, including exclusive marketing rights to one or more products, or may have other terms that are burdensome to us, and may involve the acquisition of our equity securities.

Our ultimate success may depend upon the success of our collaborators. We have obtained, and will attempt to obtain in the future, licensed rights to certain proprietary technologies and compounds from other entities, individuals and research institutions, for which we may be obligated to pay license fees, make milestone payments and pay royalties. In addition, we may in the future enter into collaborative arrangements for the marketing, sales and distribution of our product candidates, which may require us to share profits or revenues. We may be unable to enter into additional collaborative licensing or other arrangements that we need to develop and commercialize our drug candidates. Moreover, we may not realize the contemplated benefits from such collaborative licensing or other arrangements. These arrangements may place responsibility on our collaborative partners for preclinical testing, human clinical trials, the preparation and submission of applications for regulatory approval, or for marketing, sales and distribution support for product commercialization. We cannot be certain that any of these parties will fulfill their obligations in a manner consistent with our best interests. These arrangements may also require us to transfer certain material rights or issue our equity securities to corporate partners, licensees and others. Any license or sublicense of our commercial rights may reduce our product revenue. Moreover, we may not derive any revenues or profits from these arrangements. In addition, our current strategic arrangements may not continue and we may be unable to enter into future collaborations. Collaborators may also pursue alternative technologies or drug candidates, either on their own or in collaboration with others, that are in direct competition with us.

If our licensors do not protect our rights under our license agreements with them or do not reasonably consent to our sublicense of rights or if these license agreements are terminated, we may lose revenue and expend significant resources defending our rights.

We have licensed from GlaxoSmithKline worldwide rights, excluding Japan, to an antiviral compound, maribavir, for the prevention and treatment of CMV infections related to transplant (including solid organ and hematopoietic stem cell transplantation), congenital transmission, and in patients with HIV infection. This compound, and a related compound, are subject to patents and patent applications in a variety of countries throughout the world. We have licensed from Sanofi-Synthelabo the exclusive United States and Canadian rights to certain antiviral agents for use in picornavirus indications, which are the subject of U.S. and Canadian patents

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and patent applications owned by Sanofi-Synthelabo, certain of which describe pleconaril and others of which describe compounds that are either related to pleconaril or have antiviral activity. We depend on GlaxoSmithKline and Sanofi-Synthelabo to prosecute and maintain many of these patents and patent applications and protect such patent rights. Failure by GlaxoSmithKline or Sanofi-Synthelabo to prosecute or maintain such patents or patent applications and protect such patent rights could lead to our loss of revenue. Under certain circumstances, our ability to sublicense our rights under these license agreements is subject to the licensor’s consent. If our license agreements with GlaxoSmithKline and Sanofi-Synthelabo are terminated, our ability to manufacture, develop, market and sell products under those agreements would terminate.

Many potential competitors who have greater resources and experience than we do may develop products and technologies that make ours non-competitive or obsolete.

There are many entities, both public and private, including well-known, large pharmaceutical companies, chemical companies, biotechnology companies and research institutions, engaged in developing pharmaceuticals for applications similar to those targeted by us. For example, there are products already marketed by F. Hoffman La-Roche for CMV and Schering Corporation for hepatitis C. In addition, Eli Lilly, Merck & Co. and Boehringer Ingelheim, among several other companies, are developing compounds to treat hepatitis C. Pfizer, Inc. may be developing a compound to treat infections caused by rhinoviruses, which are viruses included in the picornavirus family. Developments by these or other entities may render our products under development non-competitive or obsolete. Furthermore, many of our competitors are more experienced than we are in drug development and commercialization, obtaining regulatory approvals and product manufacturing and marketing. Accordingly, our competitors may succeed in obtaining regulatory approval for products more rapidly and more effectively than we do. Competitors may succeed in developing products that are more effective and less costly than any that we develop and also may prove to be more successful in the manufacturing and marketing of products.

Any product that we successfully develop and for which we gain regulatory approval must then compete for market acceptance and market share. Accordingly, important competitive factors, in addition to completion of clinical testing and the receipt of regulatory approval, will include product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing and sales capacity, reimbursement coverage, pricing and patent protection.

Any of our future products may not be accepted by the market, which would harm our business and results of operations.

Even if approved by the FDA and other regulatory authorities, our product candidates may not achieve market acceptance by patients, prescribers or third-party payors. As a result, we may not receive revenues from these products as anticipated. The degree of market acceptance will depend upon a number of factors, including:

• the receipt and timing of regulatory approvals, and the scope of marketing and promotion activities permitted by such approvals (e.g., the “label” for the product approved by the FDA);

• the availability of third-party reimbursement including government health administration authorities and private health insurers;

• the establishment and demonstration in the medical community, such as doctors and hospital administrators, of the clinical safety, efficacy and cost-effectiveness of drug candidates, as well as their advantages over existing treatment alternatives, if any;

• the effectiveness of the sales and marketing force that may be promoting our products; and

• the effectiveness of our contract manufacturers.

Legal proceedings could require us to spend substantial amounts of money and impair our operations.

In March and May 2002, complaints were filed in the United States District Court for the Eastern District of Pennsylvania against us seeking an unspecified amount of damages on behalf of an alleged class of persons who

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purchased shares of our common stock at various times between July 13, 1999 and March 19, 2002. In July 2002, the complaints were consolidated into a single action. The consolidated complaint names us, as well as certain of our directors and officers, as defendants. The consolidated complaint alleges that we and/or such directors and officers violated federal securities laws by misrepresenting and failing to disclose certain information regarding Picovir^® (pleconaril). In August 2002, we filed a motion to dismiss the consolidated complaint. In April 2003, the court granted in part and denied in part our motion to dismiss the consolidated complaint. In December 2003, we filed a motion for partial summary judgment of this action and a memorandum opposing the certification of the plaintiffs’ class action status. In March 2004, we entered into an agreement in principle with plaintiffs’ counsel to settle this litigation. The proposed settlement will be paid from our insurance coverage and will not result in the payment of any funds by us. However, the proposed settlement is subject to the approval of the court. If the proposed settlement is not approved by the court, then the range of possible resolutions of these proceedings could include judgments against us or our directors or officers or settlements that could require substantial payments by us, which could have a material adverse impact on our financial position, results of operations and cash flows. These proceedings might require substantial attention of our management team and therefore divert time and attention from our business and operations.

The regulatory process is expensive, time consuming and uncertain and may prevent us from obtaining required approvals for the commercialization of our product candidates.

We have product candidates for the treatment of CMV in clinical development and hepatitis C in preclinical and clinical development. We must complete significant development, laboratory testing, and clinical testing on these product candidates before we submit marketing applications in the United States and abroad.

The rate of completion of clinical trials depends upon many factors, including the rate of enrollment of patients. Our ability to enroll patients in certain clinical trials for maribavir depends on our ability to identify a sufficient number of patients who have undergone allogenic hematopoietic stem cell (e.g., bone marrow) transplantation. If we are unable to accrue sufficient clinical patients during the appropriate period, we may need to delay our clinical trials and incur significant additional costs. In addition, the FDA or Institutional Review Boards may require us to delay, restrict, or discontinue our clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Moreover, we may be unable to submit a New Drug Application, or NDA, to the FDA for our product candidates within the timeframe we currently expect. Once an NDA is submitted, an NDA must be approved by the FDA before we can commercialize the product described in the application. The cost of human clinical trials varies dramatically based on a number of factors, including:

• the order and timing of clinical indications pursued;

• the extent of development and financial support from corporate collaborators;

• the number of patients required for enrollment;

• the difficulty of obtaining clinical supplies of the product candidate; and

• the difficulty in obtaining sufficient patient populations and clinicians.

All statutes and regulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of our clinical trials. Any unanticipated costs or delays in our clinical studies could delay the commercialization of the product and harm our ability to achieve profitability.

Even if we obtain positive preclinical or clinical trial results in initial studies, future clinical trial results may not be similarly positive. As a result, ongoing and contemplated clinical testing, if permitted by governmental authorities, may not demonstrate that a product candidate is safe and effective in the patient population and for the disease indications for which we believe it will be commercially advantageous to market the product. The failure of our clinical trials to demonstrate the safety and efficacy of our desired indications could delay the commercialization of the product and harm our ability to raise capital and achieve profitability and be able to service our debt requirements.

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If we fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, our products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain marketing approval from the FDA, along with the manufacturing processes, post-approval clinical data collection and promotional activities for such product, will be subject to continual review and periodic inspection by the FDA and other regulatory bodies. After approval of a product, we will have significant ongoing regulatory compliance obligations. Later discovery of previously unknown problems with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in penalties or other actions, including:

• warning letters;

• fines;

• product recalls;

• withdrawal of regulatory approval;

• operating restrictions, including restrictions on such products or manufacturing processes;

• disgorgement of profits;

• injunctions; and

• criminal prosecution.

We depend on patents and proprietary rights, which may offer only limited protection against potential infringement and if we are unable to protect our patents and proprietary rights, we may lose the right to develop, manufacture, market or sell products and lose sources of revenue.

The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success depends, in part, on our ability to develop and maintain a strong patent position for our products and technologies both in the United States and in other countries. Litigation or other legal proceedings may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could result in substantial cost to us and diversion of our efforts. We intend to file applications as appropriate for patents describing the composition of matter of our drug candidates, the proprietary processes for producing such compositions, and the uses of our drug candidates. We own 12 issued United States patents, 9 non-United States patents and have 25 pending United States patent applications. We also have filed international, regional and non-United States national patent applications in order to pursue patent protection in major foreign countries.

We also rely on trade secrets, know-how and continuing technological advancements to protect our proprietary technology. We have entered into confidentiality agreements with our employees, consultants, advisors and collaborators. However, these parties may not honor these agreements and we may not be able to successfully protect our rights to unpatented trade secrets and know-how. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

Many of our scientific and management personnel were previously employed by competing companies. As a result, such companies may allege trade secret violations and similar claims against us.

To facilitate development of our proprietary technology base, we may need to obtain licenses to patents or other proprietary rights from other parties. If we are unable to obtain such licenses, our product development efforts may be delayed. We may collaborate with universities and governmental research organizations which, as a result, may acquire certain rights to any inventions or technical information derived from such collaboration.

We may incur substantial costs in asserting any patent rights and in defending suits against us related to intellectual property rights, even if we are ultimately successful. If we are unsuccessful in defending a claim that we have infringed or misappropriated the intellectual property of a third party, we could be required to pay

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substantial damages, stop using the disputed technology, develop new non-infringing technologies, or obtain one or more licenses from third parties. If we or our licensors seek to enforce our patents, a court may determine that our patents or our licensors’ patents are invalid or unenforceable, or that the defendant’s activity is not covered by the scope of our patents or our licensors’ patents. The United States Patent and Trademark Office or a private party could institute an interference proceeding relating to our patents or patent applications. An opposition or revocation proceeding could be instituted in the patent offices of foreign jurisdictions. An adverse decision in any such proceeding could result in the loss of our rights to a patent or invention.

We may not receive third party reimbursement for any of our future products, which would cause us to lose anticipated revenues and delay achievement of profitability.

Even if we receive regulatory approval to sell any of our product candidates, our future revenues, profitability and access to capital will be determined in part by the price at which we and our distribution partners can sell such approved products. There are continuing efforts by governmental and private third-party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control the cost of drugs through governmental regulation. We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign, and private payors may take in response to the proposed reforms. Therefore, we cannot predict the effect of any implemented reform on our business.

Our ability to commercialize our product candidates successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. If adequate coverage and reimbursement levels are not provided by government and third-party payors for use of our products, our products may fail to achieve market acceptance and we could lose anticipated revenues and experience delayed achievement of profitability and be unable to service our debt requirements.

We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which would harm our ability to compete.

We are highly dependent upon qualified scientific, technical and managerial personnel, including our president and CEO, Michel de Rosen, and our vice president and chief financial officer, Vincent J. Milano. We are currently seeking to fill certain key positions, including a person to lead our development and regulatory efforts. Our anticipated growth and expansion into new areas and activities will require additional expertise and the addition of new qualified personnel. There is intense competition for qualified personnel in the pharmaceutical field. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. Furthermore, we have not entered into non-competition agreements with our key employees. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, would harm our development programs, and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees and generate revenues. We do not maintain key man life insurance on any of our employees.

We may be subject to product liability claims, which can be expensive, difficult to defend and may result in large judgments or settlements against us.

The administration of drugs to humans, whether in clinical trials or after marketing clearance is obtained, can result in product liability claims. Product liability claims can be expensive, difficult to defend and may result in large judgments or settlements against us. In addition, third party collaborators and licensees may not protect us from product liability claims. We currently only maintain product liability insurance for human clinical trials per claim and in the aggregate amount of $6 million. We may not be able to obtain or maintain adequate protection

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against potential liabilities arising from product sales. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to product liability claims. A successful product liability claim in excess of our insurance coverage could harm our financial condition, results of operations and prevent or interfere with our product commercialization efforts. In addition, any successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms. Even if a claim is not successful, defending such a claim may be time-consuming and expensive.

We have limited sales and marketing experience and if we are unable to develop our own sales and marketing capability we may be unsuccessful in commercializing our products.

Under our agreement with GlaxoSmithKline, we have the exclusive right to market and sell maribavir throughout the world, other than Japan. Under our agreement with Wyeth, we have the right to co-promote hepatitis C products arising from our collaboration in the United States and Canada. If Schering Corporation exercises its option to further develop and commercialize intranasal pleconaril, Schering will be solely responsible for the marketing, promotion and sale of intranasal pleconaril following its approval. We intend to pursue aggressively in-licensing or other means of acquiring products in a late stage of clinical development, or that are currently on the market but are under promoted or not currently promoted.

We currently do not have a marketing or sales staff. If we are successful in acquiring the FDA’s approval of any product candidate, including any product that we may acquire as a result of our business development efforts, we will need to build a commercial capability. The development of a marketing and sales capability will require significant expenditures, management resources and time. We may be unable to build such a sales force, the cost of establishing such a sales force may exceed any product revenues, or our marketing and sales efforts may be unsuccessful. We may not be able to find a suitable sales and marketing partner for our products. If we are unable to successfully establish a sales and marketing capability in a timely manner or find suitable sales and marketing partners, our business and results of operations will be harmed. Even if we are able to develop a sales force or find a suitable marketing partner, we may not successfully penetrate the markets for any of our proposed products.

We currently depend, and will in the future depend, on third parties to manufacture our products and product candidates. If these manufacturers fail to meet our requirements and the requirements of regulatory authorities, our business, financial condition and results of operations will be harmed.

We do not have the internal capability to manufacture commercial quantities of pharmaceutical products following the FDA’s current Good Manufacturing Practices, or cGMP. In order to continue to develop products, apply for regulatory approvals and commercialize our products, we will need to contract for or otherwise arrange for the necessary manufacturing capabilities.

There are a limited number of manufacturers that operate under the FDA’s cGMP capable of manufacturing our products. If we are unable to enter into supply and processing contracts with any of these manufacturers or processors, there may be additional costs and delay in the development and commercialization of our products. Even if we are able to enter into supply and processing contracts with any of these manufacturers or processors, but such manufacturers or processors are unable to satisfy our requirements, there may be additional cost and delay in the development or commercialization of our products. If we are required to find an additional or alternative source of supply, there may be additional cost and delay in the development or commercialization of our products. Additionally, the FDA inspects all commercial manufacturing facilities before approving an NDA for a drug manufactured at those sites. If any of our manufacturers or processors fails to pass this the FDA inspection, the approval and eventual commercialization of our products may be delayed.

If our product manufacturers fail to comply with regulatory requirements, our product commercialization could be delayed or subject to restrictions.

Any contract manufacturers that we use must adhere to the FDA’s regulations on cGMP, which are enforced by the FDA through its facilities inspection program. These facilities must pass a plant inspection before the FDA will issue an approval of the product. The manufacture of product at these facilities will be subject to strict

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quality control, testing and recordkeeping requirements. Moreover, while we may choose to manufacture products in the future, we have no experience in the manufacture of pharmaceutical products for clinical trials or commercial purposes. If we decide to manufacture products, we would be subject to the regulatory requirements described above. In addition, we would require substantial additional capital and would be subject to delays or difficulties encountered in manufacturing pharmaceutical products. No matter who manufactures the product, we will be subject to continuing obligations regarding the submission of safety reports and other post-market information.

If we encounter delays or difficulties with contract manufacturers, packagers or distributors, market introduction and subsequent sales of our products could be delayed. If we change the source or location of supply or modify the manufacturing process, regulatory authorities will require us to demonstrate that the product produced by the new source or from the modified process is equivalent to the product used in any clinical trials that were conducted. If we are unable to demonstrate this equivalence, we will be unable to manufacture products from the new source or location of supply, or use the modified process, we may incur substantial expenses in order to ensure equivalence, and it may harm our ability to generate revenues.

If we, or our manufacturers, are unable to obtain raw and intermediate materials needed to manufacture our products in sufficient amounts or on acceptable terms, we will incur significant costs and sales of our products would be delayed or reduced.

We, or our manufacturers with whom we contract, may not be able to maintain adequate relationships with current or future suppliers of raw or intermediate materials for use in manufacturing our products or product candidates. If our current manufacturing sources and suppliers are unable or unwilling to make these materials available to us, or our manufacturers, in required quantities or on acceptable terms, we would likely incur significant costs and delays to qualify alternative manufacturing sources and suppliers. If we are unable to identify and contract with alternative manufacturers when needed, sales of our products would be delayed or reduced and will result in significant additional costs.

We use hazardous materials in our business and any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Prior to our restructuring in January 2004, we used, and during the transition period following that restructuring we may continue to use, radioactive and other materials that could be hazardous to human health, safety or the environment. In connection with our restructuring in January 2004, we are decommissioning our discovery laboratories, which requires the disposal of many of these materials. We are subject to stringent federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes. We store these materials and various wastes resulting from their use at our facility pending ultimate use and disposal. Although we believe that our safety procedures for handling and disposing of such materials comply with federal, state and local laws, rules, regulations and policies, the risk of accidental injury or contamination from these materials cannot be entirely eliminated. We may be required to incur significant costs to comply with environmental laws, rules, regulations and policies. Additionally, if an accident occurs, we could be held liable for any resulting damages, and any such liability could exceed our resources. We do not maintain a separate insurance policy for these types of risks and we do not have reserves set aside for environmental claims. Any future environmental claims could harm our financial conditions, results of operations and prevent or interfere with our product commercialization efforts. In addition, compliance with future environmental laws, rules, regulations and policies could lead to additional costs and expenses.

The rights that have been and may in the future be granted to holders of our common or preferred stock may adversely affect the rights of other stockholders and may discourage a takeover.

Our board of directors has the authority to issue up to 4,800,000 additional shares of preferred stock and to determine the price, privileges and other terms of such shares. Our board of directors may exercise this authority without the approval of, or notice to, our stockholders. Accordingly, the rights of the holders of our common stock may be adversely affected by the rights of the holders of any preferred stock that may be issued in the

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future. In addition, the issuance of preferred stock may make it more difficult for a third party to acquire a majority of our outstanding voting stock in order to effect a change in control or replace our current management. We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. The application of Section 203 could also delay or prevent a third party or a significant stockholder of ours from acquiring control of us or replacing our current management. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Under Delaware law, an interested stockholder is a person who, together with affiliates and associates, owns 15% or more of a corporation’s voting stock.

In September 1998, our board of directors adopted a plan that grants each holder of our common stock the right to purchase shares of our series A junior participating preferred stock. This plan is designed to help insure that all our stockholders receive fair value for their shares of common stock in the event of a proposed takeover of us, and to guard against the use of partial tender offers or other coercive tactics to gain control of us without offering fair value to the holders of our common stock. In addition, our charter and bylaws contain certain provisions that could discourage a hostile takeover, such as a staggered board of directors and significant notice provisions for nominations of directors and proposals. The plan and our charter and bylaws may make it more difficult for a third party to acquire a majority of our outstanding voting stock in order to effect a change in control or replace our current management.

Our stock price could continue to be volatile.

Our stock price, like the market price of the stock of other development-stage pharmaceutical companies, has been volatile. For example, during 2003 the market price for our common stock traded between $1.42 and $4.75 per share. The following factors, among others, could have a significant impact on the market for our common stock:

• results of preclinical studies and clinical trials with respect to our product candidates in development or those of our competitors;

• developments with our collaborators;

• announcements of technological innovations or new products by our competitors;

• litigation or public concern as to the safety or efficacy of our products or our competitors’ products;

• the outcome of our currently ongoing class action securities litigation;

• developments in patent or other proprietary rights of ours or our competitors (including related litigation);

• any other future announcements concerning us or our competitors;

• any announcement regarding our acquisition of product candidates or entities;

• future announcements concerning our industry;

• governmental regulation;

• actions or decisions by the SEC, the FDA or other regulatory agencies;

• changes or announcements of changes in reimbursement policies;

• period to period fluctuations in our operating results;

• our cash balances;

• changes in our capital structure;

• changes in estimates or our performance by securities analysts; and

• general market conditions.

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Future sales of our common stock in the public market or our election to pay either the interest or the $500 plus cash amount under the Plus Cash Notes in shares of our common stock could adversely affect our stock price.

We cannot predict the effect, if any, that future sales of our common stock or the availability for future sale of shares of our common stock or securities convertible into or exercisable for our common stock will have on the market price of our common stock prevailing from time to time. For example, in connection with the purchase of shares of our common stock by Aventis Pharmaceuticals Inc., we filed a registration statement on Form S-3 with the SEC to register 3.0 million shares of our common stock which may be resold by Aventis from time to time. Additionally, the registration statement on Form S-3 filed on July 3, 2001, allows us to sell up to an additional $212.0 million of securities in a “universal shelf” offering. The registration statement provides us with the flexibility to determine the type of security we choose to sell, including common stock, preferred stock, warrants and debt securities, as well as the ability to time such sales when market conditions are favorable. The registration statement became effective on October 19, 2001.

As of April 1, 2004, we had outstanding options to purchase 3,418,252 shares of our common stock at a weighted average exercise price of $10.66 per share (1,445,992 of which have not yet vested) issued to employees, directors and consultants pursuant to our 1995 Stock Option and Restricted Share Plan, and outstanding options to purchase 284,726 shares of our common stock at a weighted average exercise price of $1.34 per share (168,385 of which have not yet vested) to non-executive employees pursuant to our 2001 Stock Option Plan. In order to attract and retain key personnel, we may issue additional securities, including stock options, in connection with our employee benefit plans, or may lower the price of existing stock options. Sale, or the availability for sale, of substantial amounts of common stock by our existing stockholders pursuant to an effective registration statement or under Rule 144, through the exercise of registration rights or the issuance of shares of common stock upon the exercise of stock options or warrants, or the conversion of our preferred stock, or the perception that such sales or issuances could occur, could adversely affect the prevailing market prices for our common stock.

As of April 1, 2004, we also had outstanding warrants exercisable for 595,000 shares of our common stock with an exercise price of $9.53 per share.

The terms of our Plus Cash Notes will permit the holders thereof to voluntarily convert their notes at any time into the base shares and plus cash amount and we will have the option of paying the plus cash amount in additional shares of our common stock. We will also have the option of auto-converting some or all of the Plus Cash Notes subject to certain conditions. As a result of these shares of our common stock being issued upon voluntary or auto-conversion of the Plus Cash Notes our stockholders may experience substantial dilution of their ownership interest, which could adversely affect our stock price.

If we are unable to comply with Nasdaq’s continued listing requirements, our common stock could be delisted from The Nasdaq National Market.

Our common stock trades on The Nasdaq National Market, which has certain compliance requirements for continued listing of common stock, including a series of financial tests relating to shareholder equity, public float, number of market makers and shareholders, and maintaining a minimum bid price per share for our common stock. The result of delisting from The Nasdaq National Market could be a reduction in the liquidity of any investment in our common stock and a material adverse effect on the price of our common stock. Delisting could reduce the ability of holders of our common stock to purchase or sell shares as quickly and as inexpensively as they could have done in the past. This lack of liquidity would make it more difficult for us to raise capital in the future.

As of December 31, 2003, our stockholders’ equity was below $10 million. If our stockholders’ equity remains below $10 million, then to maintain our Nasdaq listing we will be required to maintain a minimum bid price of $1.00 per share and a $50 million market value of our listed securities. If we fail to meet this standard for thirty

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consecutive days, Nasdaq would send us a “deficiency notice” informing us that we would be delisted after ninety days unless we meet this standard for at least ten consecutive trading days during such ninety day period. If we were unable to regain compliance for The Nasdaq National Market, we would have the option, subject to Nasdaq approval, of transferring to The Nasdaq SmallCap Market, where we would be permitted additional time to remedy a bid price deficiency, while remaining eligible for The Nasdaq National Market reinstatement.

If our stock is delisted from The Nasdaq National Market and our stock price declines significantly, then our stock could become subject to penny stock rules, which may make it more difficult for you to sell your shares.

The SEC has adopted regulations which define a “penny stock” to be any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions described below. For any transaction involving a penny stock, unless exempt, these rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule relating to the penny stock market. Disclosure is also required to be made about current quotations for the securities and about commissions payable to both the broker-dealer and the registered representative. Finally, broker-dealers must send monthly statements to purchasers of penny stocks disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The foregoing penny stock restrictions will not apply to our shares of common stock if: (1) they continue to be listed on The Nasdaq National Market; (2) certain price and simple average of the daily volume information is publicly available about our shares on a current and continuing basis; and (3) we meet certain minimum net tangible assets or average revenue criteria. Our common stock may not continue to qualify for an exemption from the penny stock restrictions. If our shares of common stock were subject to the rules on penny stocks, the liquidity of our common stock would be severely harmed.

Risks Related to this Offering

We may incur additional indebtedness, including secured indebtedness.

The existing notes and the Plus Cash Notes are unsecured obligations. The terms of the existing notes and the Plus Cash Notes do not limit the amount of additional indebtedness, including secured indebtedness, that we can create, incur, assume or guarantee. Upon any distribution of our assets upon any insolvency, dissolution or reorganization, the payment of the principal of, and interest on, our secured indebtedness will be distributed from those of our assets that represent the security for secured indebtedness before any payment is made from such assets on account of our unsecured indebtedness. Accordingly, there may not be sufficient assets remaining to pay amounts due on any or all of the existing notes or the Plus Cash Notes then outstanding once payment of the principal and interest on our secured indebtedness has been made.

The Plus Cash Notes are senior to the existing notes. However, the existing notes and the Plus Cash Notes are effectively subordinated to all existing and future liabilities of our subsidiaries. Any right of ours to receive assets of any subsidiary upon its insolvency, dissolution or reorganization, and the consequent right of the holders of the Plus Cash Notes to participate in the assets, will be subject to the claims of that subsidiary’s creditors, including trade creditors, except to the extent that we ourselves are recognized as a creditor of that subsidiary, in which case our claims would still be subordinate to any security interests in the assets of that subsidiary.

There is a limited market for the Plus Cash Notes and you may not be able to sell the Plus Cash Notes at a price acceptable to you.

There is no public market for the Plus Cash Notes. We cannot assure you of the liquidity of any markets that may develop for the Plus Cash Notes, your ability to sell the Plus Cash Notes or the price at which you may be able to sell the Plus Cash Notes. If a market for the Plus Cash Notes were to develop, the Plus Cash Notes could trade at prices that may be higher or lower than the principal amount or public offering price. Additionally, there is a risk that the liquidity of and the trading market for the Plus Cash Notes will be limited if few Plus Cash Notes are issued in the exchange offer or the new money offering. If only a limited number of Plus Cash Notes are outstanding after the completion of the exchange offer and the new money offering, it may be more difficult for a

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market to develop in the Plus Cash Notes. As well, in those circumstances any market that does exist may be less liquid than would be the case if more Plus Cash Notes were outstanding. Future trading prices of the Plus Cash Notes will depend on many factors, including:

• our operating results;

• the price of our common stock;

• prevailing interest rates;

• credit spreads for comparable debt instruments; and

• the market for similar securities.

We do not intend to apply for listing of the Plus Cash Notes on any national exchange or quotation system.

We expect the trading price of the Plus Cash Notes and the underlying common stock to be highly volatile, which could adversely affect the market price of our Plus Cash Notes and underlying common stock.

The trading price of the Plus Cash Notes and the underlying common stock will fluctuate in response to variations in such factors as:

• our operating results;

• announcements by us or our competitors of technological innovations or new products; and

• general economic and market conditions.

In addition, stock markets have experienced extreme price volatility in recent years, particularly for development-stage pharmaceutical companies. Broad market fluctuations may also adversely affect the market price of our Plus Cash Notes and the underlying common stock.

The trading price of the Plus Cash Notes and the underlying common stock may also fluctuate in response to the exercise by us of our various rights under the terms of the Plus Cash Notes, including our ability to automatically convert the Plus Cash Notes. For example, the trading price of the Plus Cash Notes and the underlying common stock may fluctuate after we have issued a stock substitution notice designating a stock substitution reference price in accordance with the stock substitution procedures, or after we have withdrawn or modified a stock substitution notice in accordance with these procedures. These fluctuations may adversely affect the value of your Plus Cash Notes or the underlying shares of common stock into which the Plus Cash Notes may be converted.

If we auto-convert the Plus Cash Notes, there is a substantial risk of fluctuation in the price of our common stock from the date we elect to auto-convert the Plus Cash Notes to the auto-conversion date.

We may elect to auto-convert the Plus Cash Notes on or prior to maturity if the daily VWAP of our common stock is greater than the auto-conversion price for each of any 20 trading days during any 30 consecutive trading day period. The auto-conversion price is the price at which the conversion value of each $1,000 principal amount of Plus Cash Notes equals $1,500. However, there is a risk of fluctuation in the price of our common stock between the time when we may first elect to auto-convert the Plus Cash Notes and the auto- conversion date. This time period may extend up to seven calendar days (or longer if the seventh day is not a trading day) from the time we elect to auto-convert the Plus Cash Notes. As a result of any such fluctuation in the price of our common stock, the conversion value you actually receive upon any auto-conversion of the Plus Cash Notes may be less than $1,500.

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If, upon a voluntary conversion or an auto-conversion of the Plus Cash Notes, we pay the $500 plus cash amount in shares of our common stock, the per share value upon which the number of shares you receive is based could be different than the market price of our common stock on the date the conversion takes place.

If you elect to voluntarily convert your Plus Cash Notes, we have the right to pay the $500 plus cash amount in shares of our common stock, if the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price. If we exercise that right, we will determine the number of shares you will receive by valuing our common stock at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date. That per share value could be different than the market price of our common stock on the conversion date.

If we elect to auto-convert the Plus Cash Notes, we have the right, if we follow the procedures for stock substitution and the daily VWAP of our common stock for each of any 20 trading days, which we call valuation days, during any consecutive 30 trading day period exceeds a stock substitution reference price that we set, to pay the $500 plus cash amount in shares of our common stock. If we exercise that right, we will determine the number of shares you will receive by valuing our common stock at 95% of the simple average of the daily VWAPs of our common stock for the 20 valuation days. That per share value could be different than the market price of our common stock on the auto-conversion date.

If we issue a stock substitution notice and the daily VWAP of our common stock on any single trading day thereafter is greater than the stock substitution reference price contained in such stock substitution notice, we cannot amend or withdraw the stock substitution notice unless the daily VWAP of our common stock is less than that stock substitution reference price for each of any 20 trading days during any 30 consecutive trading days, and an auto-conversion will not occur until the daily VWAP of our common stock is greater than that stock substitution reference price for each of any 20 trading days during any 30 consecutive trading days. Until one of those events occurs, we will not be able to auto-convert the Plus Cash Notes.

If we elect to implement the stock substitution procedure, we must issue a stock substitution notice. That notice will contain a stock substitution reference price. While a stock substitution period is in effect, we cannot auto-convert the Plus Cash Notes until the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading day period exceeds that stock substitution reference price. In addition, once the stock substitution period begins, we cannot withdraw or modify the stock substitution notice until the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading day period is less than that stock substitution reference price contained in such stock substitution notice. As a result, if we issue a stock substitution notice, and the daily VWAP of our common stock on any single trading day thereafter is greater than the stock substitution reference price in that notice, we will be unable to auto-convert the Plus Cash Notes until either the condition for auto-conversion or the condition for withdrawal and modification is met. In those circumstances, until we are able to auto-convert the Plus Cash Notes, the amount of flexibility we have to determine how our obligations will be satisfied will be materially adversely affected.

Our ability to withdraw or modify a stock substitution notice means that you cannot be certain that if an auto-conversion occurs and the plus cash amount is settled in shares of our common stock, that those shares will be valued at or above the stock substitution reference price specified in any given notice.

After we issue a stock substitution notice, we may withdraw or modify the stock substitution notice at any time before the daily VWAP of our common stock has exceeded the stock substitution reference price contained in the stock substitution notice. As well, if the daily VWAP of our common stock has exceeded the stock substitution reference price for a single trading day after we have issued a stock substitution notice and the daily VWAP of our common stock has been less than the stock substitution reference price for each of any of the 20 trading days during any 30 consecutive trading days, we may withdraw the stock substitution notice and issue a new notice containing a higher or lower stock substitution reference price. As such, you cannot be certain that if an auto-

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conversion occurs and the plus cash amount is settled in shares of our common stock that those shares will have a per share value at or above the stock substitution reference price specified in any given notice as only the most recent notice will be in effect.

You cannot control whether you will receive cash and shares or just shares of our common stock upon a voluntary conversion or an auto-conversion of the Plus Cash Notes.

Upon a voluntary conversion, we may, at our option, pay the $500 plus cash amount in shares of our common stock if the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price.

Upon an auto-conversion we may, at our option, pay the $500 plus cash amount in shares of our common stock if we provide a stock substitution notice in advance and the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading day period exceeds the stock substitution reference price specified in the stock substitution notice.

If we pay the $500 plus cash amount in shares of our common stock, you will only receive shares upon a conversion of your Plus Cash Notes, and otherwise you will receive a combination of cash and shares of our common stock. You cannot control which form of conversion consideration you may receive upon a conversion.

If you beneficially own more than 19.9% of our common stock at the time of an auto-conversion pursuant to which we are required to pay the plus cash amount, interest, if any, and the make-whole payment, if any, in shares of our common stock, you will be limited in the number of shares that you may receive as a result of the auto-conversion.

The indenture provides that you may not beneficially own more than 19.9% of our common stock as a result of the conversion of the Plus Cash Notes into shares of common stock when added to any shares of our common stock that you otherwise beneficially own. This means that if upon an auto-conversion pursuant to which we are obligated to pay the plus cash amount, interest, if any, and the make-whole payment, if any, in shares of our common stock, you own a principal amount of Plus Cash Notes that would result in you beneficially owning more than 19.9% of our then outstanding shares common stock, taking into account all shares of common stock you otherwise beneficially own, the number of base shares to be received, and assuming payment of the plus cash amount, all accrued interest and the make-whole payment, if any, in shares of our common stock then you will be limited to receiving such number of shares as would result in your owning 19.9% of our common stock and all of your Plus Cash Notes subject to the auto-conversion shall be deemed to be paid in full and not be cancelled, extinguished or forfeited. Your beneficial ownership is generally not affected by short sales until such time as the short position has been closed.

We may not have the financial resources to repurchase the Plus Cash Notes in the event of a fundamental change.

We may be unable to repurchase the Plus Cash Notes in the event of a fundamental change. Upon a fundamental change, you may require us to repurchase all or a portion of your Plus Cash Notes. If a fundamental change were to occur, we may not have enough funds to pay the repurchase price for all tendered Plus Cash Notes. Any future credit agreements or other debt agreements may prohibit repurchase of the Plus Cash Notes for cash, or expressly prohibit the repurchase of the Plus Cash Notes upon a fundamental change or may provide that a fundamental change constitutes an event of default under that agreement. If a fundamental change occurs at a time when we are prohibited from repurchasing the Plus Cash Notes, we could seek the consent of our lenders to repurchase the Plus Cash Notes or could attempt to finance the debt agreements. If we do not obtain consent, we could not repurchase the Plus Cash Notes. Our failure to repurchase the Plus Cash Notes would constitute an event of default under the Plus Cash Notes indenture, which might constitute an event of default under the terms of our other debt. Our obligation to offer to repurchase the Plus Cash Notes upon a fundamental change would not necessarily afford you protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction.

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The exchange offer will have an impact on our income or loss for tax purposes.

Cancellation of indebtedness income. We anticipate that we will recognize taxable income from the discharge of indebtedness of approximately $28.8 million in connection with the issuance of the Plus Cash Notes in exchange for the existing notes, assuming all of the existing notes are exchanged in the exchange offer. While we have net operating loss carryovers and expect to have current operating losses that may offset this income for United States federal income tax purposes, the use of these losses and carryovers may be subject to limitation. Further, we may be limited in our ability to offset these losses against income for state or local tax purposes. If our available net operating loss carryovers and current operating losses are insufficient to offset the cancellation of indebtedness income, this income could result in additional tax of as much as approximately $9.0 million. In addition, to the extent that available net operating loss carryovers and current operating losses are used to offset the cancellation of indebtedness income, they will be unavailable as a potential offset to future income.

Deductibility of interest. We may be unable to deduct the interest and original issue discount, if any, paid or accrued with respect to the Plus Cash Notes. However, in light of our current operating losses and our net operating loss carryovers, we are unlikely to be able to make use of current interest and original issue discount deductions in the near future. Investors considering exchanging their existing notes for Plus Cash Notes or purchasing Plus Cash Notes should not assume that such interest and original issue discount deductions are available to us.

You may experience significant adverse tax consequences by participating in the exchange offer or purchasing Plus Cash Notes.

Contingent payment debt instrument rules. The Plus Cash Notes will be characterized by the Company as indebtedness for United States federal income tax purposes. Accordingly, you will be required to include, in your income, interest with respect to the Plus Cash Notes.

The Plus Cash Notes will also be characterized by the Company as contingent payment debt instruments for United States federal income tax purposes, and will be subject to United States federal income tax regulations applicable to contingent debt instruments. Consequently, the Plus Cash Notes will be treated as issued with original issue discount for United States federal income tax purposes, and you will be required to include such tax original issue discount in your income as it accrues. If the IRS were to assert successfully that the Company’s determination of the OID is not correct, a U.S. Holder may be required to include interest on the Plus Cash Notes at a rate substantially in excess of the stated rate.

You will recognize a gain or loss on the sale, exchange, conversion or redemption of a Plus Cash Note in an amount equal to the difference between the amount realized, including the fair market value of any of our common stock received, and your adjusted tax basis in the Plus Cash Note. Any gain recognized by you on the sale, exchange, conversion or redemption of a Plus Cash Note will be treated as ordinary interest income. For a discussion of the United States federal income tax consequences of ownership of the Plus Cash Notes, see “United States Federal Income Tax Considerations.”

The exchange of existing notes for Plus Cash Notes may be a fully taxable event at the time of such exchange. Investors should be aware that the exchange of existing notes for Plus Cash Notes may be fully taxable at the time of such exchange.

In considering whether to participate in the exchange offer or to indicate your interest for additional Plus Cash Notes in the offering, investors should discuss with their own tax advisors these and other potential adverse tax consequences of this transaction. These consequences may be materially different from the consequences that may be expected by investors in considering other convertible debt investments.

For a summary of these potential adverse tax consequences, see “United States Federal Income Tax Considerations.” Investors considering the exchange of existing notes for Plus Cash Notes or indicating interest for additional Plus Cash Notes in the offering should consult with their own tax advisors concerning such consequences and the potential impact in their particular circumstances.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Summary” and “Risk Factors” contains forward-looking information. This forward-looking information is subject to risks and uncertainties including the factors listed under “Risk Factors,” as well as elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and may be inaccurate. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under “Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

RATIO OF EARNINGS TO FIXED CHARGES

Earnings were insufficient to cover fixed charges by approximately the following amounts for the periods ended as set forth below:

	Year Ended December 31, (in thousands)
	2003		2002		2001		2000		1999
Deficiency of earnings to cover fixed charges	$	36,942	$	26,623	$	78,481	$	41,817	$	29,500

“Fixed charges” consists of:

• interest expense plus the portion of rent expense under operating leases deemed by us to be representative of the interest factor; and

• amortization of debt issuance costs.

We would have had to generate additional earnings of approximately $36.9 million for the year ended December 31, 2003 to achieve an earnings to fixed charges ratio of 1:1.

USE OF PROCEEDS

We will not receive any cash proceeds from the exchange of the existing notes for the Plus Cash Notes_SM pursuant to the exchange offer. We also are offering up to $25,000,000 aggregate principal amount of additional Plus Cash Notes for cash. We intend to use the net proceeds, if any, from the sale of the additional Plus Cash Notes for potential strategic acquisitions of product candidates or entities and for general corporate purposes, including clinical development, payments of milestone and licensing fees, and working capital. Pending such use, we intend to invest the net proceeds in cash equivalents, U.S. government obligations, high-grade corporate notes and commercial paper.

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PRICE RANGE OF COMMON STOCK

Our common stock is traded on the National Market segment of The Nasdaq Stock Market under the symbol “VPHM.” We commenced trading on The Nasdaq National Market on November 19, 1996. The following table sets forth the high and low sale prices as quoted on The Nasdaq National Market by quarter for each of 2002 and 2003 and through April 26, 2004.

	High		Low
Year ended December 31, 2002
First Quarter	$	23.03	$	4.88
Second Quarter	$	5.17	$	1.25
Third Quarter	$	1.75	$	0.88
Fourth Quarter	$	1.90	$	0.86
Year ended December 31, 2003
First Quarter	$	2.70	$	1.42
Second Quarter	$	4.75	$	1.59
Third Quarter	$	3.35	$	1.95
Fourth Quarter	$	3.40	$	2.47
First Quarter 2004	$	3.74	$	2.24
April (through April 26, 2004)	$	2.75	$	2.24

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We have declared and paid dividends in the past on our previously outstanding series A convertible participating preferred stock. We currently have no shares of preferred stock outstanding. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business and other factors our board of directors deems relevant.

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CAPITALIZATION

The following table sets forth the consolidated capitalization of ViroPharma at December 31, 2003:

• as adjusted to give effect to the issuance of Plus Cash Notes in the exchange offer on the assumption that all of the outstanding existing notes were validly tendered and accepted for exchange;

• as adjusted to give effect to the issuance for cash of an additional $25.0 million of Plus Cash Notes;

• as adjusted to reflect a net gain of $26.9 million on the assumed early extinguishment of outstanding existing notes. The net gain on the assumed early extinguishment of the outstanding existing notes was calculated as follows: the outstanding existing notes balance of $127.9 million less the deferred financing fees of $1.9 million, less $99.1 million, which represents the estimated fair value of the Plus Cash Notes issued pursuant to the exchange offer reflecting the exchange ratio of 77.5%. The estimated fair value of the Plus Cash Notes of $99.1 million was calculated by multiplying the $127.9 million outstanding existing notes balance by the exchange ratio of 77.5%. This extinguishment of debt will result in recognition of gain in our statement of operations in the period in which the exchange offer is consummated. We have assumed that our current year operating loss will exceed this gain and we will have no resulting tax liability; and

• does not include the effect of approximately $9 million of severance, asset impairment, lease and other costs related to our January 2004 restructuring which will be included in our 2004 financial results.

In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, or “Statement 133”, the make-whole provision contained in the Plus Cash Notes is not clearly and closely related to the characteristics of the Plus Cash Notes. Accordingly, the make-whole provision is an embedded derivative instrument and is required by Statement 133 to be accounted for separately from the debt instrument.

Based upon relevant information available as of April 26, 2004, we have estimated the fair value of the make-whole provision using a Monte Carlo simulation model to be approximately $2.8 million. The make-whole provision will be adjusted quarterly for changes in fair value during the first two years that any such Plus Cash Notes are outstanding, with the corresponding charge or credit to other expense or income. The estimated fair value of the make-whole provision of approximately $2.8 million will be recorded as a discount on the Plus Cash Notes. The discount on the Plus Cash Notes will be accreted to par value through quarterly interest charges over the five-year term of the Plus Cash Notes, or approximately $0.6 million of additional interest expense per year through June 2009, notwithstanding this separate adjustment of this derivative liability in other expense or income.

In addition, we will apply the guidance set forth in Emerging Issues Task Force (“EITF”) Issue No. 00-27 which specifies the appropriate basis to account for contingent beneficial conversion premiums. The Plus Cash Notes have several features that could lead to a beneficial conversion premium in the future. A beneficial conversion premium may arise if and when upon conversion of the Plus Cash Notes by the holder or issuer, we elect to settle the make-whole provision or plus cash amount of $500 with our common stock instead of with cash. In addition, if we decide to settle the interest accruing to the holders of the Plus Cash Notes with our common stock, a beneficial conversion premium may need to be recorded. These beneficial conversion premiums, if any, will be recorded as incremental interest expense at the time of such transactions. Finally, we may need to record a beneficial conversion premium at the end of the exchange period and new money offering period if our closing price of our common stock on such day is below the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding the expiration of the exchange offer. This beneficial conversion premium would be recorded as a discount on the Plus Cash Notes and will be accreted to par value though quarterly interest charges over the five-year term of the Plus Cash Notes.

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To the extent that existing notes are not validly tendered or accepted in the exchange offer, the amount attributed to the Plus Cash Notes would decrease, the amount attributed to the existing notes would increase and the accumulated deficit would increase. The financial data at December 31, 2003 in the following table are derived from our consolidated financial statements as of and for the year ended December 31, 2003.

	December 31, 2003
	Actual			As Adjusted
	(dollars in thousands)
Long term debt:
6% Convertible Senior Plus Cash NotesSM due June 1, 2009 (Plus Cash Notes)	$	—		$	124,123
less: discount on Convertible Plus Cash Notes		—			(2,800	)
6% Convertible Subordinate Notes due 2007 (existing notes)		127,900			—
Total long-term debt(1)	$	127,900		$	121,323
Commitments and contingencies
Stockholders’ equity:
Common stock $.002 par value; authorized 100,000,000 shares; issued and outstanding, 26,462,738 shares at December 31, 2003		53			53
Additional paid-in capital		250,320			250,320
Deferred compensation		(210	)		(210	)
Accumulated other comprehensive income		(101	)		(101	)
Deficit accumulated during the development stage(2)		(257,571	)		(230,671	)
Total stockholders’ equity (deficit)		(7,509	)		19,391
Total capitalization	$	120,391		$	140,714

(1) The December 31, 2003, As Adjusted 6% Convertible Senior Plus Cash Notes_SM balance of $121.3 million represents the fair value of the Plus Cash Notes of $99.1 million issued pursuant to the exchange offer, reflecting the exchange ratio of 77.5%, less the discount of $2.8 million relating to the fair value the make-whole provisions on the Plus Cash Notes, and plus the $25 million raised from the new money offering.

(2) The December 31, 2003, As Adjusted accumulated deficit balance of $230.7 million reflects the net gain of $26.9 million on the assumed early extinguishment of the outstanding existing notes.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data of ViroPharma. The consolidated statements of operations data for the years ended December 31, 2003, 2002 and 2001, and the consolidated balance sheet data as of December 31, 2003 and 2002, have been derived from our audited consolidated financial statements, which are incorporated by reference in this prospectus, and which have been audited by KPMG LLP, independent accountants. The consolidated statements of operations data for the years ended December 31, 2000 and 1999, and the consolidated balance sheet data as of December 31, 2001, 2000 and 1999, are derived from our audited consolidated financial statements not included or incorporated by reference in this prospectus. This data should be read in conjunction with the consolidated financial statements, related notes, and other financial information incorporated by reference in this prospectus. We are considered a “development stage company” as described in Note 1 to our consolidated financial statements.

	Year Ended December 31,
	1999			2000		2001		2002		2003
Consolidated Statement of Operations Data:
License fee and milestone revenue	$	—		2,000,000		3,384,615		5,333,440		1,084,186
Other revenue		—		—		—		203,400		527,988
Total revenues		—		2,000,000		3,384,615		5,536,840		1,612,174
Operating expenses:
Research and development		26,463,229		38,037,733		43,012,588		39,823,069		23,042,772
Acquisition of technology rights						16,500,000		—		3,500,000
Marketing		1,283,317		2,326,896		11,806,768		6,791,106		—
General and administrative		3,295,790		5,662,119		11,248,855		7,834,441		9,035,696
Total operating expenses		31,042,336		46,026,748		82,568,211		54,448,616		35,578,468
Gain on repurchase of debt		—		—		—		27,894,260		3,632,882
Interest income		1,708,212		11,990,551		12,321,542		5,428,831		1,829,021
Interest expense		165,914		9,781,177		11,619,150		11,034,198		8,437,548
Loss from continuing operations		(29,500,038	)	(41,817,374	)	(78,481,204	)	(26,622,883	)	(36,941,939	)
(Loss) income from discontinued operations		—		—		(4,476,244	)	10,816,807		—
Loss allocable to common stockholders		(34,574,571	)	(42,544,726	)	(83,302,690	)	(15,806,076	)	(36,941,939	)
Loss per share from continuing operations:
Basic	$	(2.42	)	(2.75	)	(4.32	)	(1.11	)	(1.43	)
Diluted		(2.42	)	(2.75	)	(4.32	)	(1.11	)	(1.43	)
(Loss) income per share from discontinued operations:
Basic	$	—		—		(0.25	)	0.45		—
Diluted		—		—		(0.25	)	0.45		—
Net loss per share allocable to common stockholders:
Basic	$	(2.84	)	(2.80	)	(4.59	)	(0.66	)	(1.43	)
Diluted		(2.84	)	(2.80	)	(4.59	)	(0.66	)	(1.43	)
Shares used in computing net (loss) income per share:
Basic		12,181,853		15,210,964		18,167,303		23,952,940		25,916,466
Diluted		12,181,853		15,210,964		18,167,303		23,952,940		25,916,466
	As of December 31,
	1999			2000		2001		2002		2003
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	66,852,920		203,335,180		240,040,193		158,281,544		121,148,591
Working capital		58,691,259		196,279,631		220,620,940		152,771,841		113,096,747
Total assets		72,085,866		222,438,830		266,180,803		173,530,757		132,845,182
Long term debt less current portion		525,000		180,325,000		180,125,000		134,908,334		127,900,000
Total stockholders’ equity (deficit)		58,291,236		23,986,548		39,429,714		27,810,771		(7,509,295	)

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THE EXCHANGE OFFER

Terms of the Exchange Offer; Period for Tendering Existing Notes

We are offering to exchange your existing notes for Plus Cash Notes as follows: $775 principal amount of Plus Cash Notes for each $1,000 principal amount of existing notes for up to 100% of the aggregate outstanding principal amount of existing notes. The Plus Cash Notes will be issued in denominations of $1,000 and any integral multiple of $1,000. We will pay cash for any fractional portion of Plus Cash Notes.

Based on the principal amount of existing notes outstanding as of the date of this prospectus, we are offering to acquire up to $127,900,000 aggregate principal amount of existing notes that are validly tendered on the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal.

You may tender all, some or none of your existing notes, subject to the terms and conditions of the exchange offer. Holders of existing notes must tender their existing notes in a minimum $1,000 principal amount and multiples thereof.

The exchange offer is not being made to, and we will not accept tenders for exchange from, holders of existing notes in any jurisdiction in which the exchange offer or the acceptance of the offer would not be in compliance with the securities or blue sky laws of that jurisdiction.

Our board of directors and officers do not make any recommendation to the holders of existing notes as to whether or not to exchange all or any portion of their existing notes. In addition, we have not authorized anyone to make any recommendation. You must make your own decision whether to tender your existing notes for exchange and, if so, the amount of existing notes to tender.

Expiration Date

The expiration date for the exchange offer is 12:00 midnight, New York City time, on May 25, 2004, unless we extend the offer. We may extend this expiration date for any reason. The last date on which tenders will be accepted, whether on May 25, 2004 or any later date to which the exchange offer may be extended, is referred to as the expiration date.

Extensions; Amendments

We expressly reserve the right, in our discretion, for any reason to:

• delay the acceptance of existing notes tendered for exchange, for example, in order to allow for the rectification of any irregularity or defect in the tender of existing notes, provided that in any event we will promptly issue Plus Cash Notes or return tendered existing notes after expiration or withdrawal of the exchange offer;

• extend the time period during which the exchange offer is open, by giving oral or written notice of an extension to the holders of existing notes in the manner described below; during any extension, all existing notes previously tendered and not withdrawn will remain subject to the exchange offer;

• waive any condition or amend any of the terms or conditions of the exchange offer, other than the condition that the registration statement or, if applicable, a post-effective amendment, becomes effective under the Securities Act, as amended; and

• terminate the exchange offer, as described under “—Conditions for Completion of the Exchange Offer” below.

If we consider an amendment to the exchange offer to be material, or if we waive a material condition of the exchange offer, we will promptly disclose the amendment or waiver in a prospectus supplement, and if required by law, we will extend the exchange offer for a period of five to twenty business days.

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We will promptly give oral or written notice of any (1) extension, (2) amendment, (3) non-acceptance or (4) termination of the offer to the holders of the existing notes. In the case of any extension, we will issue a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. In the case of an amendment, we will issue a press release or other public announcement.

Procedures for Tendering Existing Notes

Your tender to us of existing notes and our acceptance of your tender will constitute a binding agreement between you and us upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal. For the procedures regarding the new money offering, see “New Money Offering of Additional Plus Cash Notes.”

Tender of Existing Notes Held Through a Custodian. If you are a beneficial holder of the existing notes that are held of record by a custodian bank, depository institution, broker, dealer, trust company or other nominee, you must instruct the custodian, or such other record holder, to tender the existing notes on your behalf. Your custodian will provide you with its instruction letter, which you must use to give these instructions.

Tender of Existing Notes Held Through DTC. Any beneficial owner of existing notes held of record by The Depository Trust Company, or DTC, or its nominee, through authority granted by DTC, may direct the DTC participant through which the beneficial owner’s existing notes are held in DTC, to tender on such beneficial owner’s behalf. To effectively tender existing notes that are held through DTC, DTC participants should transmit their acceptance through the Automated Tender Offer Program, or ATOP, for which the transaction will be eligible, and DTC will then edit and verify the acceptance and send an agent’s message to the exchange agent for its acceptance. Delivery of tendered existing notes must be made to the exchange agent pursuant to the book-entry delivery procedures set forth below or the tendering DTC participant must comply with the guaranteed delivery procedures set forth below. No letters of transmittal will be required to tender existing notes through ATOP.

In addition, the exchange agent must receive:

• a completed and signed letter of transmittal or an electronic confirmation pursuant to DTC’s ATOP system indicating the principal amount of existing notes to be tendered and any other documents, if any, required by the letter of transmittal; and

• prior to the expiration date, a confirmation of book-entry transfer of such existing notes, into the exchange agent’s account at DTC, in accordance with the procedure for book-entry transfer described below; or

• the holder must comply with the guaranteed delivery procedures described below.

Your existing notes must be tendered by book-entry transfer. The exchange agent will establish an account with respect to the existing notes at DTC for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in DTC must make book-entry delivery of existing notes by having DTC transfer such existing notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. Although your existing notes will be tendered through the DTC facility, the letter of transmittal, or facsimile, or an electronic confirmation pursuant to DTC’s ATOP system, with any required signature guarantees and any other required documents, if any, must be transmitted to and received or confirmed by the exchange agent at its address set forth below under “—Exchange Agent,” prior to 12:00 midnight, New York City time, on the expiration date of the exchange offer. You or your broker must ensure that the exchange agent receives an agent’s message from DTC confirming the book-entry transfer of your existing notes. An agent’s message is a message transmitted by DTC and received by the exchange agent that forms a part of the book-entry confirmation which states that DTC has received an express acknowledgement from the participant in DTC tendering existing notes that such participant agrees to be bound by the terms of the letter of transmittal. Delivery of documents to DTC in accordance with its procedures does not constitute delivery to the exchange agent.

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If you are an institution which is a participant in DTC’s book-entry transfer facility, you should follow the same procedures that are applicable to persons holding existing notes through a financial institution.

Do not send letters of transmittal or other exchange offer documents to us or to Piper Jaffray, the dealer manager.

It is your responsibility to ensure that all necessary materials get to U.S. Bank National Association, the exchange agent, before the expiration date. If the exchange agent does not receive all of the required materials before the expiration date, your existing notes will not be validly tendered.

Any existing notes not accepted for exchange for any reason will be promptly returned, without expense, to the tendering holder after the expiration or termination of the exchange offer.

We will have accepted the validity of tendered existing notes if and when we give oral or written notice to the exchange agent. The exchange agent will act as the tendering holders’ agent for purposes of receiving the Plus Cash Notes from us. If we do not accept any tendered existing notes for exchange because of an invalid tender or the occurrence of any other event, the exchange agent will return those existing notes to you without expense, promptly after the expiration date via book-entry transfer through DTC.

Binding Interpretations

We will determine in our sole discretion, all questions as to the validity, form, eligibility and acceptance of existing notes tendered for exchange. Our determination will be final and binding. We reserve the absolute right to reject any and all tenders of any particular existing notes not properly tendered or to not accept any particular existing notes which acceptance might, in our reasonable judgment or our counsel’s judgment, be unlawful. We also reserve the absolute right to waive any defects or irregularities in the tender of existing notes. Unless waived, any defects or irregularities in connection with tenders of existing notes for exchange must be cured within such reasonable period of time as we shall determine. Neither we, the exchange agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of existing notes for exchange, nor shall any of them incur any liability for failure to give such notification.

Acceptance of Existing Notes for Exchange; Delivery of Plus Cash Notes

Once all of the conditions to the exchange offer are satisfied or waived, we will accept, promptly after the expiration date, all existing notes properly tendered, and will issue the Plus Cash Notes promptly after acceptance of the existing notes. The discussion under the heading “—Conditions for Completion of the Exchange Offer” provides further information regarding the conditions to the exchange offer. For purposes of the exchange offer, we shall be deemed to have accepted properly tendered existing notes for exchange when, as and if we have given oral or written notice to the exchange agent, with written confirmation of any oral notice to be given promptly after giving such notice.

The Plus Cash Notes will be issued in denominations of $1,000 and any integral multiples of $1,000. We will pay cash for any fractional amount of Plus Cash Notes. The Plus Cash Notes will bear interest from the date of issuance of the Plus Cash Notes. Existing notes accepted for exchange will accrue interest up to but excluding the closing date of the exchange offer. We will pay such accrued and unpaid interest at closing to holders whose existing notes are tendered in the exchange offer and accepted by us.

In all cases, issuance of Plus Cash Notes for existing notes that are accepted for exchange in the exchange offer will be made only after timely receipt by the exchange agent of:

• a timely book-entry confirmation of such existing notes into the exchange agent’s account at the DTC book-entry transfer facility;

• a properly completed and duly executed letter of transmittal or an electronic confirmation of the submitting holder’s acceptance through DTC’s ATOP system; and

• all other required documents, if any.

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Return of Existing Notes Accepted for Exchange

If we do not accept any tendered existing notes for any reason set forth in the terms and conditions of the exchange offer, or if existing notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged existing notes tendered by book-entry transfer into the exchange agent’s account at the book-entry transfer facility will be returned in accordance with the book-entry procedures described above, and the existing notes that are not to be exchanged will be credited to an account maintained with DTC, as promptly as practicable after the expiration or termination of the exchange offer.

Guaranteed Delivery Procedures

If you desire to tender your existing notes and you cannot complete the procedures for book-entry transfer set forth above on a timely basis, you may still tender your existing notes if:

• your tender is made through an eligible institution;

• prior to the expiration date, the exchange agent received from the eligible institution a properly completed and duly executed letter of transmittal, or a facsimile of such letter of transmittal or an electronic confirmation pursuant to DTC’s ATOP system and notice of guaranteed delivery, substantially in the form provided by us, by facsimile transmission, mail or hand delivery, that:

(1) sets forth the name and address of the holder of the existing notes tendered;

(2) states that the tender is being made thereby;

(3) guarantees that within three trading days after the expiration date a book-entry confirmation and any other documents required by the letter of transmittal, if any, will be deposited by the eligible institution with the exchange agent; and

• book-entry confirmation and all other documents, if any, required by the letter of transmittal are received by the exchange agent within three trading days after the expiration date.

Withdrawal Rights

You may withdraw your tender of existing notes at any time prior to 12:00 midnight, New York City time, on the expiration date. In addition, if we have not accepted your tendered existing notes for exchange, you may withdraw your existing notes after June 25, 2004.

For a withdrawal to be effective, the exchange agent must receive a written notice of withdrawal at the address or, in the case of eligible institutions, at the facsimile number, set forth below under the heading “—Exchange Agent” prior to 12:00 midnight, New York City time, on the expiration date. Any notice of withdrawal must:

• specify the name of the person who tendered the existing notes to be withdrawn;

• contain a statement that you are withdrawing your election to have your existing notes exchanged;

• be signed by the holder in the same manner as the original signature on the letter of transmittal by which the existing notes were tendered, including any required signature guarantees; and

• if you have tendered your existing notes in accordance with the procedure for book-entry transfer described above, specify the name and number of the account at DTC to be credited with the withdrawn existing notes and otherwise comply with the procedures of such facility.

Any existing notes that have been tendered for exchange, but which are not exchanged for any reason, will be credited to an account maintained with the book-entry transfer facility for the existing notes, as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn existing notes may be retendered by following the procedures described under the heading “—Procedures for Tendering Existing Notes” above, at any time on or prior to 12:00 midnight, New York City time, on the expiration date.

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Conditions for Completion of the Exchange Offer

We will not accept existing notes for Plus Cash Notes and may terminate or not complete the exchange offer if the registration statement or, if applicable, a post-effective amendment, covering the exchange offer is not effective under the Securities Act.

We may elect not to accept existing notes for exchange and may terminate or not complete the exchange offer if:

• any person, entity or group (as the term “group” is used in Section 13(d)(3) of the Exchange Act) would, as a result of the exchange offer, acquire beneficial ownership of more than 19.9% of our common stock;

• any action, proceeding or litigation seeking to enjoin, make illegal or delay completion of the exchange offer or otherwise relating in any manner to the exchange offer is instituted or threatened;

• any order, stay, judgment or decree is issued by any court, government, governmental authority or other regulatory or administrative authority and is in effect, or any statute, rule, regulation, governmental order or injunction shall have been proposed, enacted, enforced or deemed applicable to the exchange offer, any of which would restrain, prohibit or delay completion of the exchange offer or prohibit any of the material terms of the Plus Cash Notes;

• any of the following occurs and the adverse effect of such occurrence shall, in our reasonable judgment, be continuing:

• any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States;

• any extraordinary or material adverse change in U.S. financial markets generally, including, without limitation, a decline of at least twenty percent in either the Dow Jones Average of Industrial Stocks or Standard & Poor’s 500 Index from the date of this prospectus;

• a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States;

• any material disruption has occurred in commercial banking or securities settlement or clearance services in the United States;

• any limitation, whether or not mandatory, by any governmental entity on, or any other event that would reasonably be expected to materially adversely affect, the extension of credit by banks or other lending institutions;

• a commencement of a war or other national or international calamity directly or indirectly involving the United States, which would reasonably be expected to affect materially and adversely, or to delay materially, the completion of the exchange offer; or

• if any of the situations described above existed at the time of commencement of the exchange offer and that situation deteriorates materially after commencement of the exchange offer;

• any tender or exchange offer, other than this exchange offer by us, with respect to some or all of our outstanding common stock or any merger, acquisition or other business combination proposal involving us shall have been proposed, announced or made by any person or entity;

• any event or events occur that have resulted or may result, in our reasonable judgment, in material adverse change in the business condition, income, operations, stock ownership or prospects of us or of us and our subsidiaries, taken as a whole;

• the occurrence of any of the following:

• any person, entity or group acquires more than 5% of our outstanding shares of common stock after the commencement of the exchange offer;

• any person, entity or group which owned more than 5% of our outstanding common stock before the commencement of the exchange offer shall acquire additional common stock constituting more than 2% of our outstanding shares after the commencement of the exchange offer; or

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• any new group shall have been formed that beneficially owns more than 5% of our outstanding shares of common stock which in our judgment in any such case, and regardless of the circumstances, makes it inadvisable to proceed with the exchange offer or with such acceptance for exchange of shares; or

• the registration statement of which this prospectus is a part shall have not become effective under the Securities Act or shall be the subject of any stop order.

If any of the above events occur, we may:

• terminate the exchange offer and promptly return all tendered existing notes to tendering existing note holders;

• extend the exchange offer and, subject to the withdrawal rights described in “Withdrawal Rights,” above, retain all tendered existing notes until the extended exchange offer expires;

• amend the terms of the exchange offer; or

• waive the unsatisfied condition and, subject to any requirement to extend the period of time during which the exchange offer is open, complete the exchange offer.

These conditions are for our sole benefit. We may assert these conditions with respect to all or any portion of the exchange offer regardless of the circumstances giving rise to them. We may waive any condition, other than those subject to applicable law, in whole or in part in our discretion. We may not assert or waive any condition in a manner that would violate Rule 13e-4(f)(8)(i). Our failure to exercise our rights under any of the above conditions does not represent a waiver of these rights. Each right is an ongoing right which may be asserted at any time prior to the expiration of the exchange offer. Any determination by us concerning the conditions described above will be final and binding upon all parties. There are no federal or state regulatory requirements that must be met, except for requirements under applicable securities laws. Satisfaction or waiver of these conditions, other than those that relate to applicable securities laws, will be determined as of May 25, 2004, the expiration date of the exchange offer.

We confirm to you that if we make a material change in the terms of the exchange offer or the information concerning the exchange offer, or if we waive a material condition of the exchange offer, we will promptly disclose the amendment or waiver in a prospectus supplement and will extend the exchange offer to the extent required under the Exchange Act.

Fees and Expenses

Piper Jaffray is acting as the dealer manager in connection with the exchange offer. Piper Jaffray will receive a fee in the manner described below for its services as dealer manager.

Piper Jaffray’s fee will be calculated based on a sliding scale based on the principal amount of existing notes tendered. Based on the foregoing fee structure, if all of the existing notes are exchanged in the exchange offer, Piper Jaffray will receive an aggregate fee of approximately $1.94 million. Piper Jaffray’s fees will be payable if and when the exchange offer is completed.

Piper Jaffray will also be reimbursed for its reasonable out-of-pocket expenses incurred in connection with the exchange offer (including reasonable fees and disbursements of counsel), whether or not the transaction closes.

We have agreed to indemnify Piper Jaffray against specified liabilities relating to or arising out of the offer, including civil liabilities under the federal securities laws, and to contribute to payments which Piper Jaffray may be required to make in respect thereof. However, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Piper Jaffray may from time to time hold existing notes, Plus Cash Notes and our common stock in its proprietary accounts, and to the extent it owns existing notes in these accounts at the time of the exchange offer, Piper Jaffray may tender these existing notes.

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We have retained Georgeson Shareholder Communications Inc. to act as information agent and U.S. Bank National Association to act as the exchange agent in connection with the exchange offer. The information agent may contact holders of existing notes by mail, telephone, facsimile transmission and personal interviews and may request brokers, dealers and other nominee existing note holders to forward materials relating to the exchange offer to beneficial owners. The information agent and the exchange agent will receive an aggregate of approximately $31,000 in compensation for their respective services, will be reimbursed for reasonable out-of-pocket expenses and will be indemnified against liabilities in connection with their services, including liabilities under the federal securities laws.

Neither the information agent nor the exchange agent has been retained to make solicitations or recommendations. The fees they receive will not be based on the principal amount of existing notes tendered under the exchange offer.

We will not pay any fees or commissions to any broker or dealer, or any other person, other than Piper Jaffray for soliciting tenders of existing notes under the exchange offer. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by us for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers.

We estimate that the aggregate fees and expenses to be incurred in connection with the exchange offer and the new money offering, assuming maximum existing note holder participation, will be approximately $850,000 million and will be paid by us.

Legal Limitation

The above conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition, or may be waived by us in whole or in part at any time and from time to time in our sole discretion. Our failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time, and from time to time.

In addition, we will not accept for exchange any existing notes tendered, and no Plus Cash Notes will be issued in exchange for any such existing notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939.

Exchange Agent

U.S. Bank National Association has been appointed as the exchange agent for the exchange offer. All executed letters of transmittal should be directed to the exchange agent at one of its addresses as set forth below. Questions about the tender of existing notes, requests for assistance, and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows:

By Mail or Overnight Courier:

U.S. Bank National Association Corporate Trust Services

60 Livingston Ave.

St. Paul, MN 55107

By Facsimile Transmission:

(651) 495-8158

Confirm by Telephone:

(800) 934-6802

If you deliver the letter of transmittal to an address other than as set forth above or transmit instructions via facsimile other than as set forth above, then such delivery or transmission does not constitute a valid delivery of such letter of transmittal. If you need additional copies of this prospectus or the letter of transmittal, please contact the information agent at the address or telephone number set forth on the back cover of this prospectus.

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NEW MONEY OFFERING OF ADDITIONAL PLUS CASH NOTES

We are offering up to $25.0 million aggregate principal amount of additional Plus Cash Notes for cash in the “new money offering.” Neither we nor our placement agent will consider whether or not you are a holder of the existing notes or participate in the exchange offer as a relevant factor when determining the allocation of the Plus Cash Notes in the new money offering. The Plus Cash Notes in the new money offering are identical in all respects to the Plus Cash Notes provided in the exchange offer as described in this document under the heading “Description of Plus Cash Notes.”

Indications of interest in purchasing additional Plus Cash Notes must be in denominations of principal amount of $1,000 and any integral multiple of $1,000. The public offering price of the Plus Cash Notes offered in the new money offering is expected to be 100% of the principal amount of such Plus Cash Notes plus interest, if any, accrued from the closing date of the exchange offer.

You may indicate your interest for additional Plus Cash Notes in the new money offering by giving your indication of interest to Piper Jaffray at (415) 984-5142, attention Jeffrey Winaker or Brian Sullivan.

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DESCRIPTION OF PLUS CASH NOTES

We will issue the Plus Cash Notes under an indenture dated as of the date of issuance, between us and U.S. Bank National Association, as Plus Cash Notes trustee. The following summarizes the material provisions of the Plus Cash Notes and the Plus Cash Notes indenture. This summary is not complete. We urge you to read the Plus Cash Notes indenture because it will define your rights as a holder of the Plus Cash Notes. We will provide you a copy, at no charge, if you contact us. The Plus Cash Notes indenture is an exhibit to the registration statement of which this prospectus is a part. Please read “Where You Can Find More Information” on page i. Terms not defined in this description have the meanings given them in the Plus Cash Notes indenture. This summary is subject to and is qualified by reference to all the provisions of the Plus Cash Notes indenture. As used in this description, the words “ViroPharma,” “we,” “us” or “our” do not include any current or future subsidiary of ViroPharma Incorporated.

General

We are offering to issue up to $124,122,500 aggregate principal amount of Plus Cash Notes, which amount includes:

• approximately $99,122,500 aggregate principal amount to be issued in the exchange offer assuming 100% of the outstanding existing notes are tendered and accepted in the exchange offer; and

• up to an additional $25,000,000 aggregate principal amount of Plus Cash Notes to be issued for cash.

The Plus Cash Notes will be unsecured and unsubordinated obligations of ViroPharma. The Plus Cash Notes will be convertible into a number of shares of common stock, which we will call the base shares, plus $500 in cash, which we call the “plus cash amount.” A fixed number of shares of our common stock, which we call the “base shares,” will be determined as of the second trading day immediately preceding the expiration date of the exchange offer and will be equal to the lesser of: (A) 452.38; and (B) the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount, as defined below, from $952.38 by (ii) the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding the expiration date of the exchange offer, which we refer to as the “threshold price.” At our option, we may elect to pay the plus cash amount with shares of our common stock as described further under “—Voluntary Conversion of Plus Cash Notes” and “—Auto-Conversion” below.

The Plus Cash Notes will be issued in denominations of $1,000 and integral multiples of $1,000. The Plus Cash Notes will mature on June 1, 2009 unless earlier converted, redeemed or repurchased.

You may present the Plus Cash Notes for conversion at the office of the conversion agent and for exchange or registration of transfer at the office of the registrar. Each of these agents will initially be the trustee.

The Plus Cash Notes indenture will not contain any financial covenants or restrictions on the payment of dividends, or the issuance or repurchase of securities by us, except that for a period of 18 months following the first issuance of the Plus Cash Notes, but only for so long as any of the Plus Cash Notes remain outstanding, we will be prohibited from engaging in any private or open market repurchases, debt-for-equity swaps, or similar transactions with respect to the existing notes. The Plus Cash Notes indenture will not restrict our ability to incur additional indebtedness. The Plus Cash Notes indenture will contain no covenants or other provisions to protect holders of the Plus Cash Notes in the event of a highly leveraged transaction or a fundamental change, except to the extent described below under “— Repurchase at Option of Holder Upon a Fundamental Change.”

We are required to deliver to the trustee annually a statement regarding compliance with the Plus Cash Notes indenture. We are also required, upon becoming aware of any default or event of default, to deliver to the trustee a statement specifying such default or event of default.

We shall not issue fractional shares of common stock or any scrip representing fractional shares of common stock upon payment of interest, voluntary conversion or auto-conversion, in each case as described below. If any

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fractional share of common stock otherwise would be issuable, we, at our option, may either make an adjustment therefor in cash at the current market value to the holder of the Plus Cash Notes or round the fractional shares up to the nearest whole share.

You will not be required to pay any stamp, transfer, documentary or similar taxes or duties upon the transfer of our common stock in payment of interest, voluntary conversion or auto-conversion but will be required to pay any stamp or transfer tax or duty if the common stock is issued in a name other than your name. Certificates representing shares of common stock will not be issued or delivered unless all stamp or transfer taxes and duties, if any, payable by the holder have been paid.

Interest

The Plus Cash Notes will bear interest at the rate of 6% per annum. Interest will be payable semiannually on an “interest payment date,” which is June 1 and December 1 of each year, commencing on December 1, 2004 and ending on the date of maturity (or earlier purchase, redemption or, in some circumstances, conversion) of the Plus Cash Notes to holders of record at the close of business on the “regular record date,” which is each May 15 and November 15 (whether or not a business day), respectively, immediately preceding each interest payment date. Each payment of interest on the Plus Cash Notes will include interest accrued through the day before the applicable interest payment date or the date of maturity (or earlier purchase, redemption or, in some circumstances, conversion), as the case may be. Any payment of principal and any payment of interest required to be made on any day that is not a business day will be made on the next succeeding business day. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months.

Interest will be payable in cash or, solely at our option, in shares of our common stock, provided that we will not pay interest in shares of our common stock unless the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the interest payment date equals or exceeds the threshold price.

If we elect to make any payment of interest in additional shares of our common stock, the additional shares to be delivered will be valued at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the interest payment date. We shall provide the holders with notice of our intention to pay interest in common stock not later than the regular record date preceding the applicable interest payment date in accordance with the terms of the indenture.

The simple average of the daily VWAPs of our common stock shall be calculated with reference to the normal trading hours of the applicable trading day on The Nasdaq National Market or principal national or regional securities exchange or over-the-counter market on which our common stock is then traded, as reported by Bloomberg L.P. or such other similarly nationally recognized information source satisfactory to the trustee under the indenture governing the Plus Cash Notes. There is no minimum or maximum volume requirement with respect to the calculation of the daily VWAP. The calculation of the daily VWAP is subject to appropriate adjustment as described under “—Conversion Consideration Adjustment” below.

In the event of the maturity, conversion, purchase by us at the option of a holder or redemption of a Plus Cash Note, interest will cease to accrue on that Plus Cash Note under the terms and subject to the conditions of the Plus Cash Notes indenture. We may not reissue a Plus Cash Note that has matured or has been converted, redeemed or otherwise cancelled, except for registration of transfer, exchange or replacement of that Plus Cash Note.

Ranking

The Plus Cash Notes will be unsecured and unsubordinated obligations. The Plus Cash Notes will rank senior to the existing notes. The Plus Cash Notes will rank on a parity in right of payment with all of our existing and

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future unsecured and unsubordinated indebtedness. However, the Plus Cash Notes will be subordinated to our future secured indebtedness to the extent of the assets securing such indebtedness. The terms of the Plus Cash Notes will not limit the amount of additional indebtedness, including secured indebtedness, that we can create, incur, assume or guarantee. Upon any distribution of our assets upon any insolvency, dissolution or reorganization, the payment of the principal of, and interest on, our secured indebtedness will be distributed from those of our assets that represent the security for secured indebtedness before any payment is made from such assets on account of our unsecured indebtedness. Accordingly, there may not be sufficient assets remaining to pay amounts due on any or all of the Plus Cash Notes then outstanding once payment of the principal and interest on our secured indebtedness has been made.

The Plus Cash Notes are effectively subordinated to all existing and future liabilities of our subsidiaries. Any right of ours to receive assets of any subsidiary upon its liquidation or reorganization and the consequent right of the holders of the Plus Cash Notes to participate in the assets, will be subject to the claims of that subsidiary’s creditors, including trade creditors, except to the extent that we ourselves are recognized as a creditor of that subsidiary, in which case our claims would still be subordinate to any security interests in the assets of that subsidiary.

Voluntary Conversion of Plus Cash Notes

You may convert Plus Cash Notes in denominations of $1,000 and integral multiples of $1,000. A Plus Cash Note may be converted into:

• a number of base shares of our common stock, determined as described below; and

• the plus cash amount, which will be $500 in cash or, solely at our option, shares of our common stock, provided that we will not pay interest in shares of our common stock unless the simple average of the the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the interest payment date equals or exceeds the threshold price.

The number of base shares will be equal to a fixed number of shares of our common stock, which we call the “base shares,” determined as of the second trading day immediately preceding the expiration date of the exchange offer and will be equal to the lesser of: (A) 452.38, and (B) the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount, as defined below, from $952.38 by (ii) the threshold price.

The number of base shares will be 452.38 only if the threshold price is $1.00 or lower. In all other cases, the number of base shares will be fixed such that they have a market value, determined in the manner described above, equal to $452.38. Based on the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding April 27, 2004, which equaled $2.44, the number of base shares would have been 185.40.

This means that, at the time that we determine the number of base shares prior to the expiration of the exchange offer, the conversion consideration of the Plus Cash Notes will be less than $1,000. In the event that the threshold price is $1.00 or higher, the conversion value of each $1,000 in principal amount of the Plus Cash Notes when the number of base shares is determined will be equal to $952.38 (representing the $500 plus cash amount plus a number of base shares having a market value equal to $452.38, determined in the manner described above). In the event that the threshold price is less than $1.00, the conversion value of each $1,000 in principal amount of the Plus Cash Notes when the number of base shares is determined would be less than $952.38 (representing the $500 plus cash amount plus 452.38 base shares).

Assuming that the number of base shares is less than 452.38, the conversion consideration of each $1,000 in principal amount of the Plus Cash Notes would only equal or exceed $1,000 if the market price of our common stock appreciates by approximately 10.5% from the market price of our common stock used to establish the number of base shares, determined in the manner described above. Based upon a number of base shares equal

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to 185.40, using the simple average of the closing bid prices provided above of $2.44, the per share market price of our common stock would have to appreciate $0.26 to $2.70 in order for the conversion consideration to equal the $1,000 principal amount of the Plus Cash Notes. Assuming that the number of base shares is equal to 452.38, the conversion consideration of each $1,000 in principal amount of the Plus Cash Notes would only equal or exceed $1,000 if the market price of our common stock appreciated to approximately $1.11 at the time of conversion.

Upon voluntary conversion by a holder, we may, at our option, substitute $500 worth of our common stock in lieu of the plus cash amount provided, however, we shall not make any payment of the plus cash amount in additional shares of common stock unless the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price. If we elect to pay the plus cash amount in shares of our common stock, the shares to be delivered will be valued at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date.

If a holder elects to convert voluntarily all or any portion of the Plus Cash Notes prior to June 1, 2006 and if the conditions described under “—Voluntary Conversion – Make-Whole Payment” below are satisfied, we will pay in cash or, solely at our option, in shares of our common stock, the additional interest described under “—Voluntary Conversion –Make-Whole Payment” below.

In the event we have delivered a notice of auto-conversion after having satisfied the stock substitution procedure described below, and you elect to voluntarily convert your Plus Cash Notes before the auto-conversion date, we may elect to pay the plus cash amount in shares of our common stock. If we so elect, those shares shall be valued at a per share price equal to the stock substitution price defined below.

In the event that we elect to pay the plus cash amount, the make-whole amount, if any, or both, in shares of our common stock and the total number of shares of our common stock to be issued to you or any group of which you are a part as a result of such election, plus the total number of base shares to be issued to you as a result of the voluntary conversion, plus the total number of shares of our common stock or any such group beneficially owned by you or any such group, would, in the absence of our ability to reduce the number of shares described below, exceed 19.9% of our then outstanding shares of common stock, then we shall be entitled to reduce the number of shares of common stock to be issued to you or any such group so that the total number of shares of common stock to be issued to you or any such group as a result of the voluntary conversion is equal to the lesser of:

• the result derived from subtracting (i) the sum of the number of base shares to be issued to you or any such group as a result of the voluntary conversion, plus the total number of shares of our common stock beneficially owned by you or any such group from (ii) 19.9% of our then outstanding shares of common stock; and

• the number of shares to be issued to you or any such group to pay the plus cash amount, the make-whole amount, if any, or both based upon the value of our shares of common stock as determined in accordance with the description under “Description of Notes—Voluntary Conversion of Plus Cash Notes” below.

If we so reduce the number of shares to be issued to you or any group of which you are a part, then we shall be obligated to pay the portion of the plus cash amount not paid for with shares of our common stock in cash, unless our board of directors authorizes us to issue to you or any such group a number of shares of our common stock that would result in the total number of shares of our common stock beneficially owned by you or any such group to exceed 19.9% of our then outstanding shares of common stock.

Based on the simple average of the closing bid prices of our common stock for the five trading days ending on and including the second trading day immediately preceding April 27, 2004, which equaled $2.44, the number of base shares would have been 185.40 shares. The following table sets forth the number of base shares that would

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have resulted from using the simple average of the closing bid prices of our common stock for the five trading days ending on the last trading day of each of the preceding three months (February 1, 2004 through April 26, 2004).

	Five Day Simple Average of the Closing Bid Price		Number of Base Shares
February 2004	$	3.02	149.79
March 2004		2.34	193.32
April (through April 26, 2004)		2.45	184.64

A holder of a Plus Cash Note will be entitled to convert it into base shares and the plus cash amount at any time on or prior to maturity, provided that:

• if the Plus Cash Note is called for redemption, the holder is only entitled to convert it at any time before the close of business on the last business day prior to the redemption date, and

• if a notice of auto-conversion is delivered by us with respect to any portion of the Plus Cash Notes in connection with which we have elected to implement and have satisfied the stock substitution procedures described below, and if the holder has elected to voluntarily convert on or after the satisfaction of the stock substitution conditions but before the auto-conversion date, we may elect to pay the plus cash amount in shares of our common stock. If we so elect, these shares shall be paid at a per share price equal to the stock substitution price, as defined below.

You may not voluntarily convert any principal amount of your Plus Cash Notes with respect to which a stock substitution notice has been given and the stock substitution conditions described below under “—Voluntary Conversion—Make-Whole Payment” have been satisfied.

The number of base shares and all calculations of the simple average of the daily VWAPs are subject to appropriate adjustment by reference to a conversion rate, as described under “—Conversion Consideration Adjustment” below.

A Plus Cash Note in respect of which a holder has delivered a notice exercising that holder’s option to require us to purchase that holder’s Plus Cash Note may be converted only if such notice is withdrawn by a written notice of withdrawal delivered by the holder to the paying agent prior to the close of business on the repurchase date, as defined below, in accordance with the terms of the Plus Cash Notes indenture.

Procedures Required for Voluntary Conversion

To convert a Plus Cash Note, a holder must:

• complete and manually sign the conversion notice on the back of the Plus Cash Note, or complete and manually sign a facsimile of the Plus Cash Note, and deliver the conversion notice to the conversion agent, initially the trustee, at the office maintained by the conversion agent for that purpose;

• certify to us the total number of shares which represents such holder’s total beneficial ownership interest in our common stock;

• surrender the Plus Cash Note to the conversion agent;

• if required, furnish appropriate endorsements and transfer documents; and

• if required, pay all transfer or similar taxes.

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The date on which all of these requirements have been satisfied will be the conversion date.

In the case of a global security, DTC will effect the conversion upon notice from the holders of a beneficial interest in the global security in accordance with DTC’s rules and procedures.

As promptly as practicable after the conversion date, but in no event later than three trading days after the conversion date, we will issue and deliver to the holder a certificate or certificates for the number of full shares of common stock issuable upon voluntary conversion, together with a check or cash in respect of the plus cash amount, if applicable, and any payment to be made in lieu of fractional shares. In addition, if a holder elects to convert voluntarily all or any portion of the Plus Cash Notes prior to June 1, 2006 and if the conditions described under “—Voluntary Conversion – Make-Whole Payment” below are satisfied, we will pay in cash or, solely at our option, in shares of our common stock, the additional interest described under “—Voluntary Conversion –Make-Whole Payment” below.

Except as provided below, our delivery to the holder of the base shares, the plus cash amount and any payment to be made in lieu of any fractional shares, will satisfy our obligation to pay the principal amount of the Plus Cash Note and any accrued and unpaid interest thereon to the conversion date, and any accrued but unpaid interest to the conversion date will be deemed to be paid in full and will not be cancelled, extinguished or forfeited. Upon voluntary conversion of a Plus Cash Note, except as provided below, a holder will not receive any additional payment representing accrued and unpaid interest on the Plus Cash Note. Notwithstanding the foregoing, any accrued and unpaid interest will be payable upon any conversion of Plus Cash Notes at the option of the holder made concurrently with or after acceleration of the Plus Cash Notes following an event of default described under “—Events of Default” below.

Plus Cash Notes surrendered for voluntary conversion during the period from the close of business on any regular record date to the date immediately preceding any interest payment date must be accompanied by payment of an amount equal to the interest on the surrendered Plus Cash Notes that the registered holder is to receive. Except where Plus Cash Notes surrendered for conversion must be accompanied by payment as described above, no interest on voluntarily converted Plus Cash Notes will be payable by us on any interest payment date subsequent to the date of voluntary conversion.

A certificate for the number of full shares of common stock into which any Plus Cash Note is voluntarily converted, the plus cash amount and any payment to be made in lieu of any fractional shares will be delivered as soon as practicable. For a summary of the U.S. federal income tax treatment of a holder upon conversion, see “United States Federal Income Tax Considerations – U.S. Holders – Tax Treatment of Ownership and Disposition of Plus Cash Notes and Common Stock – Conversion of Plus Cash Notes.”

Voluntary Conversion – Make-Whole Payment

If voluntary conversion occurs prior to June 1, 2006 and if the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date is greater than the threshold price, we will pay additional interest, which we refer to as the “make-whole payment,” equal to two years’ worth of interest on the principal amount so converted, computed on the basis of a 360-day year composed of twelve 30-day months, less any interest actually paid or provided for on the principal amount so converted, prior to the date of voluntary conversion. The make-whole payment, if any, shall be paid in cash or, solely at our option, in shares of our common stock, provided that, we shall not pay the make-whole payment in shares of our common stock unless the simple average of the the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the conversion date equals or exceeds the threshold price. If we elect to pay the make-whole payment in shares of our common stock, the shares of common stock will be valued at 95% of the simple average of the daily VWAPs of our common stock for the 10 trading days ending on and including the second trading day immediately preceding the date of voluntary conversion.

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Auto-Conversion

We have the right to automatically convert some or all of the Plus Cash Notes at any time on or prior to maturity if the daily VWAP of our common stock has exceeded the auto-conversion price, as defined below, for each of any 20 trading days during any consecutive 30 trading day period ending within one trading day prior to the notice of auto-conversion. We refer to this as an auto-conversion and the date upon which the Plus Cash Notes are auto-converted as the “auto-conversion date.” If we elect to auto-convert some or all of the Plus Cash Notes we will issue a notice of auto-conversion identifying the auto-conversion date, which date shall be seven calendar days from the date of our notice, provided that if the seventh calendar day is not a trading day, the auto-conversion date shall be the next trading day.

If we auto-convert some or all of the Plus Cash Notes, holders will receive for each $1,000 in principal amount of Plus Cash Notes so converted the base shares and the $500 plus cash amount, subject to our right to pay the plus cash amount in shares of our common stock described under “—Auto-Conversion—Stock Substitution” below. In addition, if we effect an auto-conversion prior to June 1, 2006, we will pay in cash or, solely at our option, in shares of our common stock the additional interest described under the heading “—Auto-Conversion—Make Whole Payment” below.

Any auto-conversion of less than all of the Plus Cash Notes will be made on a pro rata basis with reference to the aggregate principal amount held by each holder of Plus Cash Notes relative to the aggregate principal amount held by all holders of Plus Cash Notes on the auto-conversion date, rounded up to the nearest $1,000 in principal amount on a holder-by-holder basis.

The auto-conversion price and any calculations of daily VWAPs are subject to appropriate adjustment upon certain events as described under “Conversion Consideration Adjustment” below.

The auto-conversion price will be equal to the quotient derived from dividing (i) the result of subtracting the $500 plus cash amount from $1,500, by (ii) the number of base shares.

The following table sets forth the auto-conversion price that would have resulted from the above formula on the last trading day for the preceding three months (February 1, 2004 through April 26, 2004) using the number of base shares as calculated in the table under “Conversion of Plus Cash Notes” above.

	Auto-Conversion Price
February 2004	$	6.68
March 2004		5.17
April (through April 26, 2004)		5.42

Auto-Conversion – Make-Whole Payment

If an auto-conversion occurs prior to June 1, 2006, we will pay additional interest, which we refer to as the “make-whole payment,” equal to two years’ worth of interest on the principal amount so converted, computed on the basis of a 360-day year composed of twelve 30-day months, less any interest actually paid or provided for on the principal amount so converted prior to the date of auto-conversion. The make-whole payment, if any, shall be paid in cash or, solely at our option, in shares of our common stock. If we elect to pay the make-whole payment in common stock, the shares of common stock will be valued at the stock substitution price, as described below.

Auto-Conversion – Stock Substitution – General

We may elect to auto-convert some or all of our Plus Cash Notes and pay the plus cash amount in shares of our common stock. If we elect this option, we must provide advance notice and satisfy all of the conditions discussed under “—Stock Substitution – Procedure” below. When these conditions are satisfied, we will be obligated to auto-convert the specified percentage of our Plus Cash Notes and pay the plus cash amount in shares of our common stock, subject to the limitations described under “—Stock Substitution – Beneficial Ownership Limitation” below.

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Auto-Conversion – Stock Substitution – Procedure

We must provide advance notice of our election to implement the stock substitution procedure described below. This stock substitution notice will be provided to all holders of Plus Cash Notes and will be filed with the SEC as an exhibit to a current report on Form 8-K. The stock substitution notice must specify the percentage of the outstanding Plus Cash Notes that we must auto-convert for common stock if the conditions described below are met. The stock substitution notice must also specify a stock price which we refer to as the “stock substitution reference price.” The stock substitution reference price will be selected by us in our sole discretion but must be equal to or greater than the auto-conversion price.

After we have provided a stock substitution notice (which notice we have not withdrawn or modified as described below), and once the daily VWAP of our common stock for any single trading day thereafter is greater than the stock substitution reference price, then the stock substitution notice cannot be withdrawn or modified until the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading day period is less than the stock substitution reference price. We refer to any period during which a stock substitution notice cannot be withdrawn or modified as a “stock substitution period.” We refer to the first trading day after the provision of a stock substitution notice on which the daily VWAP of our common stock is greater than the stock substitution reference price as a “stock substitution period commencement date.”

During any stock substitution period, if the daily VWAP of our common stock for each of any 20 trading days, which 20 trading days we refer to as the “valuation days,” during any consecutive 30 trading day period exceeds the stock substitution reference price, we will be obligated to:

• auto-convert the Plus Cash Notes (in the percentage which we have specified in the stock substitution notice);

• substitute shares of our common stock, in the manner described below, upon such auto-conversion for the plus cash amount; and

• satisfy the make-whole payment, if any, in cash or, solely at our option, in shares of our common stock;

in all events subject to the limitations described under “— Stock Substitution-Beneficial Ownership Limitation” below.

Within one trading day after the 20th valuation day, we will issue a notice of auto-conversion identifying the auto-conversion date, which date shall be seven calendar days from the date of our notice, provided that if the seventh calendar day is not a trading day, the auto-conversion date shall be the next trading day.

Any auto-conversion of less than all of the Plus Cash Notes pursuant to the stock substitution provision will be made on a pro rata basis with reference to the aggregate principal amount held by each holder of Plus Cash Notes relative to the aggregate principal amount outstanding as of the auto-conversion date, rounded up to the nearest $1,000 in principal amount on a holder-by-holder basis.

The substituted shares shall be valued at 95% of the simple average of the daily VWAPs of our common stock for the 20 valuation days. We refer to this average as the “stock substitution price.”

Except as provided below, our delivery to the holder of the base shares, the plus cash amount, any payment to be made in lieu of any fractional shares and the make-whole payment, if any, will satisfy our obligation to pay the principal amount of the Plus Cash Notes that are auto-converted and any accrued and unpaid interest thereon to the auto-conversion date will be deemed to be paid in full and will not be cancelled, extinguished or forfeited. In this event, a holder will not receive any additional payment representing accrued and unpaid interest on the Plus Cash Note. Notwithstanding the foregoing, the regular interest payment payable to holders on a regular record date will be payable upon any auto-conversion of Plus Cash Notes effected on or after any such regular record date and prior to the interest payment date. No interest payment on auto-converted Plus Cash Notes will be payable by us on any interest payment date subsequent to the date of auto-conversion.

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Promptly after the auto-conversion date, we will provide notice to all holders of outstanding Plus Cash Notes stating the aggregate principal amount of Plus Cash Notes that were auto-converted and describing the conversion consideration paid therefor. A copy of that notice will be promptly filed with the SEC as an exhibit to a current report on Form 8-K.

We reserve the right to auto-convert the Plus Cash Notes and pay the plus cash amount in cash at any time after the issuance of a stock substitution notice but prior to the stock substitution period commencement date, provided that the daily VWAP of our common stock has exceeded the auto-conversion price for each of at least 20 trading days during any consecutive 30 trading day period ending within one trading day prior to the notice of auto-conversion.

Auto-Conversion—Stock Substitution – Beneficial Ownership Limitation

If, upon our auto-conversion of some or all of our Plus Cash Notes, we are obligated to pay the plus cash amount, any interest required to be paid, if any, and the make-whole payment, if any, in shares of our common stock, and the total number of shares of our common stock to be issued to you or any group of which you are a part upon that auto-conversion, plus the total number of shares of our common stock beneficially owned by you or any such group, would, in the absence of the deemed auto-conversion described below, exceed 19.9% of our then outstanding shares of common stock, then the principal amount of the Plus Cash Notes legally or beneficially owned by you or any such group being auto-converted shall, effective as of the close of trading on the 20^th valuation day, be deemed to have been fully auto-converted into such number of shares of our common stock which, when added to the total number of shares of our common stock beneficially owned by you or any such group would result in you or any such group beneficially owning 19.9% of our then outstanding shares of common stock. Our delivery of the these shares will satisfy our obligation to pay the principal amount of the Plus Cash Notes so auto-converted, any accrued and unpaid interest on such principal amount to the conversion date, and the make-whole payment, if any, and such accrued and unpaid interest and make-whole payment will be deemed to be paid in full and not be cancelled, extinguished or forfeited.

Auto-Conversion – Stock Substitution – Withdrawal or Modification

From and after the stock substitution period commencement date, we cannot withdraw or modify the stock substitution notice until the daily VWAP of our common stock for each of any 20 trading days during any consecutive 30 trading days is less than the stock substitution reference price then in effect.

Prior to the close of trading on The Nasdaq National Market on the stock substitution period commencement date, we may withdraw or modify the auto-conversion and stock substitution notice at any time.

Any notice of withdrawal or modification will be provided to all holders of Plus Cash Notes and will be filed with the SEC as an exhibit to a current report on Form 8-K.

Conversion Consideration Adjustment

Upon the happening of certain events, proportionate adjustment will be made, as applicable, to:

• the number of base shares into which the Plus Cash Notes are convertible;

• the auto-conversion price;

• the threshold price; or

• any calculation of the simple average of the daily VWAPs of our common stock.

These adjustment events include:

1. the issuance of shares of our common stock as a dividend or a distribution with respect to common stock;

2. certain subdivisions and combinations of our common stock, as described in the Plus Cash Notes indenture;

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3. the issuance to all holders of common stock of rights, warrants or options entitling them, for a period not exceeding 45 days, to subscribe for or purchase shares of our common stock at less than the current market price as defined in the Plus Cash Notes indenture;

4. the distribution to holders of common stock of evidences of our indebtedness, securities or capital stock, cash or assets, excluding common stock distributions covered above, those rights, warrants, options, dividends and distributions referred to above, dividends and distributions paid exclusively in cash;

5. our distribution of cash to all holders of our common stock, excluding any quarterly cash dividend on our common stock to the extent that the aggregate cash dividend per share of common stock in any quarter does not exceed the greater of:

• the amount per share of common stock of the next preceding quarterly cash dividend on the common stock to the extent that the preceding quarterly dividend did not require an adjustment of the conversion price pursuant to this clause (5), as adjusted to reflect subdivisions or combinations of the common stock, and

• 3.75% of the average of the last reported sale price of the common stock during the ten trading days immediately prior to the declaration date of the dividend, excluding any dividend or distribution in connection with the liquidation, dissolution or winding up of ViroPharma. If an adjustment is required to be made under this clause (5) as a result of a distribution that is a quarterly dividend, the adjustment would be based upon the amount by which the distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant to this clause (5). If an adjustment is required to be made under this clause (5) as a result of a distribution that is not a quarterly dividend, the adjustment would be based upon the full amount of the distribution;

6. our making a payment to holders of our common stock in respect of a tender offer or exchange offer for our common stock to the extent that the cash and value of any other consideration included in the payment per share of common stock exceeds the current market price per share of common stock on the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer; and

7. someone other than us makes a payment in respect of a tender offer or exchange offer in which, as of the closing date of the offer, our board of directors is not recommending rejection of the offer. The adjustment referred to in this clause (7) will only be made if:

• the tender offer or exchange offer is for an amount that increases the offeror’s ownership of common stock to more than 25% of the total shares of common stock outstanding, and

• the cash and value of any other consideration included in the payment per share of common stock exceeds the current market price per share of common stock on the business day next succeeding the last date on which tenders or exchanges may be made pursuant to the tender or exchange offer.

However, the adjustment referred to in this clause (7) will generally not be made if, as of the closing of the offer, the offering documents disclose a plan or an intention to cause us to engage in a consolidation or merger of ViroPharma or a sale of all or substantially all of our assets.

Under our rights plan, upon conversion of the existing notes into common stock, to the extent that the rights plan is still in effect upon conversion, you will receive, in addition to the common stock, the rights under the rights plan, subject to certain limited exceptions.

We may, from time to time, increase the number of base shares and the plus cash amount into which the Plus Cash Notes are convertible by any amount for any period of at least 20 days if our Board of Directors has determined that such increase would be in our best interests. If our Board of Directors makes such a determination, it will be conclusive. Holders will receive notice of such increase at least 15 days prior to the date the increased conversion amount becomes effective.

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In the event of:

• any reclassification of our common stock;

• a consolidation, merger or combination involving ViroPharma; or

• a sale or conveyance to another person of all or substantially all of the property and assets of ViroPharma,

in which holders of common stock would be entitled to receive stock, other securities, other property, assets or cash for their common stock, holders of existing notes will generally be entitled thereafter to convert their existing notes into the same type of consideration they would have been entitled to receive had the existing notes been converted into common stock immediately prior to one of these types of events.

This change could substantially lessen or eliminate the value of the conversion privilege associated with the Plus Cash Notes in the future. For example, if we were acquired in a cash merger each Plus Cash Note would become convertible solely into cash and would no longer be convertible into cash and/or securities whose value would vary depending on our future prospects and other factors.

In the event of a taxable distribution to holders of common stock that results in an adjustment of the conversion amount, or in which holders otherwise participate, or in the event the conversion amount is increased at our discretion, the holders of the Plus Cash Notes may, in some circumstances, be deemed to have received a distribution subject to United States federal income tax as a dividend. Moreover, in some other circumstances, the absence of an adjustment to the conversion amount may result in a taxable dividend to holders of common stock. See “United States Federal Income Tax Considerations – U.S. Holders – Tax Treatment of Ownership and Disposition of Plus Cash Notes and Common Stock – Constructive dividend.”

No adjustment to the conversion amount of the Plus Cash Notes will be required unless it would result in a change to the conversion amount of at least one percent. Any adjustment not made will be taken into account in subsequent adjustments. Except as described above in this section, we will not adjust the conversion price for any issuance of our common stock or convertible or exchangeable securities or rights to purchase our common stock or convertible or exchangeable securities.

Repurchase at Option of Holder upon Fundamental Change

In the event of any fundamental change, as defined below, of ViroPharma, each holder of Plus Cash Notes will have the right, at the holder’s option, subject to the terms and conditions of the Plus Cash Notes indenture, to require us to repurchase all or any part of the holder’s Plus Cash Notes, provided that the principal amount must be $1,000 or an integral multiple of $1,000. Each holder of Plus Cash Notes will have the right to require us to make that purchase on the date, otherwise referred to as the “repurchase date,” that is 45 business days after the occurrence of the fundamental change at a cash price equal to 100% of the principal amount, the “repurchase price,” of that holder’s Plus Cash Notes plus accrued interest to the repurchase date.

Within 30 business days after the fundamental change, we will mail to the trustee, each holder and beneficial owners as required by applicable law, a notice regarding the fundamental change, which will state, among other things:

• the date of the fundamental change and, briefly, the events causing the fundamental change;

• the date by which the holder’s written notice to ViroPharma regarding the exercise of the repurchase right must be given;

• the repurchase date;

• the repurchase price;

• the name and address of the paying agent and the conversion agent;

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• the conversion amount and any adjustments to the conversion amount;

• the procedures that holders must follow to exercise these rights;

• the procedures that holders must follow to withdraw a notice regarding the exercise of the repurchase right;

• that holders who want to convert Plus Cash Notes must satisfy the requirements provided in the Plus Cash Notes; and

• briefly, the conversion rights of holders of Plus Cash Notes.

If we do not mail the notice within 30 business days after the fundamental change, an event of default will occur under the Plus Cash Notes indenture without the lapse of additional time. We will cause a copy of the notice regarding the fundamental change to be published in The Wall Street Journal or another daily newspaper of national circulation and will post the notice on our website.

To exercise the repurchase right, the holder must deliver written notice of the exercise of the repurchase right to the paying agent or an office or agency maintained by us for that purpose in the Borough of Manhattan, the City of New York, prior to the close of business, on the repurchase date. Any such notice from the holder must state:

• the name of the holder;

• the certificate numbers of the Plus Cash Notes to be delivered by the holder of those Plus Cash Notes for purchase by us;

• the portion of the principal amount of Plus Cash Notes to be purchased, which portion must be $1,000 or an integral multiple of $1,000; and

• that the Plus Cash Notes are to be purchased by us pursuant to the applicable provisions of the Plus Cash Notes.

A holder may withdraw any notice by a written notice of withdrawal delivered to the paying agent prior to the close of business on the repurchase date. The notice of withdrawal must state the principal amount and the certificate numbers of the Plus Cash Notes as to which the withdrawal notice relates and the principal amount, if any, that remains subject to the holder’s repurchase notice.

Payment of the repurchase price for a Plus Cash Note for which a notice from the holder has been delivered and not withdrawn is conditioned upon delivery of the Plus Cash Note, together with necessary endorsements, to the paying agent or an office or agency maintained by us for that purpose in the Borough of Manhattan, the City of New York, at any time, whether prior to, on or after the repurchase date, after the delivery of the notice by the holder. Payment of the repurchase price for the Plus Cash Note will be made promptly following the later of the business day following the repurchase date and the time of delivery of the Plus Cash Note and necessary endorsements. If the paying agent holds, in accordance with the terms of the Plus Cash Notes indenture, money sufficient to pay the repurchase price of that Plus Cash Note on the repurchase date then, immediately after the repurchase date, that Plus Cash Note will cease to be outstanding and interest on that Plus Cash Note will cease to accrue and will be deemed paid, whether or not that Plus Cash Note is delivered to the paying agent, and all other rights of the holder will terminate, other than the right to receive the repurchase price upon delivery of that Plus Cash Note.

A “fundamental change” is any transaction or event in connection with which all or substantially all of our common stock will be exchanged for, converted into, acquired for or constitute solely the right to receive, consideration, whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise, which consideration is not all or substantially all common stock:

• listed on, or that will be listed on or immediately after the transaction or event on a United States national securities exchange; or

• approved for quotation on The Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices.

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We will comply with any applicable provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act in the event of a fundamental change.

These fundamental change redemption rights could discourage a potential acquiror of ViroPharma. However, this fundamental change redemption feature is not the result of management’s knowledge of any specific effort to obtain control of ViroPharma by means of a merger, tender offer or solicitation, or part of a plan by management to adopt a series of anti-takeover provisions. The term “fundamental change” is limited to certain specified transactions and may not include other events that might adversely affect our financial condition. Our obligation to offer to redeem the Plus Cash Notes upon the occurrence of a fundamental change would not necessarily afford you protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving ViroPharma.

We may be unable to redeem the Plus Cash Notes in the event of a fundamental change. If a fundamental change were to occur, we may not have enough funds to pay the redemption price for all tendered Plus Cash Notes. In addition, in certain situations, a fundamental change could result in an event of default under our current forms of indebtedness. Any future credit agreements or other agreements relating to our indebtedness may contain similar provisions, or expressly prohibit the repurchase of the Plus Cash Notes upon a fundamental change or may provide that a fundamental change constitutes an event of default under that agreement. If a fundamental change occurs at a time when we are prohibited from purchasing or redeeming Plus Cash Notes, we could seek the consent of our lenders to redeem the Plus Cash Notes or could attempt to refinance this debt. If we were not able to obtain such a consent, we could not purchase or redeem the Plus Cash Notes. Our failure to redeem tendered Plus Cash Notes would constitute an event of default under the indenture, which might constitute a default under the terms of our other indebtedness.

Optional Redemption

There is no sinking fund for the Plus Cash Notes. At any time after June 1, 2006, we will be entitled to redeem the Plus Cash Notes for cash as a whole at any time, or from time to time in part, upon not less than 30-days’ nor more than 60-days’ notice of redemption given by mail to holders of Plus Cash Notes at a redemption price equal to 100% of the principal amount so redeemed plus accrued cash interest up to but excluding the redemption date. Any redemption of the Plus Cash Notes must be in integral multiples of $1,000 principal amount.

If fewer than all of the Plus Cash Notes are to be redeemed, the trustee will select the Plus Cash Notes to be redeemed in principal amounts at maturity of $1,000 or integral multiples of $1,000 by lot, pro rata or by another method that complies with the requirements of any exchange on which the Plus Cash Notes are listed or quoted and that the trustee shall deem fair and appropriate. If a portion of a holder’s Plus Cash Notes is selected for partial redemption and that holder converts a portion of those Plus Cash Notes prior to the redemption, the converted portion will be deemed, solely for purposes of determining the aggregate principal amount of the Plus Cash Notes to be redeemed by us, to be of the portion selected for redemption.

Events of Default; Notice and Waiver

The following will be events of default under the indenture:

• we fail to pay principal upon redemption or otherwise on the Plus Cash Notes, whether or not the payment is prohibited by subordination provisions;

• we fail for 30 days to pay any interest on the Plus Cash Notes;

• we fail to perform or observe any of the covenants in the indenture for 60 days after notice; or

• certain events involving bankruptcy, insolvency or reorganization of ViroPharma.

The trustee may withhold notice to the holders of the Plus Cash Notes of any default, except defaults in payment of principal or interest on the Plus Cash Notes. However, the trustee must consider it to be in the interest of the holders of the Plus Cash Notes to withhold this notice.

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If an event of default occurs and continues, the trustee or the holders of at least 25% in principal amount of the outstanding Plus Cash Notes may declare the principal and accrued interest on the outstanding Plus Cash Notes to be immediately due and payable. In case of certain events of bankruptcy or insolvency involving ViroPharma, the principal and accrued interest on the Plus Cash Notes will automatically become due and payable. Subject to certain limitations, the holders of a majority of the principal amount of outstanding Plus Cash Notes may waive any default other than non-payment defaults. Payments of principal or interest on the Plus Cash Notes that are not made when due will accrue interest at the annual rate of 6% from the required payment date.

The holders of a majority in principal amount of outstanding Plus Cash Notes will have the right to direct the time, method and place of any proceedings for any remedy available to the trustee, subject to limitations specified in the indenture. No holder of the Plus Cash Notes may pursue any remedy under the indenture, except in the case of a default in the payment of principal or interest on the Plus Cash Notes, unless:

• the holder has given the trustee written notice of an event of default;

• the holders of at least 25% in principal amount of outstanding Plus Cash Notes make a written request, and offer reasonable indemnity, to the trustee to pursue the remedy;

• the trustee does not receive an inconsistent direction from the holders of a majority in principal amount of the Plus Cash Notes; and

• the trustee fails to comply with the request within 60 days after receipt.

Modification of the Indenture

The consent of the holders of a majority in principal amount of the outstanding Plus Cash Notes is required to modify or amend the indenture. However, a modification or amendment requires the consent of the holder of each outstanding Plus Cash Note if it would:

• extend the fixed maturity of any Plus Cash Note;

• reduce the rate or extend the time for payment of interest of any Plus Cash Note;

• reduce the principal amount of any Plus Cash Note;

• reduce any amount payable upon redemption of any Plus Cash Note;

• adversely change our obligation to redeem any Plus Cash Note upon a fundamental change;

• impair the right of a holder to institute suit for payment on any Plus Cash Note;

• change the currency in which any Plus Cash Note is payable;

• impair the right of a holder to convert any Plus Cash Note;

• cause the Plus Cash Notes to be subordinated to any of our unsecured indebtedness; or

• reduce the percentage of Plus Cash Notes required for consent to any modification of the indenture.

We are permitted to modify certain provisions of the indenture without the consent of the holders of the Plus Cash Notes.

Form, Denomination, Exchange, Transfer and Payment

We will issue the Plus Cash Notes in the form of one or more global notes. The global notes will be deposited with, or on behalf of, DTC and registered in the name of DTC or its nominee. The Plus Cash Notes will be issued in denominations of $1,000 and integral multiples of $1,000.

The principal and any interest on the Plus Cash Notes will be payable, without coupons, and the exchange of and the transfer of the Plus Cash Notes will be registrable, at our office or agency maintained for that purpose in the Borough of Manhattan, The City of New York and at any other office or agency maintained for that purpose.

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Holders may present the Plus Cash Notes for exchange, and for registration of transfer, with the form of transfer endorsed on those Plus Cash Notes, or with a satisfactory written instrument of transfer, duly executed, at the office of the appropriate securities registrar or at the office of any transfer agent designated by us for that purpose, without service charge and upon payment of any taxes and other governmental charges as described in the Plus Cash Notes indenture. We appointed the trustee of the Plus Cash Notes as securities registrar under the Plus Cash Notes indenture. We may at any time rescind designation of any transfer agent or approve a change in the location through which any transfer agent acts, provided that we maintain a transfer agent in each place of payment for the Plus Cash Notes. We may at any time designate additional transfer agents for the Plus Cash Notes.

All monies paid by us to a paying agent for the payment of principal or any interest, on any Plus Cash Note which remains unclaimed for two years after the principal, premium or interest has become due and payable may be repaid to us, and after the two-year period, the holder of that Plus Cash Note may look only to us for payment.

In the event of any redemption, we will not be required to:

• issue, register the transfer of or exchange Plus Cash Notes during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Plus Cash Notes to be redeemed and ending at the close of business on the day of that mailing; or

• register the transfer of or exchange any new note called for redemption, except, in the case of any Plus Cash Notes being redeemed in part, any portion not being redeemed.

Notices

Except as otherwise provided in the Plus Cash Notes indenture, notices to holders of Plus Cash Notes will be given by mail to the addresses of holders of the Plus Cash Notes as they appear in the security register.

Replacement of Plus Cash Notes

Any mutilated Plus Cash Note will be replaced by us at the expense of the holder upon surrender of that Plus Cash Note to the trustee. Plus Cash Notes that become destroyed, stolen or lost will be replaced by us at the expense of the holder upon delivery to the trustee of Plus Cash Notes or evidence of the destruction, loss or theft of the Plus Cash Notes satisfactory to us and the trustee. In the case of a destroyed, lost or stolen Plus Cash Note, an indemnity satisfactory to the trustee and us may be required at the expense of the holder of that Plus Cash Note before a replacement Plus Cash Note will be issued.

Prohibition on Private Transactions by Us Involving Existing Notes

For a period of 18 months following the issuance of the Plus Cash Notes, and as long as the Plus Cash Notes remain outstanding during such 18-month period, for so long as any Plus Cash Notes remain outstanding, we will be prohibited from engaging in any private or open market repurchases, debt-for-equity swaps, or similar transactions with respect to the existing notes.

Governing Law

The Plus Cash Notes indenture and the Plus Cash Notes will be governed by, and construed in accordance with, the laws of the State of New York.

Information Regarding the Trustee

U.S. Bank National Association is the trustee, securities registrar, paying agent and conversion agent under the Plus Cash Notes indenture.

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DESCRIPTION OF EXISTING NOTES

We issued the existing notes under an indenture dated as of March 1, 2000, between us and Summit Bank, as notes trustee. The following summarizes the material provisions of the existing notes and the existing notes indenture. This summary is not complete. We urge you to read the existing notes indenture because it defines your rights as a holder of the existing notes. We will provide you a copy, at no charge, if you contact us. The existing notes indenture is an exhibit to this registration statement of which this prospectus is a part. Please read “Where You Can Find More Information” on page i. Terms not defined in this description have the meanings given them in the existing notes indenture. This summary is subject to and is qualified by reference to all the provisions of the existing notes indenture. As used in this description, the words “ViroPharma,” “we,” “us” or “our” do not include any current or future subsidiary of ViroPharma Incorporated and the word “you” refers to holders of the existing notes.

General

The existing notes are general unsecured obligations of ViroPharma, subordinate in right of payment to certain current and future indebtedness. The existing notes are convertible into common stock. The existing notes are issued only in denominations of $1,000 and multiples of $1,000. The existing notes will mature on March 1, 2007 unless earlier converted, redeemed at our option or redeemed at your option upon a fundamental change.

We are not subject to any financial covenants under the existing indenture. In addition, we are not restricted under the existing indenture from paying dividends, incurring debt (including senior indebtedness), or issuing or repurchasing our securities.

You are not afforded protection in the event of a highly leveraged transaction or a fundamental change of ViroPharma under the existing indenture except for your ability to cause the existing notes to be redeemed.

Interest

The existing notes bear interest at the annual rate of 6% from March 1, 2000. We will pay interest in arrears on March 1 and September 1 of each year to record holders at the close of business on the preceding February 15 and August 15, as the case may be, except:

• that interest payable upon redemption will be paid to the person to whom principal is payable, unless the redemption date is an interest payment date; and

• as set forth in the next sentence.

In the case of any note, or portion of any note, which is converted into our common stock during the period after any record date for any interest payment but prior to the next interest payment date:

• if the existing note has been called for redemption on a redemption date that occurs during this period, we are not required to pay interest on the interest payment date;

• if the existing note is to be redeemed in connection with a fundamental change on a redemption date that occurs during this period, we are not required to pay interest on the interest payment date; or

• if otherwise, any existing note not called for redemption that is submitted for conversion during this period must also be accompanied by an amount equal to the interest due on the succeeding interest payment date on the converted principal amount, unless at the time of conversion there is a default in the payment of interest on the existing notes. See “—Conversion of Existing Notes.”

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We may pay interest either:

• by check mailed to your address as it appears in the existing note register, provided that if you are a holder with an aggregate principal amount in excess of $2.0 million, you shall be paid, at your written election, by wire transfer in immediately available funds; or

• by transfer to an account maintained by you in the United States.

However, payments to DTC, New York, New York, are made by wire transfer of immediately available funds to the account of DTC or its nominee. Interest is computed on the basis of a 360-day year composed of twelve 30-day months.

Conversion of Existing Notes

You may convert your existing note, in whole or in part, into common stock through the final maturity date of the existing notes, subject to prior redemption of the existing notes. If we call existing notes for redemption, you may convert the existing notes only until the close of business on the business day prior to the redemption date unless we fail to pay the redemption price. If you have submitted your existing notes for redemption upon a fundamental change, you may convert your existing notes only if you withdraw your redemption election. You may convert your existing notes in part so long as this part is $1,000 in principal amount or an integral multiple of $1,000. If any existing notes not called for redemption are converted after a record date for any interest payment date and prior to the next interest payment date, the existing notes so converted must be accompanied by an amount equal to the interest payable on the interest payment date on the converted principal amount unless a default exists at the time of conversion.

The initial conversion price for the existing notes is $109.15 per share of common stock, subject to adjustment as described below. We will not issue fractional shares of common stock upon conversion of existing notes. Instead, we will pay cash for such fractional shares based upon the market price of the common stock on the business day prior to the conversion date. Except as described below, you will not receive any accrued interest or dividends upon conversion.

Ranking; Subordination of Existing Notes

Payment on the existing notes will, to the extent provided in the existing indenture, be subordinated in right of payment to the prior payment in full of all of our senior indebtedness.

Upon any distribution of our assets upon any dissolution, winding up, liquidation or reorganization, the payment of the principal of, or premium, if any, interest, and liquidated damages, if any, on, the existing notes will be subordinated in right of payment to the prior payment in full in cash or other payment satisfactory to the holders of senior indebtedness of all senior indebtedness. In the event of any acceleration of the existing notes because of an event of default, the holders of any outstanding senior indebtedness would be entitled to payment in full in cash or other payment satisfactory to the holders of senior indebtedness of all senior indebtedness obligations before the holders of the existing notes are entitled to receive any payment or distribution. We are required under the existing indenture to promptly notify holders of senior indebtedness, if payment of the existing notes is accelerated because of an event of default.

We cannot make any payment on the existing notes if:

• a default in the payment of senior indebtedness occurs and is continuing beyond any applicable period of grace, which we refer to as a “payment default”; or

• a default other than a payment default on any designated senior indebtedness occurs and is continuing that permits holders of designated senior indebtedness to accelerate its maturity, or in the case of a lease, a default occurs and is continuing that permits the lessor to either terminate the lease or require us to make an irrevocable offer to terminate the lease following an event of default

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under the lease, and the trustee receives a notice of such default (called a “payment blockage notice”) from us or any other person permitted to give such notice under the existing indenture (called a “non-payment default”).

We may resume payments and distributions on the existing notes:

• in case of a payment default, upon the date on which such default is cured or waived or ceases to exist; and

• in case of a non-payment default, the earlier of the date on which such non-payment default is cured or waived or ceases to exist or 179 days after the date on which the payment blockage notice is received, if the maturity of the designated senior indebtedness has not been accelerated, or in the case of any lease, 179 days after notice is received if we have not received notice that the lessor under such lease has exercised its right to terminate the lease or require us to make an irrevocable offer to terminate the lease following an event of default under the lease.

No new period of payment blockage may be commenced pursuant to a payment blockage notice unless 365 days have elapsed since the initial effectiveness of the immediately prior payment blockage notice. No non-payment default that existed or was continuing on the date of delivery of any payment blockage notice shall be the basis for any later payment blockage notice.

If the trustee or any holder of the existing notes receives any payment or distribution of our assets in contravention of the subordination provisions on the existing notes before all senior indebtedness is paid in full in cash or other payment satisfactory to holders of senior indebtedness, then such payment or distribution will be held in trust for the benefit of, and paid over or delivered to, holders of senior indebtedness or their representatives to the extent necessary to make payment in full in cash or payment satisfactory to the holders of senior indebtedness of all unpaid senior indebtedness.

In the event of our bankruptcy, dissolution or reorganization, holders of senior indebtedness may receive more, ratably, and holders of the existing notes may receive less, ratably, than our other creditors. This subordination will not prevent the occurrence of any event of default under the existing indenture.

We are not prohibited from incurring debt, including senior indebtedness, under the existing indenture. We may from time to time incur additional debt, including senior indebtedness. The existing indenture does not limit:

• the amount of additional senior indebtedness, which we can create, incur, assume or guarantee; or

• the amount of indebtedness or other liabilities any future subsidiary can create, incur, assume or guarantee.

We are obligated to pay reasonable compensation to the trustee and to indemnify the trustee against certain losses, liabilities or expenses incurred by the trustee in connection with its duties relating to the existing notes. The trustee’s claims for these payments will generally be senior to those of noteholders in respect of all funds collected or held by the trustee.

Certain Definitions

“designated senior indebtedness” shall mean all indebtedness existing as of February 24, 2000 plus any senior indebtedness incurred after such date that expressly provides that such senior indebtedness shall be “designated senior indebtedness” for purposes of the existing indenture.

“indebtedness” means:

(1) all indebtedness, obligations and other liabilities for borrowed money, including overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans

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or advances from banks, or evidenced by bonds, debentures, notes or similar instruments, other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services;

(2) obligations with respect to letters of credit, bank guarantees or bankers’ acceptances;

(3) obligations in respect of real or personal property leases required in conformity with generally accepted accounting principles to be accounted for as capitalized lease obligations on our balance sheet;

(4) all obligations and other liabilities under any lease or related document, including purchase agreements, in connection with the lease of real property which provides that we are contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and our obligations under the lease or related document to purchase or to cause a third party to purchase the leased property;

(5) all obligations with respect to an interest rate or other swap, cap or collar agreement or foreign currency hedge, exchange or purchase agreement;

(6) all direct or indirect guaranties, our obligations or liabilities to purchase, acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of others of the type described in (1) through (5) above;

(7) any obligations described in (1) through (5) above secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by us; and

(8) any deferrals, renewals, extensions, refundings, amendments, modifications or supplements to (1) through (7) above.

“senior indebtedness” means the principal, premium, if any, interest, including any interest accruing after bankruptcy and rent or termination payment on or other amounts due on our current or future indebtedness, whether created, incurred, assumed, guaranteed or in effect guaranteed by us. However, senior indebtedness does not include:

• indebtedness that expressly provides that it shall not be senior in right of payment to the existing notes or expressly provides that it is on the same basis or junior to the existing notes; and

• the existing notes, and

• indebtedness to any subsidiary of ours which we, directly or indirectly, own the majority of the subsidiary’s voting stock.

Procedures Required for Conversion

To convert your existing note into common stock you must:

• complete and manually sign the conversion notice on the back of the existing note or a facsimile of the conversion notice and deliver this notice to the conversion agent;

• surrender the existing note to the conversion agent;

• if required, furnish appropriate endorsements and transfer documents;

• if required, pay all transfer or similar taxes; and

• if required, pay funds equal to interest payable on the next interest payment date.

The date you comply with these requirements is the conversion date under the existing indenture.

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Conversion Consideration Adjustment

We will adjust the conversion price if the following events occur:

(1) we issue common stock as a dividend or distribution on our common stock;

(2) we issue to all holders of common stock certain rights or warrants to purchase our common stock;

(3) we subdivide or combine our common stock;

(4) we distribute to all common stock holders capital stock, evidences of indebtedness or assets, including securities but excluding:

• rights or warrants listed in (2) above,

• dividends or distributions listed in (1) above, and

• cash distributions listed in (5) below;

(5) we distribute cash to all holders of our common stock, excluding any quarterly cash dividend on our common stock to the extent that the aggregate cash dividend per share of common stock in any quarter does not exceed the greater of:

• the amount per share of common stock of the next preceding quarterly cash dividend on the common stock to the extent that the preceding quarterly dividend did not require an adjustment of the conversion price pursuant to this clause (5), as adjusted to reflect subdivisions or combinations of the common stock, and

• 3.75% of the average of the last reported sale price of the common stock during the ten trading days immediately prior to the declaration date of the dividend, excluding any dividend or distribution in connection with the liquidation, dissolution or winding up of ViroPharma.

If an adjustment is required to be made under this clause (5) as a result of a distribution that is a quarterly dividend, the adjustment would be based upon the amount by which the distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant to this clause (5). If an adjustment is required to be made under this clause (5) as a result of a distribution that is not a quarterly dividend, the adjustment would be based upon the full amount of the distribution;

(6) we make a payment in respect of a tender offer or exchange offer for our common stock to the extent that the cash and value of any other consideration included in the payment per share of common stock exceeds the current market price per share of common stock on the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer; and

(7) someone other than us makes a payment in respect of a tender offer or exchange offer in which, as of the closing date of the offer, our board of directors is not recommending rejection of the offer. The adjustment referred to in this clause (7) will only be made if:

• the tender offer or exchange offer is for an amount that increases the offeror’s ownership of common stock to more than 25% of the total shares of common stock outstanding, and

• the cash and value of any other consideration included in the payment per share of common stock exceeds the current market price per share of common stock on the business day next succeeding the last date on which tenders or exchanges may be made pursuant to the tender or exchange offer.

However, the adjustment referred to in this clause (7) will generally not be made if, as of the closing of the offer, the offering documents disclose a plan or an intention to cause us to engage in a consolidation or merger of ViroPharma or a sale of all or substantially all of our assets.

Under our rights plan, upon conversion of the existing notes into common stock, to the extent that the rights plan is still in effect upon conversion, you will receive, in addition to the common stock, the rights under the rights plan, subject to certain limited exceptions.

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In the event of:

• any reclassification of our common stock;

• a consolidation, merger or combination involving ViroPharma; or

• a sale or conveyance to another person of all or substantially all of the property and assets of ViroPharma,

in which holders of common stock would be entitled to receive stock, other securities, other property, assets or cash for their common stock, holders of existing notes will generally be entitled thereafter to convert their existing notes into the same type of consideration they would have been entitled to receive had the existing notes been converted into common stock immediately prior to one of these types of events.

You may in certain situations be deemed to have received a distribution subject to United States federal income tax as a dividend in the event of any taxable distribution to holders of common stock or in certain other situations requiring a conversion price adjustment. See “Certain Federal Income Tax Considerations.”

We may from time to time reduce the conversion price for a period of at least 20 days if our board of directors has made a determination that this reduction would be in our best interests. Any such determination by our board will be conclusive. We would give holders at least 15 days’ notice of any reduction in the conversion price. In addition, we may reduce the conversion price if our board of directors deems it advisable to avoid or diminish any income tax to holders of common stock resulting from any stock or rights distribution.

We will not be required to make an adjustment in the conversion price unless the adjustment would require a change of at least 1% in the conversion price. However, we will carry forward any adjustments that are less than one percent of the conversion price. Except as described above in this section, we will not adjust the conversion price for any issuance of our common stock or convertible or exchangeable securities or rights to purchase our common stock or convertible or exchangeable securities.

Optional Redemption by ViroPharma

The existing notes are not entitled to any sinking fund. We may redeem the existing notes, in whole or in part, at the following prices expressed as a percentage of the principal amount:

Period	Redemption Price
Beginning on March 1, 2004 and ending on February 28, 2005	102.571	%
Beginning on March 1, 2005 and ending on February 28, 2006	101.714	%
Beginning on March 1, 2006 and ending on February 28, 2007	100.857	%

and 100% at March 1, 2007. In each case, we will pay interest to, but excluding, the redemption date. If the redemption date is an interest payment date, interest shall be paid to the record holder on the relevant record date. We are required to give notice of redemption by mail to holders not more than 60 but not less than 30 days prior to the redemption date.

If less than all of the outstanding existing notes are to be redeemed, the trustee shall select the existing notes to be redeemed in principal amounts of $1,000 or integral multiples of $1,000 by lot, pro rata or by another method the trustee considers fair and appropriate. If a portion of your existing notes is selected for partial redemption and you convert a portion of your existing notes, the converted portion shall be deemed to be of the portion selected for redemption.

We may not redeem the existing notes if we have failed to pay any interest or premium on the existing notes and such failure to pay is continuing. We will issue a press release if we redeem the existing notes.

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Redemption at Option of the Holder

If a fundamental change occurs prior to March 1, 2007, you may require us to redeem your existing notes, in whole or in part, on a repurchase date that is 30 days after the date of our notice of the fundamental change. The existing notes will be redeemable in multiples of $1,000 principal amount. We shall redeem the existing notes at a price equal to 100% of the principal amount to be redeemed, plus accrued interest to, but excluding, the repurchase date. If the repurchase date is an interest payment date, we will pay interest to the record holder on the relevant record date.

We will mail to all record holders a notice of the fundamental change within 10 days after the occurrence of the fundamental change. We are also required to deliver to the trustee a copy of the fundamental change notice and issue a press release announcing the fundamental change. If you elect to redeem your existing notes, you must deliver to us or our designated agent, on or before the 30th day after the date of our fundamental change notice, your redemption notice and any existing notes to be redeemed, duly endorsed for transfer. We will promptly pay the redemption price for existing notes surrendered for redemption following the repurchase date.

A “fundamental change” is any transaction or event in connection with which all or substantially all of our common stock will be exchanged for, converted into, acquired for or constitute solely the right to receive, consideration, whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise, which consideration is not all or substantially all common stock:

• listed on, or that will be listed on or immediately after the transaction or event on a United States national securities exchange; or

• approved for quotation on The Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices.

We will comply with any applicable provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act in the event of a fundamental change.

These fundamental change redemption rights could discourage a potential acquiror of ViroPharma. However, this fundamental change redemption feature is not the result of management’s knowledge of any specific effort to obtain control of ViroPharma by means of a merger, tender offer or solicitation, or part of a plan by management to adopt a series of anti-takeover provisions. The term “fundamental change” is limited to certain specified transactions and may not include other events that might adversely affect our financial condition. Our obligation to offer to redeem the existing notes upon the occurrence of a fundamental change would not necessarily afford you protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving ViroPharma.

We may be unable to redeem the existing notes in the event of a fundamental change. If a fundamental change were to occur, we may not have enough funds to pay the redemption price for all tendered existing notes. In addition, in certain situations, a fundamental change could result in an event of default under our current forms of indebtedness. Any future credit agreements or other agreements relating to our indebtedness may contain similar provisions, or expressly prohibit the repurchase of the existing notes upon a fundamental change or may provide that a fundamental change constitutes an event of default under that agreement. If a fundamental change occurs at a time when we are prohibited from purchasing or redeeming existing notes, we could seek the consent of our lenders to redeem the existing notes or could attempt to refinance this debt. If we were not able to obtain such a consent, we could not purchase or redeem the existing notes. Our failure to redeem tendered existing notes would constitute an event of default under the existing indenture, which might constitute a default under the terms of our other indebtedness. In such circumstances, or if a fundamental change would constitute an event of default under our senior indebtedness, the subordination provisions of the existing indenture would restrict payments to the holders of existing notes.

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Events of Default; Notice and Waiver

The following constitute events of default under the existing indenture:

• we fail to pay principal or premium, if any, upon redemption or otherwise on the existing notes, whether or not the payment is prohibited by subordination provisions;

• we fail for 30 days to pay any interest and liquidated damages, if any, on the existing notes, whether or not the payment is prohibited by subordination provisions of the existing indenture;

• we fail to perform or observe any of the covenants in the existing indenture for 60 days after notice; or

• certain events involving bankruptcy, insolvency or reorganization of ViroPharma.

The trustee may withhold notice to the holders of the existing notes of any default, except defaults in payment of principal, premium, interest or liquidated damages, if any, on the existing notes. However, the trustee must consider it to be in the interest of the holders of the existing notes to withhold this notice.

If an event of default occurs and continues, the trustee or the holders of at least 25% in principal amount of the outstanding existing notes may declare the principal, premium, and accrued interest and liquidated damages, if any, on the outstanding existing notes to be immediately due and payable. In case of certain events of bankruptcy or insolvency involving ViroPharma, the principal, premium and accrued interest and liquidated damages, if any, on the existing notes will automatically become due and payable. Subject to certain limitations, the holders of a majority of the principal amount of outstanding existing notes may waive any default other than non-payment defaults. Payments of principal, premium, or interest on the existing notes that are not made when due will accrue interest at the annual rate of 6% from the required payment date.

The holders of a majority of outstanding existing notes will have the right to direct the time, method and place of any proceedings for any remedy available to the trustee, subject to limitations specified in the existing indenture. No holder of the existing notes may pursue any remedy under the existing indenture, except in the case of a default in the payment of principal, premium or interest on the existing notes, unless:

• the holder has given the trustee written notice of an event of default;

• the holders of at least 25% in principal amount of outstanding existing notes make a written request, and offer reasonable indemnity, to the trustee to pursue the remedy;

• the trustee does not receive an inconsistent direction from the holders of a majority in principal amount of the existing notes; and

• the trustee fails to comply with the request within 60 days after receipt.

Modification of the Existing Indenture

The consent of the holders of a majority in principal amount of the outstanding existing notes is required to modify or amend the existing indenture. However, a modification or amendment requires the consent of the holder of each outstanding existing note if it would:

• extend the fixed maturity of any note;

• reduce the rate or extend the time for payment of interest of any note;

• reduce the principal amount or premium of any note;

• reduce any amount payable upon redemption of any note;

• adversely change our obligation to redeem any existing note upon a fundamental change;

• impair the right of a holder to institute suit for payment on any note;

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• change the currency in which any existing note is payable;

• impair the right of a holder to convert any note;

• adversely modify the subordination provisions of the existing indenture; or

• reduce the percentage of existing notes required for consent to any modification of the existing indenture.

We are permitted to modify certain provisions of the existing indenture without the consent of the holders of the existing notes.

Form, Denomination and Registration

The existing notes were issued:

• in fully registered form;

• without interest coupons; and

• in denominations of $1,000 principal amount and integral multiples of $1,000.

Governing Law

The existing notes indenture, the existing notes and the registration rights agreement are governed by, and construed in accordance with, the laws of the State of New York.

Global Note, Book-Entry Form

Existing notes sold to “qualified institutional buyers” as defined in Rule 144A under the Securities Act, whom we refer to as QIBs, are evidenced by one or more global existing notes. We deposited the global existing note or existing notes with DTC and registered the global existing notes in the name of Cede & Co. as DTC’s nominee. Except as set forth below, a global existing note may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee.

We will pay interest on and the redemption price of a global existing note to Cede & Co., as the registered owner of the global existing note (even if an existing note in certified form is issued in exchange for any portion of the global existing note on or after any record date and before the next interest payment date), by wire transfer of immediately available funds on each interest payment date or the redemption or repurchase date, as the case may be. Neither we, the trustee nor any paying agent will be responsible or liable:

• for the records relating to, or payments made on account of, beneficial ownership interests in a global note; or

• for maintaining, supervising or reviewing any records relating to the beneficial ownership interests.

Certificated Existing Notes

Existing notes sold to investors that are institutional accredited investors were issued in certificated form. In addition, QIBs may request that certificated existing notes be issued in exchange for existing notes represented by a global note.

Information Regarding the Trustee

Bank of New York (successor-in-interest to Summit Bank) is the existing notes trustee, securities registrar, paying agent, conversion agent, note registrar and custodian for the existing notes under the existing notes indenture.

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DESCRIPTION OF CAPITAL STOCK

The following is a summary of certain matters with respect to our capital stock. Because it is only a summary, it does not contain all information that may be important to you. Therefore, you should read the more detailed provisions of our certificate of incorporation and by-laws carefully, which are incorporated as exhibits to this registration statement of which this prospectus is a part.

General

As of the date of this prospectus, our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.002 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share, of which 200,000 shares are designated as Series A Junior Participating Preferred Stock in connection with our stockholder rights agreement. No other classes of capital stock are authorized under our certificate of incorporation. The issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and nonassessable.

Common Stock

As of April 1, 2004, there were 26,509,714 shares of common stock outstanding held of record by 729 stockholders.

The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Elections of directors are determined by a plurality of the votes cast and the board of directors is divided into three classes, each as nearly equal in number as possible. Our certificate of incorporation may be amended as permitted by law. Except as otherwise required by law, all other matters are determined by a majority of the votes cast. Holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of funds legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Upon our liquidation, dissolution or winding up, subject to any preferential liquidation rights of outstanding preferred stock, the holders of our common stock are entitled to receive ratably our net assets available after the payment of all debts and other liabilities. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of our common stock are fully paid and nonassessable. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of preferred stock that we have designated and issued and any series of preferred stock which we may designate and issue in the future.

Preferred Stock

As of April 1, 2004, there were no shares of preferred stock outstanding other than rights to purchase 200,000 shares of series A junior participating preferred stock in connection with our stockholder rights plan.

Pursuant to our certificate of incorporation, our board of directors has the authority, without further action by the holders of our common stock, to issue 5,000,000 shares of preferred stock from time to time in such series and with such preferences and rights as it may designate. To date, we have reserved for issuance 200,000 shares of series A junior participating preferred stock. Thus, we may issue an additional 4,800,000 shares of preferred stock. The preferences and rights of any such additional preferred stock may be superior to those of the holders of our common stock. For example, the holders of preferred stock may be given a preference in payment upon our liquidation, or for the payment or accumulation of dividends before any distributions are made to the holders of common stock. We have no plans, agreements or understandings for the issuance of any shares of any additional series of preferred stock.

Warrants

Pursuant to an investment agreement dated May 5, 1999 with PSV, L.P., we issued warrants exercisable for 595,000 shares of our common stock. The warrants were issued in connection with the sale to PSV of series A preferred stock. All of the shares of series A preferred stock sold to PSV have been converted. The warrant is

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exercisable at a price of $9.53 per share and expires on May 5, 2004. The number of shares of common stock purchasable under the warrant and the exercise price of the warrant are subject to adjustment in the event of certain recapitalizations, reorganizations, stock splits and combinations.

Indemnification and Limitation of Liability

Our certificate of incorporation provides that our directors shall not be personally liable to us or our stockholders for monetary damages for a breach of fiduciary duty as a director, except for liability:

• for any breach of such person’s duty of loyalty to us or our stockholders;

• for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law;

• for the payment of unlawful dividends and certain other actions prohibited by Delaware corporate law; and

• for any transaction resulting in receipt by such person of an improper personal benefit.

In addition, our by-laws provide for the indemnification, to the full extent authorized by law, of any person made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person is or was one of our directors, officers or employees, or serves or served any other enterprise as a director, officer or employee at our request.

We have obtained a directors’ and officers’ liability insurance policy which provides our directors and officers with insurance coverage for losses arising from claims based on breaches of duty, negligence, error and other wrongful acts. In March 2004, we entered into an agreement in principle with plaintiffs’ counsel to settle the stockholder litigation described under “Risk Factors – Legal proceedings could require us to spend substantial amounts of money and impair our operations” above. The proposed settlement will be paid from our directors’ and officers’ liability insurance policy and will not result in the payment of any funds by us. However, the proposed settlement is subject to the approval of the court. If the proposed settlement is not approved by the court, then the range of possible resolutions of these proceedings could include judgments against us or our directors or officers or settlements that could require substantial payments by us which may not be covered by our directors’ and officers’ liability insurance policy.

Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law

Our certificate of incorporation and by-laws include several provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control of ViroPharma or our management. First, our board of directors is divided into three classes, each nearly equal in number. Under Delaware law, directors of a corporation with a classified board may be removed only for cause unless the corporation’s certificate of incorporation provides otherwise. Our certificate of incorporation does not provide otherwise. Each class of directors will serve for a term of three years and until their successors have been elected and qualified. Accordingly, our officers and directors and related stockholders who hold a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election and may exert considerable influence over our management and policies and all matters requiring stockholder approval, including fundamental transactions.

In addition, our board of directors has the ability to establish the rights of, and to issue, substantial amounts of preferred stock without the need for stockholder approval, which preferred stock may be used to create voting impediments. These and other provisions of our certificate of incorporation and by-laws and the Delaware law could discourage potential acquisition proposals and could delay or prevent a change in control of ViroPharma or our management.

Stockholder Rights Plan

On September 10, 1998, our board of directors adopted a stockholder rights plan and, in connection with that plan, designated 200,000 shares of series A junior participating preferred stock. Under this plan, a preferred

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share purchase right was issued as a dividend on each outstanding share of our common stock as of September 17, 1998. This preferred share purchase right entitles its holder to purchase from us a unit consisting of 1/100th of a share of our series A junior participating preferred stock at an exercise price of $125 per unit, subject to adjustment. Each unit carries voting and dividend rights that are intended to produce the equivalent of one share of common stock. These rights expire on September 10, 2008.

The preferred share purchase rights granted under the stockholder rights plan will be exercisable and will trade separately from our common stock only if a person or group acquires beneficial ownership of 20% or more of our common stock or commences a tender or exchange offer that would result in such a person or group owning 20% or more of our common stock. Only when one or more of these events occur will stockholders receive certificates for the rights granted under the stockholder rights plan.

If any person actually acquires 20% or more of our common stock, either through a tender or exchange offer for our common stock at a price and on terms that provide fair value to all stockholders or if a holder of 20% or more of our common stock engages in certain “self-dealing” transactions or engages in a merger or other business combination in which we survive and our common stock remains outstanding, the other holders of our common stock will be able to exercise their preferred share purchase rights and receive shares of our common stock having a value equal to double the exercise price of the right. Additionally, if we are involved in certain other mergers where our shares are exchanged or certain major sales of our assets occur, the holders of our common stock will be able to exercise their preferred share purchase rights and receive shares of the acquiring company having a value equal to double the exercise price of the right. In either case, the holders of the rights may, in lieu of exercise, surrender the rights in exchange for one-half of the amount of securities otherwise purchasable. Upon the occurrence of any of these events, the preferred share purchase rights will no longer be exercisable into series A junior participating preferred stock.

We will be entitled to redeem the preferred share purchase rights at $.01 per right at any time until the 10th day following a public announcement that a person has acquired a 20% ownership position in our common stock. In our discretion, we may extend the period during which we can redeem these rights.

Stock Purchase Agreement

In December 1999, we entered into a stock purchase agreement with American Home Products Corporation in connection with our collaboration and license agreement with them. Under the stock purchase agreement, American Home Products Corporation is obligated to purchase from us shares of our common stock at a market value premium at the time of completion of certain product development stages.

Transfer Agent and Registrar

The transfer agent and registrar for the shares of common stock being offered is StockTrans, Inc.

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BOOK-ENTRY SYSTEM – THE DEPOSITORY TRUST COMPANY

The Depository Trust Company, or DTC, will act as depository for the Plus Cash Notes. The certificates representing the Plus Cash Notes will be in fully registered, global form without interest coupons registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. Ownership of beneficial interests in a global note will be limited to persons who have accounts with DTC (“participants”) or persons who hold interests through participants. Ownership of beneficial interests in a global note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants).

So long as DTC or its nominee is the registered owner or holder of the global notes, DTC or such nominee, as the case may be, will be considered the sole record owner or holder of the Plus Cash Notes represented by such global notes for all purposes under the Plus Cash Notes indenture. No beneficial owner of an interest in the global notes will be able to transfer that interest except in accordance with DTC’s applicable procedures, in addition to those provided for under the Plus Cash Notes indenture.

DTC has advised us as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds the Plus Cash Notes that its participants deposit with DTC. DTC also facilitates the settlement among participants of Plus Cash Notes transactions, such as transfers and pledges, in deposited Plus Cash Notes through electronic computerized book-entry changes in participants’ accounts, thereby eliminating the need for physical movement of Plus Cash Notes certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its participants and by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. The rules applicable to DTC and its participants are on file with the SEC.

Purchases of Plus Cash Notes under the DTC system must be made by or through participants, which will receive a credit for the Plus Cash Notes on DTC’s records. The beneficial ownership interest of each actual purchaser of each new note is in turn to be recorded on the participants’ records. Beneficial owners will not receive written confirmation from DTC of their purchase, but they are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the participant through which the beneficial owner entered into the transaction. Transfers of ownership interests in the Plus Cash Notes are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in Plus Cash Notes, except in the event that use of the book-entry system for the Plus Cash Notes is discontinued.

To facilitate subsequent transfers, all Plus Cash Notes deposited by participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Plus Cash Notes with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the Plus Cash Notes; DTC’s records reflect only the identity of the participants to whose accounts such Plus Cash Notes are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to participants and by participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial owners of Plus Cash Notes may wish to take certain steps to

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augment transmission to them of notices of significant events with respect to the Plus Cash Notes, such as redemptions, tenders, defaults, and proposed amendments to the Plus Cash Notes documents. Beneficial owners of Plus Cash Notes may wish to ascertain that the nominee holding the Plus Cash Notes for their benefit has agreed to obtain and transmit notices to beneficial owners, or in the alternative, beneficial owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

Payments of the principal of and interest on the global notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. We understand that DTC’s practice is to credit participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from us or the Plus Cash Notes trustee on a payable date in accordance with their respective holdings shown on DTC’s records. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such participant and not of DTC, the Plus Cash Notes trustee, or us, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividends to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is our responsibility or the responsibility of the Plus Cash Notes trustee, disbursement of such payments to participants shall be the responsibility of DTC, and disbursement of such payments to the beneficial owners shall be the responsibility of participants.

We will send any redemption notices to Cede & Co. We understand that if less than all of the Plus Cash Notes are being redeemed, DTC’s practice is to determine by lot the amount of the holdings of each participant to be redeemed. We also understand that neither DTC nor Cede & Co. will consent or vote with respect to the Plus Cash Notes. We have been advised that under its usual procedures, DTC will mail an “omnibus proxy” to us as soon as possible after the record date. The omnibus proxy assigns Cede & Co.’s consenting or voting rights to those participants to whose accounts the Plus Cash Notes are credited on the record date identified in a listing attached to the omnibus proxy.

A beneficial owner shall give notice to elect to have its Plus Cash Notes purchased or tendered, through its participant, to the Plus Cash Notes trustee, and shall effect delivery of such Plus Cash Notes by causing the participant to transfer the participant’s interest in the Plus Cash Notes, on DTC’s records, to the Plus Cash Notes trustee. The requirement for physical delivery of Plus Cash Notes in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Plus Cash Notes are transferred by participants on DTC’s records and followed by a book-entry credit of tendered Plus Cash Notes to the Plus Cash Notes trustee DTC account.

DTC may discontinue providing its services as Plus Cash Notes depositary with respect to the Plus Cash Notes at any time by giving reasonable notice to us or the Plus Cash Notes trustee. If DTC is at any time unwilling or unable to continue as a depositary for the global notes and a successor depositary is not appointed within 90 days, we will issue definitive, certificated original Plus Cash Notes in exchange for the global notes.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.

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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain material U.S. federal income tax consequences or potential consequences relating to the exchange offer, the new money offering, and the ownership and disposition of the Plus Cash Notes and common stock received in connection with the Plus Cash Notes. This summary is for general purposes only; it does not address all potential tax considerations, and it does not provide a complete or detailed discussion of the matters that are discussed below. This summary is based upon provisions of the Internal Revenue Code of 1986, as amended, or the “Code,” the Treasury Regulations, and judicial and administrative interpretations of the Code and Treasury Regulations, all as in effect as of the date hereof, and all of which are subject to change (possibly on a retroactive basis) or to different interpretation. There can be no assurance that the Internal Revenue Service, or the “IRS,” will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to such consequences.

This summary applies only to holders that acquire Plus Cash Notes pursuant to the exchange offer or that purchase Plus Cash Notes in the new money offering at their issue price. As used herein, a “U.S. holder” means a beneficial owner who is: (a) a citizen or resident (within the meaning of Section 7701(b) of the Code) of the United States, (b) a corporation (including a non-corporate entity taxable as a corporation), formed under the laws of the United States or any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source and (d) a trust subject to the primary supervision of a court within the United States and the control of one or more U.S. persons with respect to substantial trust decisions. A “non-U.S. holder” means a beneficial owner other than a U.S. holder. Special rules apply to non-U.S. holders. This summary describes some, but not all, of these special rules. If a partnership is a beneficial holder of Plus Cash Notes (or common stock received in connection with the Plus Cash Notes), the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership.

This summary assumes that U.S. holders hold the Plus Cash Notes or common stock as capital assets within the meaning of Section 1221 of the Code. This summary also assumes that the Plus Cash Notes will be treated as indebtedness for U.S. federal income tax purposes, and that the existing notes are so treated as well. This summary generally does not address tax considerations that may be relevant to particular investors because of their specific circumstances, or because they are subject to special rules. Finally, this summary does not describe the effect of the U.S. federal estate and gift tax laws on U.S. holders or the effects of any applicable foreign, state or local laws.

We intend to treat the Plus Cash Notes as indebtedness for U.S. federal income tax purposes. Such characterization is binding on us, but not on the IRS or a court. Under the U.S. federal income tax rules, each holder of a Plus Cash Note must also treat the Plus Cash Notes as indebtedness, unless such holder makes adequate disclosure on such holder’s U.S. federal income tax return. However, by participating in the exchange offer or the new money offering, each holder agrees to treat the Plus Cash Notes as indebtedness.

INVESTORS CONSIDERING EITHER THE EXCHANGE OF EXISTING NOTES IN THE EXCHANGE OFFER OR THE PURCHASE OF PLUS CASH NOTES IN THE NEW MONEY OFFERING SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX CONSEQUENCES OF THE EXCHANGE OFFER, THE OWNERSHIP AND DISPOSITION OF THE PLUS CASH NOTES AND THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK UNDER U.S. FEDERAL TAX LAWS AND APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS.

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U.S. Holders

Treatment of Exchange Offer

In general. The tax treatment of a U.S. holder’s exchange of existing notes for Plus Cash Notes pursuant to the exchange offer will depend on whether that exchange is treated as a “recapitalization” pursuant to Section 368(a)(1)(E) of the Code.

If the exchange of existing notes for Plus Cash Notes constitutes a recapitalization, a U.S. holder generally: (a) will not recognize gain or loss on the exchange; (b) will have a tax basis in the Plus Cash Notes equal to the U.S. holder’s adjusted tax basis in the existing notes exchanged therefor; and (c) will have a holding period for the Plus Cash Notes that includes the period during which the U.S. holder held the existing notes. If the exchange is a recapitalization, it is anticipated that a U.S. holder who receives cash in lieu of a fractional Plus Cash Note generally will recognize gain or loss on the payment for such fractional Plus Cash Note equal to the difference between (i) the cash received for such fractional Plus Cash Note and (ii) the U.S. holder’s adjusted tax basis attributable thereto.

If the exchange of existing notes for Plus Cash Notes does not constitute a recapitalization, a U.S. holder generally: (a) will recognize gain or loss on the exchange of existing notes for Plus Cash Notes equal to the difference between (i) the issue price of the Plus Cash Notes determined as described below, and (ii) the U.S. holder’s adjusted tax basis in the existing notes exchanged for Plus Cash Notes; (b) will have a tax basis in the Plus Cash Notes equal to the issue price of the Plus Cash Notes; and (c) will have a holding period for the Plus Cash Notes commencing on the day after the date on which this exchange offer expires. Any gain or loss recognized by a U.S. holder generally will be long-term capital gain or loss if the U.S. holder has held the existing notes as capital assets for more than one year. See “—U.S. Holders—Sale, exchange, conversion or redemption of the Plus Cash Notes” below, with respect to certain consequences of capital gain or loss treatment. However, under the market discount rules, any gain recognized by a U.S. holder will be ordinary income to the extent of any accrued market discount which has not previously been included in income.

The cash payments received by exchanging U.S. holders of existing notes that are attributable to accrued interest on those existing notes are taxable to such U.S. holders as ordinary income, to the extent not previously included in income.

The exchange will be treated as a recapitalization only if both the existing notes and the Plus Cash Notes constitute “securities” within the meaning of the provisions of the Code governing reorganizations. This, in turn, depends upon the interpretation of applicable Code and administrative provisions and numerous judicial decisions, none of which specifically control the facts of this exchange. Holders should consult their tax advisors on the issue.

Tax Treatment of Ownership and Disposition of Plus Cash Notes and Common Stock

Treatment of Plus Cash Notes as contingent payment debt instruments

We intend to treat the Plus Cash Notes as contingent payment debt instruments, subject to the Treasury Regulations governing contingent payment debt instruments, which we refer to as the “contingent debt regulations.” We have not sought or received an IRS ruling or an opinion of counsel concerning our intended tax treatment of the Plus Cash Notes. Pursuant to the terms of the indenture, we and every holder agree (in the absence of administrative pronouncement or judicial ruling to the contrary), for U.S. federal income tax purposes, to treat the Plus Cash Notes as debt instruments that are subject to the contingent debt regulations and to be bound by our application of the contingent debt regulations to the Plus Cash Notes, including our determination of the rate at which interest will be deemed to accrue on the Plus Cash Notes and the related “projected payment schedule” determined by us as described below.

The proper application of the contingent debt regulations to the Plus Cash Notes is not entirely certain, and no assurance can be given that the IRS will not assert that the Plus Cash Notes should be treated differently. A

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different treatment from that described below could affect the amount, timing, source and character of income, gain or loss with respect an investment in the Plus Cash Notes. Holders should consult their tax advisors concerning the tax treatment of holding a Plus Cash Note.

The remainder of this discussion assumes that that Plus Cash Notes will be treated as indebtedness subject to the contingent debt regulations.

Accrual of interest on the Plus Cash Notes

Pursuant to the contingent debt regulations, U.S. holders of the Plus Cash Notes will be required to accrue interest income on the Plus Cash Notes on a constant-yield basis, as described below, regardless of whether such holders use the cash or accrual method of tax accounting.

The contingent debt regulations provide that a U.S. holder must accrue an amount of ordinary interest income, as original issue discount for U.S. federal income tax purposes, for each accrual period prior to and including the maturity date of the Plus Cash Notes that equals:

1. the product of (i) the adjusted issue price, as defined below, of the Plus Cash Notes as of the beginning of the accrual period and (ii) the comparable yield to maturity, as defined below, of the Plus Cash Notes, adjusted for the length of the accrual period;

2. divided by the number of days in the accrual period; and

3. multiplied by the number of days during the accrual period that the U.S. holder held the Plus Cash Notes.

A Plus Cash Note’s issue price is the first price at which a substantial amount of the Plus Cash Notes is sold to the public, excluding sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. The adjusted issue price of a Plus Cash Note is its issue price increased by any interest income previously accrued, determined without regard to any adjustments to interest accruals described below, and decreased by the projected amount of any payments previously made with respect to the Plus Cash Notes.

The term “comparable yield” generally means the annual yield we would pay, as of the initial issue date, on a fixed-rate, nonconvertible debt security with no contingent payments, but with terms and conditions otherwise comparable to those of the Plus Cash Notes. However, in the case of a debt instrument which (i) provides for one or more contingent payments not based on market information and (ii) is part of an issue that is marketed or sold in substantial part to persons for whom the inclusion of interest on such debt instrument is not expected to have a substantial effect on their U.S. tax liability, the comparable yield is presumed to be the applicable federal rate, or “AFR” (based on the overall maturity of the debt instrument), unless the taxpayer can establish by clear and convincing evidence that the comparable yield for the debt instrument should be a specific yield that is higher than the AFR. We do not believe that we can overcome the presumption that the comparable yield for the Plus Cash Notes should be the AFR. Nevertheless, because the stated rate on the Plus Cash Notes (6% per annum, paid semiannually) is greater than the AFR (a midterm adjusted rate of 2.33%, compounded semiannually), we believe that it may not be appropriate to use the AFR as the comparable yield for the Plus Cash Notes. As a result, we intend to take the position that the comparable yield for the Plus Cash Notes is equal to the stated rate, which is 6% per annum.

We cannot discount the possibility that the IRS would take a contrary position or that a court would disagree with the conclusions herein, including the application of the AFR presumption. If the IRS were to assert successfully that the AFR presumption did not apply or were overcome, U.S. holders may be required to include in income interest on the Plus Cash Notes at a rate substantially in excess of the stated rate. We urge prospective investors to consult their own tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of the Plus Cash Notes in light of their own particular circumstances, including the tax consequences under state, local, foreign and other tax laws and the possible effects of changes in the U.S. federal or other tax laws.

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The contingent debt regulations require that we provide to U.S. holders, solely for U.S. federal income tax purposes, a schedule of the projected amounts of payments, which we refer to as the “projected payment schedule,” on the Plus Cash Notes. This schedule must produce a yield to maturity that equals the comparable yield. The projected payment schedule includes estimates for certain contingent interest payments and an estimate for a payment at maturity taking into account the conversion feature. In this connection, the fair market value of any common stock (and cash, if any) received by a holder upon conversion will be treated as a contingent payment. The comparable yield and the projected payment schedule will be set forth in the indenture. U.S. holders also may obtain the projected payment schedule by submitting a written request for such information to us at: ViroPharma Incorporated, 405 Eagleview Boulevard, Exton, Pennsylvania 19341, Attn: Chief Financial Officer.

By purchasing the Plus Cash Notes, U.S. holders agree in the indenture to be bound by our determination of the comparable yield and projected payment schedule. For U.S. federal income tax purposes, a U.S. holder must use the comparable yield and projected payment schedule in determining its interest accruals, and the adjustments thereto described below, in respect of the Plus Cash Notes.

The comparable yield and the projected payment schedule are not used for any purpose other than to determine a holder’s interest accruals and adjustments thereto in respect of the Plus Cash Notes for U.S. federal income tax purposes. They do not constitute a projection or representation regarding the actual amounts payable on the Plus Cash Notes.

Adjustments to interest accruals on Plus Cash Notes

If, during any taxable year, a U.S. holder of Plus Cash Notes receives actual payments with respect to such Plus Cash Notes that, in the aggregate, exceed the total amount of projected payments for that taxable year, the U.S. holder will incur a “net positive adjustment” under the contingent debt regulations equal to the amount of such excess. The U.S. holder will treat a “net positive adjustment” as additional interest income. For this purpose, the payments in a taxable year include the fair market value of property (including any interest or make-whole payment paid in common stock, and common stock received upon conversion or repurchase of the Plus Cash Notes) received in that year.

If a U.S. holder receives in a taxable year actual payments with respect to the Plus Cash Notes that, in the aggregate, are less than the amount of projected payments for that taxable year, the U.S. holder will incur a “net negative adjustment” under the contingent debt regulations equal to the amount of such deficit. This negative adjustment will (a) reduce the U.S. holder’s interest income on the Plus Cash Notes for that taxable year, and (b) to the extent of any excess after the application of (a), give rise to an ordinary loss to the extent of the U.S. holder’s interest income on the Plus Cash Notes during prior taxable years, reduced to the extent such interest was offset by prior net negative adjustments. Any negative adjustment in excess of the amounts described in (a) and (b) will be carried forward to offset future interest income with respect to the Plus Cash Notes or to reduce the amount realized on a sale, exchange, conversion or redemption of the Plus Cash Notes.

Treatment of interest payment potentially received by a U.S. holder converting Plus Cash Notes, and of required repayment to us

Under the terms of the Plus Cash Notes, if a U.S. holder converts Plus Cash Notes after the record date but prior to the interest payment date (and thus receives the interest payment payable on the interest payment date, notwithstanding that as a result of the conversion the holder is not entitled to retain such payment), the U.S. holder is obligated to pay us an amount equal to the interest payable on the converted principal amount. The tax consequences to the U.S. holder of the receipt and repayment of this amount are uncertain, and U.S. holders in these circumstances should consult their tax advisors.

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Sale, exchange, conversion or redemption of the Plus Cash Notes

Generally, the sale or exchange of Plus Cash Notes or the redemption for cash will result in a taxable gain or loss to a U.S. holder. As described above, our calculation of the comparable yield and projected payment schedule for the Plus Cash Notes includes the receipt of stock upon conversion as a contingent payment with respect to the Plus Cash Notes. Accordingly, we intend to treat the amount of common stock, the plus cash amount and the make-whole amount (regardless of whether the plus cash amount or make-whole amount is paid in cash or stock) received by a U.S. holder upon the conversion of a Plus Cash Note as a payment under the contingent debt regulations. As described above, a U.S. holder is bound by our determination of the comparable yield and projected payment schedule. Under this treatment, a conversion of the Plus Cash Notes into common stock will also result in a taxable gain or loss to a U.S. holder.

The amount of gain or loss on a sale, exchange, conversion or redemption of the Plus Cash Notes will be equal to the difference between (a) the amount of cash plus the fair market value of any other property received by the U.S. holder, including the fair market value of any common stock received, and (b) the U.S. holder’s adjusted tax basis in the Plus Cash Note.

A U.S. holder’s adjusted tax basis in a Plus Cash Note purchased in the new money offering generally will be equal to the U.S. holder’s original purchase price for the Plus Cash Note, increased by any interest income previously accrued by the U.S. holder (determined without regard to any adjustments to interest accruals described above) and decreased by the amount of any projected payments that previously have been scheduled to be made in respect of the Plus Cash Notes (without regard to the actual amount paid).

A U.S. holder’s adjusted basis in a Plus Cash Note acquired in the exchange offer will be the U.S. holder’s initial basis in the Plus Cash Notes, as described above in “— U.S. Holders – Treatment of Exchange Offer”, increased by any interest income previously accrued by the U.S. holder (determined without regard to any adjustments to interest accruals described above) and decreased by the amount of any projected payments that previously have been scheduled to be made in respect of the Plus Cash Notes (without regard to the actual amount paid).

Gain recognized upon a sale, exchange, conversion or redemption of a Plus Cash Note generally will be treated as ordinary interest income; any loss will be ordinary loss to the extent of interest previously included in income, and thereafter capital loss (which will be long-term if the Plus Cash Note is held for more than one year). The deductibility of capital losses is subject to limitations.

A U.S. holder’s tax basis in common stock received upon conversion of a Plus Cash Note (including stock received in payment of the plus cash amount) will equal the then current fair market value of such common stock. The U.S. holder’s holding period for the common stock received will commence on the day immediately following the date of conversion.

Dividends on common stock

If, after a U.S. holder converts a Plus Cash Note into common stock, we make a distribution in respect of that stock, the distribution will be treated as a dividend, taxable to the U.S. holder as ordinary income, to the extent it is paid from our current or accumulated earnings and profits. Under present law, and effective through 2008, dividend income paid by us that is classified as “qualified dividend income,” within the meaning of the Code, would be eligible for the reduced tax rate on qualifying dividends, which is the rate applicable to long term capital gains. Individual U.S. holders would be eligible for this preferential tax treatment subject to certain limitations including satisfaction of certain holding period requirements. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated first as a tax-free return of the holder’s investment, up to the holder’s adjusted tax basis in its common stock. Any remaining excess will be treated as capital gain. If the holder is a U.S. corporation, it would generally be able to claim a deduction equal to a portion of any dividends received.

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Constructive dividend

The terms of the Plus Cash Notes allow for changes in the conversion price of the Plus Cash Notes in certain circumstances. A change in the conversion price that allows holders to receive more shares of common stock on conversion may increase the holders’ proportionate interests in our earnings and profits or assets. In that case, the holders may be treated as having received a dividend in the form of our stock. Such a constructive stock dividend could be taxable to the holders, although they would not actually receive any cash or other property. A taxable constructive stock dividend would result, for example, if the conversion price is adjusted to compensate holders for certain distributions of cash or property to our shareholders. However, not all changes in the conversion price that allow holders to receive more stock on conversion would increase the holders’ interests in us. For instance, a change in the conversion price could simply prevent the dilution of the holders’ interests upon a stock split or other change in capital structure would not increase the holders’ interests. Changes of this type, if made by a bona fide, reasonable adjustment formula, are not treated as constructive stock dividends. Conversely, if an event occurs that dilutes the holders’ interests and the conversion price is not adjusted, the resulting increase in the proportionate interests of our shareholders could be treated as a stock dividend to them. Any taxable constructive stock dividends resulting from a change to, or failure to change, the conversion price would be treated like distributions paid in cash or other property. These deemed distributions would result in ordinary income to the recipient to the extent of our current or accumulated earnings and profits, with any excess treated as a tax-free return of capital up to the recipient’s adjusted tax basis and then as capital gain.

Non-U.S. Holders

The following discussion is a summary of certain material U.S. federal income and estate tax consequences to non-U.S. holders resulting from the exchange of existing notes for Plus Cash Notes pursuant to the exchange offer and the ownership and disposition of the Plus Cash Notes or common stock received in connection with the Plus Cash Notes.

Treatment of Exchange Offer

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized on the exchange of existing notes for Plus Cash Notes, except that such holder may recognize gain or loss in certain circumstances, such as those described in “—Income or gains effectively connected with a U.S. trade or business” below.

Withholding tax on payments of interest and original issue discount on Plus Cash Notes

All payments on the Plus Cash Notes to a non-U.S. holder, including any payment of contingent interest, a payment of interest or make-whole amount in common stock, a payment in common stock pursuant to conversion, a payment of the Plus Cash amount (whether in cash or in stock) and any gain realized on a sale or exchange of the Plus Cash Notes should qualify as “portfolio interest,” and thus be exempt from U.S. federal income and withholding tax, if the holder qualifies for such exemption and certifies its nonresident status as described below. The portfolio interest exception will not apply to payments on the Plus Cash Notes to a non-U.S. holder that:

• owns, directly or indirectly, at least 10% of the total voting power of all our voting stock; or

• is a “controlled foreign corporation” that is related to us.

Even if the portfolio interest exception does not apply, U.S. federal withholding tax may be reduced or eliminated under an applicable tax treaty assuming the non-U.S. holder properly certifies its entitlement to the benefit under such treaty.

The portfolio interest exception and several of the special rules for non-U.S. holders described below apply only to holders who certify their nonresident status. Non-U.S. holders can generally meet this certification requirement by providing an IRS Form W-8BEN or appropriate substitute form to us or our paying agent. If a

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non-U.S. holder holds Plus Cash Notes through a financial institution or other agent acting on the holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent. The agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a foreign partnership, the certification requirements generally apply to the partners rather than the partnership.

Gain recognized on a sale, exchange or other disposition may be subject to U.S. federal income tax (and, in certain circumstances, to withholding tax) if we are, or were during the five-year period ending on the date of such sale, exchange or other disposition a “United States real property holding corporation”, or a “USRPHC”. In general, we would be (or would have been) a USRPHC if assets treated as interests in U.S. real estate comprised 50% or more of our total business and real property assets. Although there can be no assurance, we do not believe that we are (or have been) a USRPHC or that we will become one in the future. Even if we are determined to be a USRPHC, a non-U.S. holder not described in the preceding sentence will not be subject to U.S. federal income tax on any such gain or income provided that our common stock continues to be regularly traded on an established securities market and provided that such holder does not actually or constructively own more than 5% of our common stock, including any common stock that may be received as a result of the conversion of Plus Cash Notes and does not own, on any date on which the holder acquires Plus Cash Notes, Plus Cash Notes with an aggregate value of 5% or more of the aggregate value of the outstanding common stock on such date.

Dividends on common stock

Dividends, if any, paid on our common stock to a non-U.S. holder generally will be subject to U.S. federal withholding tax at a 30% rate. The withholding tax might not apply, however, or might apply at a reduced rate, under the terms of a tax treaty between the United States and the holder’s country of residence. In order to claim the benefits of a tax treaty, a non-U.S. holder must demonstrate its entitlement by certifying its nonresident status and eligibility for treaty benefits.

The conversion price of the Plus Cash Notes may adjust in certain circumstances. An adjustment could potentially give rise to a deemed distribution to non-U.S. holders of the Plus Cash Notes. See “— U.S. Holders —Tax Treatment of Ownership and Disposition of Plus Cash Notes and Common Stock—Constructive dividend” above. In that case, the deemed distribution may be subject to the rules regarding withholding of U.S. federal tax on dividends in respect of common stock.

Income or gains effectively connected with a U.S. trade or business

The preceding discussion of the U.S. federal income tax consequences of the acquisition, ownership and disposition of Plus Cash Notes or common stock by a non-U.S. holder assumes that the holder is not engaged in a “U.S. trade or business” for U.S. federal income tax purposes. If any interest or original issue discount on the Plus Cash Notes, dividends on our common stock, or gain from the sale, exchange or other disposition (including the conversion of Plus Cash Notes pursuant to their terms) of the Plus Cash Notes or common stock is treated as “effectively connected” with a U.S. trade or business conducted by a non-U.S. holder, then the income or gain will be subject to U.S. federal income tax at the regular graduated rates. If a non-U.S. holder is eligible for the benefits of a tax treaty between the U.S. and such holder’s country of residence, any effectively connected income or gain generally will be subject to U.S. federal income tax only if it is also attributable to a permanent establishment maintained by such holder in the U.S. Payments of interest, original issue discount or dividends that are effectively connected with a U.S. trade or business, and therefore included in the non-U.S. holder’s gross income, generally will be exempt from the 30% withholding tax. To claim this exemption from withholding, a non-U.S. holder must certify its qualification, which can be done by filing an IRS Form W-8ECI. If the non-U.S. holder is a foreign corporation, such holder’s income treated as effectively connected with a U.S. trade or business (after reduction for corporate income taxes paid) would generally be subject to an additional “branch profits tax.” The branch profits tax rate is generally 30%, although an applicable tax treaty might provide for a lower rate.

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U.S. federal estate tax

The estates of nonresident alien individuals are subject to U.S. federal estate tax on property with a U.S. situs. The Plus Cash Notes will not be U.S. situs property as long as interest on the Plus Cash Notes would have qualified as portfolio interest were it received by the decedent at the time of death. Because we are a U.S. corporation, our common stock will be U.S. situs property if owned by a non-U.S. holder at the time of death, and therefore will be included in the taxable estate of a nonresident alien decedent for U.S. estate tax purposes. The U.S. federal estate tax liability of the estate of a nonresident alien may be affected by a tax treaty between the United States and the decedent’s country of residence.

Information Reporting and Backup Withholding

Payments on the Plus Cash Notes, and payments of dividends on the common stock to certain non-corporate holders generally will be subject to information reporting and possibly to “backup withholding” at a current rate of 28%. Information reporting and backup withholding will not apply, however, to (i) payments made on a Plus Cash Note if the certification described under “—Non-U.S. Holders—Withholding tax on payments of interest and original issue discount on Plus Cash Notes” above is received, provided that in each case that the payor does not have actual knowledge that the holder is a U.S. holder, or (ii) to payments made on our common stock if such payments are subject to U.S. federal withholding tax at the 30% rate (or reduced treaty rate) as described above under “—Non-U.S. Holders—Dividends on common stock.”

Payment of proceeds from the sale of a Plus Cash Note or common stock to or through the U.S. office of a broker is subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its non-U.S. status or otherwise establishes an exemption from information reporting and backup withholding. Payment outside the U.S. of the proceeds of the sale of a Plus Cash Note or common stock to or through a foreign office of a “broker” (as defined in applicable Treasury Regulations) will not be subject to information reporting or backup withholding, except that, if the broker is a U.S. person, a controlled foreign corporation for U.S. federal income tax purposes or a foreign person 50% or more of whose gross income is from a U.S. trade or business, information reporting will apply to such payment unless the broker has documentary evidence in its records that the beneficial owner is not a U.S. holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption.

Any amounts withheld from a payment to a holder under the backup withholding rules will be allowed as a credit against such holder’s U.S. federal income tax, and may entitle such holder to a refund, provided that the required information is furnished to the IRS.

THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE OFFER AND OF PURCHASING, HOLDING AND DISPOSING OF THE PLUS CASH NOTES AND OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY CHANGE OR PROPOSED CHANGE IN THE APPLICABLE LAWS.

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PLAN OF DISTRIBUTION

We have engaged Piper Jaffray & Co. to use its best efforts to find purchasers for any or all of the $25.0 million of additional Plus Cash Notes on an agency basis. Piper Jaffray is not obligated to take or pay for any of the additional Plus Cash Notes. The public offering price for the additional Plus Cash Notes is expected to be 100% of the principal amount of the Plus Cash Notes, plus accrued interest from the issue date, if any. As compensation for its services, we have agreed to pay Piper Jaffray a selling commission, payable based on a sliding scale based on the principal amount of Plus Cash Notes purchased in the new money offering. Piper Jaffray will receive a selling commission payable in cash of up to approximately 3.6% of the aggregate principal amount of Plus Cash Notes sold in the new money offering assuming $25.0 million are sold. We also will pay Piper Jaffray its costs and expenses relating to the performance of its obligation in connection with the offer of additional Plus Cash Notes, including fees and expenses of Piper Jaffray’s counsel. We are also paying Piper Jaffray a dealer manager fee of up to $1.94 million in connection with the exchange offer which is discussed under the heading “The Exchange Offer—Fees and Expenses.”

The placement agreement provides that the obligations of Piper Jaffray to find purchasers are subject to enumerated conditions.

Piper Jaffray has advised us that it proposes to offer for sale the additional Plus Cash Notes to holders of existing notes. Piper Jaffray will, after consultation with us, in its sole discretion, allocate the additional Plus Cash Notes among potential investors. If you indicate your interest in participating in the new money offering to Piper Jaffray and are selected for an allocation of the additional Plus Cash Notes, you will be contacted, informed of your allocation and asked to confirm your allocation or withdraw your indication of interest after the effective date of the registration statement of which this prospectus is a part. If you confirm your allocation and deliver the purchase price on the closing date, you will be sold your allocation of the additional Plus Cash Notes. You are not guaranteed any allocation if you indicate an interest in purchasing Plus Cash Notes. Neither we nor Piper Jaffray will consider whether or not a holder of the existing notes participates in the exchange offer as a relevant factor when determining the allocation of the Plus Cash Notes in the new money offering.

There is no minimum amount of additional Plus Cash Notes that we have to sell and we may decide not to sell any Plus Cash Notes in the new money offering. There will not be any escrow account. The offering will commence on the date of this prospectus and may continue after the closing date of the exchange offer.

Indemnity. The dealer manager agreement and the placement agreement provide that we will indemnify Piper Jaffray against certain liabilities, including liabilities under the Securities Act.

Other relationships. Piper Jaffray has represented to ViroPharma that, as of the date hereof, Piper Jaffray did not hold any stock or bonds of ViroPharma. Piper Jaffray. may acquire stock or bonds of ViroPharma in the normal course of its business, but it does not currently anticipate doing so. Piper Jaffray may, from time to time, engage in investment banking, commercial banking and other transactions with and perform services for us, including acquisition advisory services, in the normal course of its business.

Lock-up agreements. Except as described below, all of our executive officers and directors as of the expiration date of the exchange offer have agreed, for a period of 90 days after the expiration date, not to offer, sell, contract to sell or otherwise transfer, dispose of, loan, pledge, assign or grant (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any rights to, or interests in, any shares of common stock, any options or warrants to purchase any shares of common stock, any securities convertible into or exchangeable for shares of common stock owned as of the date of this prospectus or subsequently acquired directly by the holders or to which they have or subsequently acquire the power of disposition, without the prior written consent of Piper Jaffray. Our executive officers and directors also have agreed or will agree not to enter into any transaction (including a derivative transaction) having an economic effect similar to that of a sale of Plus Cash Notes, any shares of common stock or any securities of ours which are substantially similar to the Plus

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Cash Notes or the shares of common stock or which are convertible into or exchangeable for, or represent the right to receive, shares of common stock or securities that are substantially similar to the shares of common stock, subject to certain exceptions, without the prior consent of Piper Jaffray. Two of our executive officers who are leaving ViroPharma in March 2004 and April 2004 are not subject to the lock-up agreements. These two individuals beneficially own a total of 404,630 shares of common stock at March 1, 2004, which includes a total of 250,430 shares of common stock issuable upon exercise of stock options that were exercisable within 60 days of that date.

Future sales. In addition, we have agreed that during the period of 90 days after the date of this prospectus, we will not, without the prior written consent of Piper Jaffray, issue, sell, contract to sell or otherwise dispose of any shares of any common stock, any options or warrants to purchase any shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock, other than our sale of Plus Cash Notes in this offering, the issuance of shares of common stock upon the exercise of outstanding options or warrants, the grant of options to purchase shares of common stock under our existing stock, incentive award plans or the issuance of shares of common stock upon conversion of the existing notes and the Plus Cash Notes other than as described below. We also have agreed not to enter into any transaction (including a derivative transaction) having an economic effect similar to that of an issuance of any of our securities which are substantially similar to the existing notes or the Plus Cash Notes or which are convertible into or exchangeable for, or represent the right to receive, shares or securities that are substantially similar to the existing notes or the Plus Cash Notes, subject to certain exceptions, without the prior consent of Piper Jaffray. We may issue shares of common stock or securities convertible into or exchangeable for shares of common stock pursuant to existing collaborations and in connection with our acquisition of any rights to any product candidate or acquisition of any entity.

No prior market for Plus Cash Notes. Prior to this offering, there has been no market for the Plus Cash Notes. Consequently, the offering price for the additional Plus Cash Notes to be sold in this offering was determined through negotiations between us and Piper Jaffray. Among the factors considered in those negotiations were prevailing market conditions, our financial information, the price of the existing notes, market valuations of other companies that we and Piper Jaffray believe to be comparable to us, estimates of our business potential and the present state of our development.

We do not intend to list the Plus Cash Notes for trading on any securities exchange or quotation system. We have been advised by Piper Jaffray that it presently intends to make a market in the Plus Cash Notes as permitted by applicable laws and regulations. Piper Jaffray has no obligation, however, to make a market in the Plus Cash Notes and may discontinue market making at any time without notice.

Stabilization. We have been advised by Piper Jaffray that after expiration of the exchange offer certain persons participating in the new money offering may engage in transactions, including stabilizing bids that may have the effect of stabilizing or maintaining the market price of the Plus Cash Notes. Stabilization bids are bids for, or the purchase of, Plus Cash Notes on behalf of Piper Jaffray. for the purpose of fixing or maintaining the price of the Plus Cash Notes. Such stabilization bids may be discontinued at any time.

State Securities Laws. In order to comply with the securities laws of some states, if applicable, the Plus Cash Notes and our common stock into which the Plus Cash Notes are convertible may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the Plus Cash Notes and common stock may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification is available and is complied with.

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LEGAL MATTERS

Pepper Hamilton LLP, Berwyn, Pennsylvania will pass upon the validity of the Plus Cash Notes. Customary legal matters will be passed upon for the dealer manager and placement agent by Shearman & Sterling LLP, Washington, D.C.

EXPERTS

The consolidated financial statements of ViroPharma Incorporated and subsidiary as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003, and for the period from December 5, 1994 (inception) to December 31, 2003, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

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The exchange agent:

U.S. BANK NATIONAL ASSOCIATION

By Mail or Overnight Courier

Specialized Finance

U.S. Bank National Association

Corporate Trust Services

60 Livingston Avenue

St. Paul, MN 55107

By Facsimile Transmission:

(651) 495-8158

Confirm by Telephone:

(800) 934-6802

The Information Agent:

GEORGESON SHAREHOLDER COMMUNICATIONS INC.

17 State Street, 10^th Floor

New York, New York 10004

Banks and Brokers Call Collect: (212) 440-9800

Call Toll Free: (800) 259-3515

Any questions or requests for assistance or additional copies of this prospectus and the letter of transmittal may be directed to the information agent at its telephone number and location set forth above. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the exchange offer.

The Dealer Manager for the Exchange Offer:

PIPER JAFFRAY

345 California Street, Suite 2300

San Francisco, CA 94104

(415) 984-5142

Attention: Convertible Securities Desk

Jeffrey Winaker or Brian Sullivan

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Other Expenses of Issuance and Distribution

The following table sets forth the amounts of expenses attributed to the issuance of the securities offered pursuant to this registration statement which shall be borne by us. All of the expenses listed below, except the SEC registration fee and the NASD filing fee, represent estimates only.

Estimated
SEC registration fee	$	40,175
NASD filing fee		10,500
Exchange agent fees		21,000
Information agent fees		10,000
Printing expenses		100,000
Accounting fees and expenses		100,000
Legal fees and expenses (including “Blue Sky” fees and expenses)		400,000
Miscellaneous fees and expenses		168,325
Total		850,000

Item 20. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law (“Section 145”) permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer or agent of the corporation or another enterprise if serving at the request of the corporation. Depending on the character of the proceeding, a corporation may indemnify against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and, in respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In the case of an action by or in the right of the corporation, no indemnification may be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to above, or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

The Certificate of Incorporation of ViroPharma limits the personal liability of directors to the Registrant or any of its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that this limitation does not apply to any liability of a director (i) for any breach of the director’s duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit.

Section 6.4 of the Registrant’s By-laws provides for the indemnification, to the full extent authorized by law, of any person made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person, his testator or intestate, is or was a director, officer or employee of ViroPharma or any predecessor of the Registrant, or serves or served any other enterprise as a director, officer or employee at the request of the Registrant or any predecessor of the Registrant.

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We have also entered into indemnity agreements with each of our directors and officers. These agreements may require us, among other things, to indemnify such directors and officers against certain liabilities that may arise by reason of their status or service as directors or officers, as the case may be, to advance expenses to them as they are incurred, provided that they undertake to repay the amount advanced if it is ultimately determined by a court that they are not entitled to indemnification and to obtain directors’ and officers’ liability insurance if available on reasonable terms.

Item 21. Exhibits and Financial Statement Schedules

Exhibit Number	Description
1.1	Form of Dealer Manager Agreement.*
1.2	Form of Placement Agreement.*
3.1	Amended and Restated Certificate of Incorporation, as amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation dated May 14, 1999, as further amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation dated May 24, 2000 (previously filed as Exhibit 3.1 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference).
3.2	Certificate of Designation establishing and designating the Series A Junior Participating Preferred Shares (previously filed as Exhibit 3.2 to ViroPharma’s annual report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).
3.3	Amended and Restated By-Laws of ViroPharma (previously filed as Exhibit 3.3 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).
4.1	Rights Amendment, dated as of September 10, 1998, between ViroPharma and StockTrans, Inc., as Rights Agent (previously filed as Exhibit 4.1 to ViroPharma’s current report on Form 8-K filed with the SEC on September 21, 1998 and incorporated herein by reference).
4.2	Amendment No. 1 to Rights Agreement (previously filed as Exhibit 4.2 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference).
4.3	Form of Indenture between ViroPharma and U.S. Bank National Association, as trustee, relating to ViroPharma’s 6% Convertible Senior Plus Cash NotesSM due June 1, 2009.*
4.4	Form of 6% Convertible Senior Plus Cash NoteSM due June 1, 2009 (Included as Exhibit A to Exhibit 4.3).*
4.5	Indenture, dated March 1, 2000, between ViroPharma and Summit Bank, as trustee, relating to ViroPharma’s 6% Convertible Subordinated Notes due March 1, 2007 (previously filed as Exhibit 4.3 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference).
4.6	Form of 6% Convertible Subordinated Note due March 1, 2007 (included as Exhibit A to Exhibit 4.5).
5.1	Opinion of Pepper Hamilton LLP.**
12.1	Statement regarding computation of ratio of earnings to fixed charges.***
21.1	Subsidiaries of ViroPharma Incorporated.***
23.1	Consent of Pepper Hamilton LLP (included in Exhibit 5.1).**
23.2	Consent of KPMG LLP.*
24.1	Power of Attorney.***
25.1	Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of U.S. Bank National Association.*

II-2

Exhibit Number	Description
99.1	Form of Letter of Transmittal.*
99.2	Form of Notice of Guaranteed Delivery.*
99.3	Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
99.4	Form of Letter to Clients.*
99.5	Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.*

* Filed herewith

** To be filed by amendment

*** Previously filed

Item 22. Undertakings

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

The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.

The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 of the Securities Act of 1933 (ss.230.415 of this chapter), will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-3

The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

The undersigned registrant hereby undertakes to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement on Form S-4 and Registration Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in Exton, Pennsylvania, on April 27, 2004.

VIROPHARMA INCORPORATED
By:	/S/    MICHEL DE ROSEN
	Michel de Rosen Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the date indicated.

Name and Signature	Title(s)	Date
/S/    MICHEL DE ROSEN Michel de Rosen	Chairman of the Board and Chief Executive Officer (principal executive officer)	April 27, 2004
/S/    VINCENT J. MILANO Vincent J. Milano	Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer)	April 27, 2004
* Frank Baldino, Jr., Ph.D.	Director	April 27, 2004
* Paul A. Brooke	Director	April 27, 2004
* William Claypool, M.D.	Director	April 27, 2004
* Michael R. Dougherty	Director	April 27, 2004
* Robert J. Glaser	Director	April 27, 2004

*By:	/S/    VINCENT J. MILANO
	Vincent J. Milano Attorney-in-fact

II-5

EXHIBIT INDEX

Exhibit Number	Description
1.1	Form of Dealer Manager Agreement.*
1.2	Form of Placement Agreement.*
3.1	Amended and Restated Certificate of Incorporation, as amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation dated May 14, 1999, as further amended by a Certificate of Amendment of Amended and Restated Certificate of Incorporation dated May 24, 2000 (previously filed as Exhibit 3.1 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference).
3.2	Certificate of Designation establishing and designating the Series A Junior Participating Preferred Shares (previously filed as Exhibit 3.2 to ViroPharma’s annual report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).
3.3	Amended and Restated By-Laws of ViroPharma (previously filed as Exhibit 3.3 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).
4.1	Rights Amendment, dated as of September 10, 1998, between ViroPharma and StockTrans, Inc., as Rights Agent (previously filed as Exhibit 4.1 to ViroPharma’s current report on Form 8-K filed with the SEC on September 21, 1998 and incorporated herein by reference).
4.2	Amendment No. 1 to Rights Agreement (previously filed as Exhibit 4.2 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference).
4.3	Form of Indenture between ViroPharma and U.S. Bank National Association, as trustee, relating to ViroPharma’s 6% Convertible Senior Plus Cash NotesSM due June 1, 2009.*
4.4	Form of 6% Convertible Senior Plus Cash NoteSM due June 1, 2009 (Included as Exhibit A to Exhibit 4.3).*
4.5	Indenture, dated March 1, 2000, between ViroPharma and Summit Bank, as trustee, relating to ViroPharma’s 6% Convertible Subordinated Notes due March 1, 2007 (previously filed as Exhibit 4.3 to ViroPharma’s quarterly report on Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference).
4.6	Form of 6% Convertible Subordinated Note due March 1, 2007 (included as Exhibit A to Exhibit 4.5).
5.1	Opinion of Pepper Hamilton LLP.**
12.1	Statement regarding computation of ratio of earnings to fixed charges.***
21.1	Subsidiaries of ViroPharma Incorporated.***
23.1	Consent of Pepper Hamilton LLP (included in Exhibit 5.1).**
23.2	Consent of KPMG LLP.*
24.1	Power of Attorney.***
25.1	Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of U.S. Bank National Association.*
99.1	Form of Letter of Transmittal.*
99.2	Form of Notice of Guaranteed Delivery.*

Exhibit Number	Description
99.3	Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
99.4	Form of Letter to Clients.*
99.5	Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.*

* Filed herewith

** To be filed by amendment

*** Previously filed

EX-1.1

Exhibit 1.1

DEALER MANAGER AGREEMENT

[·], 2004

PIPER JAFFRAY & CO.

Piper Jaffray Tower

222 South Ninth Street

Minneapolis, MN 55402

Ladies/Gentlemen:

1. General. ViroPharma Incorporated, a Delaware corporation (the “Company”), proposes to offer to exchange $127,900,000 aggregate principal amount of its outstanding 6.0% Convertible Existing Notes due 2007 (the “Existing Notes”) that are convertible into common stock, par value $0.002 per share, (the “Shares”) of the Company for $99,122,500 aggregate principal amount of 6.0% Convertible Senior Plus Cash Notes_SM due 2009 (the “Plus Cash Notes”). The Plus Cash Notes issued in the Exchange Offer are to be issued pursuant to an Indenture, to be dated as of [·], 2004, as amended or modified from time to time (the “Indenture”), between the Company and U.S. Bank National Association, as Trustee (the “Trustee”). Capitalized terms used herein without definition shall have their respective meanings set forth in or pursuant to the Registration Statement (as defined herein), notwithstanding that such terms as used herein are not capitalized in the Registration Statement.

2. Engagement as Dealer Manager. By this Dealer Manager Agreement (the “Agreement”), the Company hereby engages and appoints you as the exclusive Dealer Manager for the Exchange Offer and authorizes you to act as such in connection with the Exchange Offer.

As Dealer Manager you agree, in accordance with your customary practice, to use reasonable efforts to perform in connection with the Exchange Offer those services as are customarily performed by investment banking concerns in connection with similar offers, including, without limitation, soliciting from individuals and institutions the tender of the Existing Notes pursuant to and in accordance with the terms and conditions of the Exchange Offer. You shall act as an independent contractor in connection with the Exchange Offer with duties solely to the Company, and nothing herein contained shall constitute you as an agent of the Company in connection with the solicitation of the tender of Existing Notes pursuant to and in accordance with the terms and conditions of the Exchange Offer; provided, however, that the Company hereby authorizes the Dealer Manager and/or one or more registered brokers or dealers chosen by the Dealer Manager, to act as the Company’s agent in making the Exchange Offer to residents of any jurisdiction in which such agent designation may be necessary to comply with applicable law. Nothing in this Agreement shall constitute the Dealer Manager a partner or joint venturer with the Company or its subsidiary, VCO, Incorporated (“subsidiary”). On the basis of the representations and warranties and agreements of the Company contained herein and subject to and in accordance with the terms and conditions hereof and of the Exchange Offer, the Dealer Manager agrees to act in such capacity.

3. Registration Statement, Prospectus and Offering Materials.

(a) The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”), under the Securities Act of 1933, as amended (the “Securities Act”), the Trust Indenture Act of 1939, as amended (the “TIA”), and applicable rules and regulations (the “Rules and Regulations”) of the Commission under the Securities Act, the TIA and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a registration statement on Form S-4 (File No. 333-[·]) and the amendments thereto, including a Prospectus (as defined below), covering the registration of the offer and sale of the Plus Cash Notes in the Exchange Offer; the Shares issuable upon conversion of the Plus Cash Notes issued in the Exchange Offer; the Shares that may be issued solely at the Company’s option as payment of interest (including any Make-Whole Payment) on the Plus Cash Notes issued in the Exchange Offer; and the Shares issuable solely at the Company’s option as payment of the Plus Cash Amount. The term “Registration Statement” as used in this Agreement shall mean such registration statement, including financial statements, schedules and exhibits, in the form in which it becomes effective and, in the event of any amendment thereto or the filing of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations relating thereto after the effective date of such registration statement, shall also mean (from and after the effectiveness of such amendment or the filing of such abbreviated registration statement) such registration statement as so amended, together with any such abbreviated registration statement. The term “Prospectus” as used in this Agreement shall mean the final prospectus included in the Registration Statement. Notwithstanding the foregoing, if any revised prospectus shall be provided to you by the Company for use in connection with the Exchange Offer that differs from the prospectus referred to in the immediately preceding sentence (whether or not such revised Prospectus is required to be filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term “Prospectus” shall refer to such revised prospectus from and after the time it is first provided to you for such use. Any reference to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 13 of Form S-4 under the Securities Act, as of the date of the Registration Statement or the Prospectus, as the case may be, and any reference to any amendment or supplement to the Registration Statement or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Rules and Regulations of the Commission thereunder, which, upon filing, are incorporated by reference therein, as required by Item 11 of Form S-4. As used in this Agreement, the term “Incorporated Documents” means the documents which at the time are incorporated by reference in the Registration Statement, the Prospectus or any amendment or supplement thereto. The terms “supplement” and “amendment” or “supplemented” and “amended” as used herein with respect to the Prospectus shall include all documents deemed to be incorporated by reference in the Prospectus that are filed subsequent to the date of the Prospectus and prior to the termination of the Exchange Offer by the Company with the Commission pursuant to the Exchange Act and the Rules and Regulations of the Commission thereunder.

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(b) The Company has prepared and filed, or agrees that prior to or on the date of commencement of the Exchange Offer (the “Commencement Date”) it will file, with the Commission under the Exchange Act and the Rules and Regulations of the Commission promulgated thereunder a Statement on Schedule TO with respect to the Exchange Offer, including the exhibits thereto and any documents incorporated by reference therein. The term “Schedule TO” as used in this Agreement shall mean such Schedule TO, including any amendment or supplement thereto.

(c) The Registration Statement, Prospectus, Schedule TO, the related letters from the Dealer Manager to securities brokers, dealers, commercial banks, trust companies and other nominees that have been approved for use by the Company, which approval shall not be unreasonably withheld, letters to beneficial owners of Existing Notes, the Letter of Transmittal and any newspaper announcements, if any, press releases and other exchange offer solicitation materials and information the Company may prepare, approve, publicly disseminate, provide to registered or beneficial holders of Existing Notes or authorize for public dissemination or use by registered or beneficial holders of Existing Notes in connection with the Exchange Offer, are collectively referred to as the “Exchange Offer Materials.”

4. Use of Exchange Offer Materials.

(a) The Exchange Offer Materials have been or will be prepared and approved by, and are the sole responsibility of, the Company. The Company shall disseminate or, to the extent permitted by law use its best efforts to disseminate, the Exchange Offer Materials to each registered holder of any Existing Notes, as soon as is practicable on the Commencement Date, pursuant to Rule 13e-4 under the Exchange Act, and comply with its obligations thereunder. Thereafter, to the extent practicable, until three days prior to the expiration date of the Exchange Offer (the “Expiration Date”), the Company shall use its best efforts to cause copies of such Exchange Offer Materials and a return envelope to be mailed to each person who becomes a holder of record of any Existing Notes. The Company acknowledges and agrees that you may use the Exchange Offer Materials, as specified herein without assuming any responsibility for independent verification on your part other than information about the Dealer Manager supplied by you in writing; and the Company represents and warrants to you that you may rely on the accuracy and completeness of any information delivered to you by or on behalf of the Company without assuming any responsibility for independent verification of such information and without performing or receiving any appraisal or evaluation of the assets or liabilities of the Company.

(b) The Company agrees to provide you with as many copies as you may reasonably request of the Exchange Offer Materials. The Company agrees that within a reasonable time prior to using or filing with the Commission or any governmental or regulatory entity or agency (an “Other Agency”), including the National Association of Securities Dealers, Inc. (the “NASD”), of any Exchange Offer Materials, it will submit copies of such materials to you and your counsel and will give reasonable consideration to your and your counsel’s comments, if any, thereon. The Company agrees prior to the termination of the Exchange Offer, before amending or supplementing the Registration Statement or the Prospectus, to furnish copies of drafts to, and consult with, you and your counsel within a reasonable time in advance of

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filing with the Commission of any amendment or supplement to the Registration Statement, the Prospectus or the other Exchange Offer Materials and will give reasonable consideration to your and your counsel’s comments, if any, thereon.

(c) The Company has furnished or shall use its best efforts to furnish to you, or cause the transfer agents or registrars for the Existing Notes to furnish to you, as soon as practicable after the date hereof (to the extent not previously furnished), cards or lists in reasonable quantities or copies thereof showing the names of persons who were the holders of record or, to the extent available, the beneficial owners of the Existing Notes as of a recent date, together with their addresses and the aggregate principal amount at maturity of the Existing Notes held by them. Additionally, the Company shall update, or cause the transfer agents or registrars referred to above to update, such information from time to time during the term of this Agreement as may be reasonably requested by you. Except as otherwise provided herein, you agree to use such information only in connection with the Exchange Offer and in connection with the offer of additional Plus Cash Notes for cash (the “New Money Offering”) pursuant to the terms of a placement agreement, dated as of [                    ], 2004, between the Company and Piper Jaffray & Co. (the “Placement Agreement”).

(d) The Company authorizes the Dealer Manager to use the Exchange Offer Materials in connection with the Exchange Offer for such period of time as any such materials are required by law to be delivered in connection therewith. The Dealer Manager shall not have any obligation to cause any Exchange Offer Materials to be transmitted generally to the holders of Existing Notes.

(e) The Company authorizes the Dealer Manager to communicate with the information agent identified in the Prospectus (the “Information Agent”) or the exchange agent identified in the Prospectus (the “Exchange Agent”) appointed by the Company to act in such capacity in connection with the Exchange Offer. The Company will arrange for the Information Agent and/or Exchange Agent to advise you, as necessary and at least daily, as to such matters relating to the Exchange Offer as you may reasonably request.

(f) The Company agrees that any reference to the Dealer Manager in any Exchange Offer Materials or in any newspaper announcement or press release or other document or communication is subject to the Dealer Manager’s prior consent, which consent shall not be unreasonably withheld.

5. Withdrawal. In the event that the Company: (i) uses or permits the use of, or files with the Commission or any Other Agency, any Exchange Offer Materials or any amendment or supplement to the Registration Statement or the Prospectus, and such document (a) has not been submitted to you previously for your and your counsel’s comments; or (b) has been so submitted, and you or your counsel have made comments which have not been reflected in a manner reasonably satisfactory to you or your counsel; (ii) breaches, in any material respect, any of its representations, warranties, agreements or covenants herein; or (iii) amends or revises the Exchange Offer in a manner not reasonably acceptable to you, then you shall be entitled to withdraw as Dealer Manager in connection with the Exchange Offer without any liability or penalty to you and without loss of any right to indemnification or contribution provided in

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Section 11 or to the payment of all fees and expenses payable under Sections 6 and 7 below which have accrued to the date of such withdrawal (it being agreed that in the event of any such withdrawal, for the purpose of determining the fees payable to you pursuant to Section 6, the aggregate principal amount of Existing Notes tendered pursuant to the Exchange Offer as of the close of business on the date of such withdrawal that are thereafter acquired by the Company or its subsidiary or affiliates pursuant to the Exchange Offer or otherwise on or before the Expiration Date shall be deemed to have been acquired as of the date of such withdrawal).

6. Fees. As compensation for your services in connection with the Exchange Offer, the Company will pay you a graduated fee determined in accordance with the fee schedule set forth below as of the Expiration Date with regard to the Existing Notes validly tendered and accepted for exchange pursuant to the Exchange Offer:

(a) 1.50% of the aggregate principal amount of Existing Notes exchanged up to $38,400,000 in aggregate principal amount; plus

(b) 1.65% of the aggregate principal amount of Existing Notes exchanged in excess of $38,400,000 and up to $76,700,000 in aggregate principal amount; plus

(c) 1.90% of the aggregate principal amount of Existing Notes exchanged in excess of $76,700,000 and up to $115,100,000 in aggregate principal amount; plus

(d) 0.00% of the aggregate principal amount of the Existing Notes exchanged in excess of $115,100,000.

The total fee due and payable by the Company on the date when the Exchange Offer is consummated (the “Closing Date”) will be paid in cash in accordance with the fee structure above. The maximum cumulative fee payable by the Company pursuant to this Section 6 to you in connection with the Exchange Offer is $1,937,550.

7. Expenses. The Company agrees that it will pay the costs and expenses incident to the performance of its obligations hereunder whether or not any Plus Cash Notes are issued in exchange for Existing Notes in the Exchange Offer, including, without limitation (i) all costs and expenses incurred by dealers and brokers (including yourself), commercial banks, trust companies and nominees for their customary mailing and handling expenses incurred in forwarding the Exchange Offer Materials to their customers, (ii) the filing fees and expenses, if any, incurred with respect to any filing with The Nasdaq National Market (“Nasdaq”), (iii) the filing fees incident to securing any required review by the NASD, of the terms of the Exchange Offer, (iv) all costs and expenses incident to the preparation, issuance, execution and delivery of the Plus Cash Notes upon exchange of the Existing Notes, (v) all costs and expenses incident to the preparation, printing and filing under the Securities Act of the Registration Statement and the Prospectus (including, without limitation, in each case all exhibits, amendments and supplements thereto), (vi) all costs and expenses incident to the qualification of the Plus Cash Notes under state securities laws in accordance with the provisions of Section 9(c) hereof, the filing fees incident to any necessary filings under state securities laws and all costs and expenses in connection with the preparation of the Blue Sky Survey and any supplement thereto (including,

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without limitation, the costs and expenses incurred with the printing of the Blue Sky Survey and any supplement thereto), (vii) all costs and expenses incurred in connection with the printing (including word processing and duplication costs) and delivery of all Exchange Offer Materials (including, without limitation, any preliminary and supplemental Blue Sky memoranda) including, without limitation, mailing and shipping, (viii) all advertising expenses related to the Exchange Offer and the fees and expenses of the Exchange Agent and the Information Agent, (ix) all fees and expenses incurred in marketing the Exchange Offer, including but not limited to road show presentations, if any, and (x) the fees and disbursements of Pepper Hamilton LLP, counsel to the Company, and KPMG LLP, auditors to the Company. In addition, the Company agrees to reimburse the reasonable out-of-pocket expenses of the Dealer Manager in connection with the Exchange Offer, including without limitation, reasonable legal fees and expenses of your counsel in connection with the Exchange Offer; provided, that, subject to Section 11 hereof, the Company’s obligations under this Agreement and the Placement Agreement to reimburse you for your out-of-pocket expenses, including without limitation, legal fees and expenses, shall not exceed $150,000 in the aggregate.

8. Representations, Warranties and Agreements of the Company. The Company represents and warrants to you, and agrees with you, that:

(a) The Registration Statement, including the Prospectus, has been prepared by the Company in conformity with the requirements of the Securities Act and the Rules and Regulations thereunder and has been filed with the Commission; such amendments to such Registration Statement and Prospectus and such abbreviated registration statements pursuant to Rule 462(b) of the Rules and Regulations as may have been required prior to the date hereof have been similarly prepared and filed with the Commission; and the Company will file such additional amendments to such Registration Statement and Prospectus and such abbreviated registration statements as may hereafter be required. Copies of such Registration Statement and Prospectus, including all amendments thereto and all documents incorporated by reference therein, and of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations have been or, if filed after the Commencement Date, will be, delivered or made available to you and your counsel.

(b) The Schedule TO has been prepared by the Company in conformity with the requirements of the Exchange Act and the Rules and Regulations of the Commission thereunder and has been filed with the Commission; such amendments to such Schedule TO as may have been required prior to the date hereof have been similarly prepared and filed with the Commission; and the Company will file such additional amendments to such Schedule TO as may hereafter be required. Copies of such Schedule TO, including all amendments thereto and all documents incorporated by reference therein have been or, if filed after the Commencement Date will be, delivered or made available to you and your counsel.

(c) The Registration Statement, including the Prospectus, has been filed as of the Commencement Date and will become effective not later than the Expiration Date; and the Commission has not issued any order refusing or suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Prospectus or instituted proceedings for that purpose. The Exchange Offer Materials, including the Registration Statement, the Schedule

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TO and the Prospectus, comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act, the Exchange Act and the TIA, and the applicable Rules and Regulations of the Commission thereunder. The Registration Statement, when it becomes effective, will not contain and, as amended or supplemented, if applicable, will not contain, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor the other Exchange Offer Materials contain, and, as amended or supplemented, if applicable, will contain, any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that none of the representations and warranties contained in this subparagraph (c) shall apply to information contained in or omitted from the Exchange Offer Materials or the Registration Statement or Prospectus, or any amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to you furnished to the Company by you specifically for use in the preparation thereof.

(d) The Incorporated Documents previously filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act and the Rules and Regulations of the Commission thereunder; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and no such further amendment will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

(e) Subsequent to the respective dates as of which information is given in the Prospectus: (i) there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiary, considered as one entity, or any change which would adversely affect the power and ability of the Company to perform its obligations under this Agreement, the Placement Agreement, the Indenture, or the Plus Cash Notes (any such change or effect, where the context so requires, is called a “Material Adverse Change” or a “Material Adverse Effect”); (ii) the Company and its subsidiary, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business which has not been disclosed to the Dealer Manager or which, under the Securities Act or the Exchange Act and their respective Rules and Regulations would be required to be disclosed in the Exchange Offer Materials; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends paid to the Company, by its subsidiary on any class of capital stock, or no repurchase or redemption by the Company or its subsidiary of any class of capital stock.

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

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business as described in the Prospectus; the Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a Material Adverse Effect.

(g) The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiary listed in Exhibit 21 to the Company’s annual report on Form 10-K for the year ended December 31, 2003 as filed on March 19, 2004 (the “Annual Report”).

(h) The Company’s subsidiary, VCO, Incorporated, has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it was organized; has the corporate power to own, lease and operate its properties and conduct its business as described in the Prospectus; is qualified to do business as a foreign corporation and is in good standing in each jurisdiction, if any, in which the ownership and leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a Material Adverse Effect.

(i) All of the issued and outstanding shares of capital stock of the Company’s subsidiary, VCO, Incorporated, have been duly authorized and validly issued and are fully paid and nonassessable, and, except as disclosed in the Registration Statement, Prospectus and Exchange Offer Materials, are owned by the Company directly (except for directors’ qualifying shares), free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest.

(j) No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company.

(k) The Company has full legal right, power and authority to enter into and perform its obligations under this Agreement, the Placement Agreement, the Indenture and the Plus Cash Notes and to consummate the Exchange Offer and all other transactions contemplated in the Exchange Offer Materials. The Exchange Offer and all other actions by the Company contemplated in the Exchange Offer Materials have been duly and validly authorized by all necessary corporate action by the Company, and, except for the authorization of the final terms of the Plus Cash Notes by the Notes Committee of the Company’s Board of Directors, no other corporate proceedings by the Company are necessary to authorize such actions. This Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement on the part of the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether enforceability is considered in a proceeding of law or in equity). The execution and delivery by the Company of, and the

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performance by the Company of its obligations under this Agreement, the issuance and delivery by the Company of the Plus Cash Notes pursuant to the Exchange Offer, the consummation of the Exchange Offer, and the other transactions contemplated in the Exchange Offer Materials, and the fulfillment of the terms hereof and thereof, do not and will not result in a breach or imposition of any lien, charge or encumbrance upon any property or assets of the Company or its subsidiary pursuant to, (i) the charter or by-laws of the Company or its subsidiary, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company or its subsidiary is a party or is bound or to which its or their property is subject; or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or its subsidiary of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or its subsidiary or any of its or their properties; except where any breach, violation, or default described in (i), (ii) or (iii) would not singly or in the aggregate have a Material Adverse Effect. No consent, approval, authorization, filing with or order of any court, or governmental agency or regulatory body, is required in connection with the transactions contemplated by this Agreement, the Placement Agreement, the Indenture, the issuance and delivery of the Plus Cash Notes pursuant to the Exchange Offer, and the consummation by the Company or its subsidiary of the transactions contemplated herein or in the Exchange Offer Materials, except such as may be required under the Securities Act, the Exchange Act, the TIA or under state or other securities, or Blue Sky laws, all of which requirements have been satisfied other than as contemplated by such agreements or except where such requirement would not have a Material Adverse Effect on the execution and delivery of this Agreement, the Placement Agreement, the Indenture, the issuance of the Plus Cash Notes or the consummation of the transactions contemplated herein or in the Exchange Offer Materials.

(l) Except as disclosed in the Prospectus, there is not any action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator against the Company or its subsidiary or its or their property that is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a Material Adverse Effect on the consummation of the Exchange Offer, the transactions contemplated hereby or thereby or the other transactions contemplated in the Exchange Offer Materials that has not been accurately described in all material respects in the Registration Statement or the Prospectus, or (ii) could reasonably be expected to result in a Material Adverse Change.

(m) To the best of the Company’s knowledge, after due inquiry, the Company is not in violation of any domestic or foreign law, ordinance, administrative or governmental rule or regulation (including without limitation, those of the United States Food and Drug Administration (the “FDA”) and the United States Patent and Trademark Office and any corresponding foreign agencies) or court decree to which it is expressly bound, is not in violation of any term or condition of, and has not failed to obtain, any license, claim, permit, franchise or other administrative or governmental authorization necessary, whether domestic or foreign, from any regulatory body or administrative agency or other governmental body having jurisdiction over it (including without limitation, the FDA and any corresponding foreign agencies) to the ownership or lease of its properties and assets or to the conduct of its business as it is presently conducted, which violation, or failure to obtain would, individually or in the aggregate, have a Material Adverse Effect, or which might, if determined adversely to the Company, materially and

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adversely affect the execution, delivery or performance by the Company of this Agreement. All licenses, claims, permits, franchises or other administrative or governmental authorizations which are held by the Company are, and on the Closing Date will be, valid and subsisting and in good standing except where the failure to be so valid, subsisting and in good standing would not, individually or in the aggregate, have a Material Adverse Effect.

(n) There are no agreements, contracts, leases or documents of the Company or its subsidiary of a character required to be described or referred to in the Registration Statement or the Prospectus or any Incorporated Document or to be filed as an exhibit to the Registration Statement by the Securities Act or the Rules and Regulations thereunder or by the Exchange Act or the Rules and Regulations of the Commission thereunder which have not been accurately described in all material respects in the Registration Statement or Prospectus or any Incorporated Document or filed as exhibits to the Registration Statement or any Incorporated Document.

(o) All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or its subsidiary other than those described in the Prospectus. The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. The authorized and outstanding capital stock of the Company is as set forth in the Prospectus under the caption “Capitalization” and conforms in all material respects to the statements relating thereto contained in the Registration Statement and the Prospectus and any Incorporated Document (and such statements correctly state the substance of the instruments defining the capitalization of the Company); a sufficient number of Shares to be issuable pursuant to the terms of the Plus Cash Notes have been duly authorized for issuance and delivery and, when issued and delivered by the Company in accordance with the terms of the Plus Cash Notes will be duly authorized and validly issued and fully paid and nonassessable, and will be free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest; and no preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Shares issuable pursuant to the terms of the Plus Cash Notes to be issued in the Exchange Offer or the issuance thereof other than those that have been expressly waived prior to the date hereof and those that will automatically expire upon and will not apply to the consummation of the transactions contemplated on or before the Closing Date. No further approval or authorization of any shareholder, the Board of Directors of the Company (except for the authorization of final terms of the Plus Cash Notes by the Notes Committee of the Company’s Board of Directors) or others is required for the issuance or transfer of the Shares issuable pursuant to the terms of the Plus Cash Notes and except as may be required under the Securities Act, the Exchange Act or under state or other securities or Blue Sky laws.

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(p) The Indenture has been or will be duly authorized by the Company, has been filed as of the Commencement Date, will be qualified under the TIA not later than the Expiration Date, and assuming due authorization, execution and delivery of the Indenture by the Trustee, when executed and delivered by the Company, will constitute a valid and binding agreement of the Company, enforceable in accordance with its terms, except as the enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

(q) The Plus Cash Notes to be issued pursuant to the Exchange Offer have been authorized, and assuming due authorization, execution and delivery of the Indenture by the Trustee, when executed and authenticated in accordance with the provisions of the Indenture and delivered in accordance with the terms of the Exchange Offer, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company enforceable in accordance with their terms, except as the enforcement thereof may be limited by the (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). The Plus Cash Notes will conform in all material respects to the description thereof contained in the Registration Statement and Prospectus.

(r) The consolidated financial statements (including the related notes) included or incorporated by reference in the Registration Statement and the Prospectus (and any amendments or supplements thereto) present fairly in all material respects the consolidated financial position of the Company and its subsidiary as of and at the dates indicated and the results of their operations and cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles applied in the United States on a consistent basis throughout the periods indicated except as may otherwise be stated therein. The financial data set forth in the Prospectus under the captions “Selected Consolidated Financial Data” and “Capitalization” fairly present the information set forth therein on a basis consistent with that of the financial statements presented therein. The interim consolidated financial statements (including the related notes) included or incorporated by reference in the Registration Statement and the Prospectus (and any amendments and supplements thereto) have been prepared on a basis consistent with the audited consolidated financial statements, except as otherwise stated therein, and include all adjustments necessary to present fairly the financial information therein. No financial statements or schedules, other than the consolidated financial statements or schedules that are included in the Registration Statement and the Prospectus (and any amendments or supplements thereto), are required to be included therein.

(s) The Company and its subsidiary maintain a system of accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

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(t) KPMG LLP, who have expressed their opinion with respect to the audited financial statements (which term as used in this Agreement includes the related notes thereto) that are included in the Prospectus, are independent public or certified public accountants with respect to the Company within the meaning of the Securities Act and the applicable Rules and Regulations thereunder.

(u) The Company and its subsidiary has good and marketable title to all the properties and assets reflected as owned in the financial statements included in the Prospectus, in each case free and clear of any security interests, mortgages, liens, encumbrances, equities, claims and other defects, except such as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or such subsidiary or disclosed in the Prospectus. The real property, improvements, equipment and personal property held under lease by the Company or any subsidiary are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real property, improvements, equipment or personal property by the Company or such subsidiary.

(v) The Company and its subsidiary have filed all necessary federal, state and foreign income and franchise tax returns or appropriate extensions therefor and have paid all taxes shown thereon as due and, if due and payable, any related or similar assessment, fine or penalty levied against any of them. The Company has made adequate charges, accruals and reserves in the applicable financial statements included in the Prospectus in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or its subsidiary has not been finally determined. The Company is not aware of any tax deficiency that has been or might be asserted or threatened against the Company that could result in a Material Adverse Change.

(w) Each of the Company and its subsidiary owns or possesses adequate rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names and copyrights which are necessary to conduct its respective business as described in the Prospectus. The patents, patent rights, trademarks, service marks, trade names or copyrights described in the Prospectus have been maintained except those for which a lapse would not result in a Material Adverse Change that is not otherwise disclosed in the Prospectus; the Company has no knowledge of, any infringement of or conflict with asserted rights by the Company against others with respect to any of the Company’s valid patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights that is not disclosed in the Prospectus which would, singly or in the aggregate, have a Material Adverse Effect; and the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of others with respect to any valid patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect that is not described in the Prospectus. The Company and its subsidiary do not in the conduct of their businesses infringe or conflict with any right or patent of any third party, or any discovery, invention, product or process which is the subject of a patent application filed by any third party, known to the Company or any of its subsidiary, which such infringement or conflict is reasonably likely to result in a Material Adverse Change that is not described in the Prospectus. A true and complete list of patents owned or licensed by the Company has been provided to the Dealer Manager.

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(x) Except as disclosed in the Registration Statement and Prospectus, the Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is quoted on Nasdaq, the Company has taken no action designed to terminate, or likely to have the effect of terminating, the registration of the Common Stock under the Exchange Act or delisting the Common Stock from Nasdaq and the Company has not received any notification that the Commission or Nasdaq is contemplating terminating such registration or listing.

(y) The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company is not, and, as a consequence of the Exchange Offer and application of the proceeds therefrom as described in the Prospectus, will not be, required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the 1940 Act and will, until the completion of the Exchange Offer and the application of the proceeds therefrom as described in the Prospectus, conduct its business in a manner so that it will not become subject to the 1940 Act and the Rules and Regulations promulgated thereunder.

(z) The Company has not distributed and will not distribute prior to the later of (i) the Closing Date, and (ii) completion of the distribution of the Plus Cash Notes in exchange for the Existing Notes pursuant to the Exchange Offer, any offering material in connection with the Exchange Offer other than the Exchange Offer Materials.

(aa) The Company has not taken, directly or indirectly, any action resulting in a violation of Rule 102 of Regulation M promulgated under the Exchange Act or designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the distribution of the Plus Cash Notes.

(bb) The Exchange Agent Agreement and the Information Agent Agreement between the Company and U.S. Bank National Association (the “Exchange Agent Agreement”) and Georgeson Shareholder Communications, Inc. (the “Information Agent Agreement”), respectively, is or will be in full force and effect.

(cc) Except as otherwise disclosed in the Prospectus, (i) the Company is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of public health or the environment (“Environmental Laws”) which are applicable to its business, except where the failure to comply would not result in a Material Adverse Change, (ii) the Company has received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, and (iii) no property which is owned, leased or occupied by the Company has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site under applicable state or local law.

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(dd) No labor dispute with the employees of the Company or its subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of the Company or its subsidiary’s principal suppliers, manufacturers, customers, contractors or collaborators, which, in either case, may reasonably be expected to result in a Material Adverse Effect.

(ee) Each of the Company and its subsidiary are insured by recognized, financially sound and reputable institutions with policies in such amounts and with such deductibles and covering such risks as are generally deemed adequate and customary for their respective businesses, including, but not limited to, policies covering real and personal property owned or leased by the Company and its subsidiary against theft, damage, destruction and acts of vandalism, general liability and Directors and Officers liability. The Company has no reason to believe that it or any subsidiary will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change. Neither of the Company nor any subsidiary has been denied any insurance coverage which it has sought or for which it has applied.

(ff) To the best knowledge of the Company, the present fair saleable value of the assets of the Company exceeds, and, upon the issuance of the securities and the application of the proceeds thereof as contemplated by the Prospectus, will exceed, the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Company as they become absolute and matured; the assets of the Company do not, and, upon the issuance of the securities and the application of the proceeds thereof as contemplated by the Prospectus, will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted, including the capital needs of the Company, taking into account the projected capital requirements and capital availability of the Company; the Company does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature.

(gg) Neither the Company nor its subsidiary nor, to the best of the Company’s knowledge, any employee or agent of the Company or any subsidiary, has made, in the last five years, any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law.

(hh) Each “employee benefit plan” (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”) established or maintained by the Company, a subsidiary or their ERISA Affiliates (as defined below) (collectively the “Plans”) is in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company or a subsidiary, any member of any group of organizations described in section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company or such subsidiary is a member. Neither the Company, a subsidiary nor any ERISA Affiliate has ever contributed to, contributes to, been required to contribute to or has any liability with respect to any employee benefit plan subject to Title IV or ERISA, section 412 of the Code or section 302 of ERISA.

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Each of the Plans established or maintained by the Company, a subsidiary or any of their ERISA Affiliates that is intended to be qualified under section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification. Neither the Company, a subsidiary nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under section 4975 or 4980B of the Code. There are no actions, suits or claims pending, threatened or to the Company’s knowledge, anticipated (other than routine claims for benefits) against any of the Plans, their assets or their fiduciaries.

(ii) There are no business relationships or related-party transactions involving the Company or any subsidiary or any other person required to be described in the Registration Statement which have not been described as required.

(jj) There are no documentary stamp or other issuance or transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement, the Placement Agreement or the Indenture, or the issuance and sale by the Company of the Plus Cash Notes. The Company has not paid or agreed to pay any person any compensation for soliciting another to purchase any Plus Cash Notes (except as contemplated by this Agreement).

(kk) All written communications, in addition to the Schedule TO, made during the period from the first public announcement and to the earlier of either the termination date or the Closing Date of the Exchange Offer, have been or will be filed with the Commission in accordance with the Exchange Act and the Rules and Regulations thereunder, including Rule 13e-4 under the Exchange Act.

(ll) Except as disclosed in the Prospectus, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Securities Act.

(mm) Each of the collaboration or strategic alliance agreements, including without limitation, license agreements, described in the Prospectus (collectively, the “Strategic Agreements”) is in full force and effect and constitutes a valid and binding agreement between the parties thereto, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether enforceability is considered in a proceeding at law or in equity), and there has not occurred with respect to the Company’s obligations or, to the knowledge of the Company, any obligations of any other party to the Strategic Agreements, any default under any such Strategic Agreements or any event that with the giving of notice or lapse of time would constitute a default thereunder, except for such defaults or events that would not, individually or in the aggregate, have a Material Adverse Effect.

(nn) Statements set forth in the Annual Report, the Prospectus and the Registration Statement, insofar as they purport to describe provisions of the Company’s strategic agreements and provisions of laws and regulations relating to government regulation and intellectual property, are accurate descriptions or summaries in all material respects.

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9. Further Agreements of the Company. The Company agrees with you that:

(a) The Company will use its best efforts to cause the Registration Statement and any amendment thereof to become effective as soon as possible but no later than the Expiration Date; the Company will use its best efforts to cause any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations as may be required subsequent to the date the Registration Statement is declared effective to become effective as promptly as possible; the Company will notify you, promptly after it shall receive notice thereof, of the time when the Registration Statement, any subsequent amendment to the Registration Statement or any abbreviated registration statement has become effective or any supplement to the Prospectus or additional Exchange Offer Materials has been filed; if for any reason the filing of the final form of Prospectus is required under Rule 424(b) of the Rules and Regulations, the Company will provide evidence satisfactory to you that the Prospectus contains such information and has been filed with the Commission within the time period prescribed; the Company will notify you promptly of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or other Exchange Offer Materials or for additional information relating to the Exchange Offer; promptly upon your request, the Company will prepare and file with the Commission any amendments or supplements to the Registration Statement or Prospectus or other Exchange Offer Materials which, in the opinion of your counsel, may be necessary or advisable in connection with the Exchange Offer; the Company will promptly prepare and file with the Commission, and promptly notify you of the filing of, any amendments or supplements to the Registration Statement or the Prospectus or other Exchange Offer Materials which may be necessary to correct any statements or omissions, if, at any time when a Prospectus relating to the Exchange Offer is required to be delivered under the Securities Act and the Exchange Act, any event shall have occurred as a result of which the Prospectus or any other prospectus relating to the Exchange Offer as then in effect would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and the Company will file no amendment or supplement to the Registration Statement or the Prospectus or other Exchange Offer Materials or Incorporated Documents or, prior to the end of the period of time in which the Exchange Offer Materials relating to the Exchange Offer are required to be delivered under the Securities Act and Exchange Act, file any document which upon filing becomes an Incorporated Document, which shall not previously have been submitted to you a reasonable time prior to the proposed filing thereof and will give reasonable consideration to your or your counsel’s comments, if any, thereon, subject, however, in all cases to compliance with the Securities Act and the Rules and Regulations, the Exchange Act and the Rules and Regulations of the Commission thereunder and the provisions of this Agreement. Notwithstanding anything else to the contrary set forth in this Agreement, the Company reserves the right to terminate the Exchange Offer prior to the Expiration Date of the Exchange Offer or amend or modify the terms and conditions of the Exchange Offer in its sole and absolute discretion, other than the condition that the Registration Statement be declared effective or any term or condition required by law, subject to the Company’s obligations under Sections 6, 7 and 11 of this Agreement in the event that the Dealer Manager withdraws pursuant to Section 5 as a result of any such termination, amendment or modification.

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(b) The Company will advise you, promptly after it shall receive notice or obtain knowledge, of the issuance of any order by the Commission refusing or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its best efforts to prevent the issuance of any refusal or stop order or to obtain its withdrawal at the earliest possible moment if such refusal or stop order should be issued.

(c) The Company will use its best efforts to qualify or obtain an exemption for the Plus Cash Notes issuable pursuant to the Exchange Offer under the securities laws of such jurisdictions as you may designate and to continue such qualifications in effect or exemptions, as applicable, for so long as may be required for purposes of the Exchange Offer, except that the Company shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process or subject itself to taxation in any jurisdiction in which it is not otherwise required to be so qualified or to so execute a general consent to service of process or subject to taxation. In each jurisdiction in which the Plus Cash Notes shall have been qualified or exempted as above provided, the Company will make and file such statements and reports in each year as are or may be required by the laws of such jurisdiction.

(d) The Company will use its best efforts to have the shares of Common Stock underlying the Plus Cash Notes accepted for quotation on Nasdaq.

(e) The Company will make generally available to its security holders and to the Dealer Manager by filing with the Commission as soon as is practicable, an earnings statement covering a twelve-month period beginning not later than the first day of the Company’s next fiscal quarter following the effective date of the Registration Statement that satisfies the provisions of Section 11(a) of the Securities Act and the Rules and Regulations of the Commission thereunder.

(f) The Company will use its best efforts to advise or cause the Exchange Agent to advise the Dealer Manager at 12:00 midnight, New York City time, or promptly thereafter, daily (or more frequently if requested), by telephone or facsimile transmission, with respect to Existing Notes tendered as follows: (i) the aggregate principal amount of Existing Notes validly tendered and represented by confirmations of receipt of book-entry transfer of Existing Notes pursuant to the procedures set forth in the Exchange Offer on such day, (ii) the aggregate principal amount of any Existing Notes properly withdrawn on such day, and (iii) the cumulative totals of the principal amount of Existing Notes in categories (i) through (ii), inclusive, above.

(g) Without limiting Sections 5, 7 and 13 of this Agreement, if the transactions contemplated hereby are not consummated by reason of any failure, refusal or inability on the part of the Company to perform any agreement on its part to be performed hereunder or to fulfill any condition of your obligations hereunder, the Company will reimburse you for all out-of-pocket expenses (including reasonable fees and reasonable disbursements of your counsel) incurred by you in connection with the Exchange Offer.

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(h) During a period of 90 days from the date of the Prospectus, the Company will not, without the prior written consent of the Dealer Manager, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any options or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any Shares or any securities convertible into or exercisable or exchangeable for Shares or file any registration statement under the Securities Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Shares, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Shares or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Plus Cash Notes to be sold hereunder, (B) any Shares issued or options to purchase Shares granted pursuant to existing stock-ownership plans of the Company referred to in the Prospectus, (C) any Shares issued in connection with the rights described in the Prospectus, (D) any Shares issued pursuant to any non-employee director stock plan or dividend reinvestment plan, (E) Shares issuable upon the conversion of any of the Company’s outstanding Existing Notes, (F) issuances of Shares (and agreements to provide such Shares) as full or partial consideration in connection with the Company’s acquisition of any entity or of any rights to any product candidate or in connection with the First Amended and Restated Collaboration and License Agreement dated June 26, 2003 between the Company and Wyeth or (G) any Shares issuable upon the conversion of any of the Plus Cash Notes.

10. Conditions of Dealer Manager’s Obligations. Your obligations as provided herein shall be subject at all times on and prior to the Closing Date to the accuracy of the representations and warranties of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions:

(a) The Registration Statement shall have been filed prior to the Commencement Date and no stop order refusing the effectiveness thereof shall have been issued and the Registration Statement shall become effective prior to the Expiration Date and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for either purpose shall have been initiated or, to the knowledge of the Company or you, threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement, the Prospectus, any Incorporated Document or other Exchange Offer Materials or otherwise) shall have been complied with to the reasonable satisfaction of your counsel.

(b) After execution and delivery of this Agreement and prior to the Closing Date there shall not have occurred from the respective dates as of which information is given in the Prospectus (exclusive of any amendment or supplement thereto) (i) any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company whether or not arising in the ordinary course of business, or (ii) any material adverse change in the financial markets in the United States or in the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, which in each case the effect of which is such as to make it, in the judgment of the Dealer Manager, impracticable or inadvisable to market the Plus Cash Notes

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or to enforce contracts for the exchange and/or sale of the Plus Cash Notes, or (iii) any trading suspension or material limitation in trading instituted by the Commission or Nasdaq, or generally, any trading suspension or material limitation in trading on the American Stock Exchange or the New York Stock Exchange or on Nasdaq, or the fixing of minimum or maximum prices for trading, or the establishment of required maximum ranges for prices by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or the occurrence of a material disruption in commercial banking or securities settlement or clearance services in the United States, or (iv) the declaration of a banking moratorium by either Federal or New York authorities.

(c) All corporate proceedings and other legal matters in connection with this Agreement, the Registration Statement, the Prospectus, other Exchange Offer Materials or otherwise, and the registration, authorization, issue, and delivery of the Plus Cash Notes issuable in accordance with the Exchange Offer, shall have been completed in a manner reasonably satisfactory to your counsel.

(d) You shall have received the opinion of Pepper Hamilton LLP, counsel for the Company, dated the Closing Date, addressed to you, substantially to the effect set forth in Exhibit B-1 hereto.

(e) You shall have received the opinion of Dann Dorfman Herrell and Skillman, patent counsel for the Company, dated the Closing Date, addressed to you, substantially to the effect set forth in Exhibit B-2 hereto.

Counsel rendering the foregoing opinions in (d) and (e) may rely as to questions of law not involving the laws of the United States of America and the State of Delaware upon opinions of local counsel, and as to questions of fact upon representations or certifications of officers of the Company, and of government officials, in which case their opinion is to state that they are so relying and that they have no knowledge of any material misstatement or inaccuracy in any such opinion, representation or certificate. Copies of any opinion, representation or certificate so relied upon shall be delivered to you, as Dealer Manager, and to your counsel.

(f) You shall have received on the Closing Date an opinion of Shearman & Sterling LLP, in form and substance satisfactory to you, with respect to the sufficiency of all such corporate proceedings and other legal matters relating to this Agreement and the transactions contemplated hereby as you may reasonably require, and the Company shall have furnished to such counsel such documents as they may have reasonably requested for the purpose of enabling them to pass upon such matters.

(g) At the time of the execution of this Agreement, you shall have received from KPMG LLP, a letter dated such date, in form and substance satisfactory to you containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information for the fiscal years 2001, 2002 and 2003 contained in the Prospectus.

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(h) You shall have received by or on the effective date of the Registration Statement, a bring-down comfort letter, dated as of the effective date (or one business day prior thereto) as the case may be, from KPMG LLP addressed to you which shall reaffirm the statements made in the letter referenced in (g) above.

(i) You shall have received by or on the Closing Date, a bring-down comfort letter dated as of the Closing Date (or one business day prior thereto) as the case may be, from KPMG LLP addressed to you which shall reaffirm the statements made in the letters referenced in (g) and (h) above.

(j) You shall have received a certificate of the Company, dated as of the Closing Date, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying on behalf of the Company that, and you shall be satisfied that:

(i) the representations and warranties of the Company in this Agreement are true and correct in all material respects, as if made on and as of the Closing Date or such other date as of which any representation speaks, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date, as the case may be;

(ii) no stop order refusing or suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Securities Act;

(iii) when the Registration Statement became effective and at all times subsequent thereto up to the date of such certificate, the Registration Statement and the Prospectus, and any amendments or supplements thereto, and the Incorporated Documents contained all material information required to be included therein by the Securities Act and the Rules and Regulations thereunder or the Exchange Act and the applicable Rules and Regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Securities Act and the Rules and Regulations thereunder or the Exchange Act and the applicable Rules and Regulations of the Commission thereunder, as the case may be; the Registration Statement, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; the Prospectus, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; and

20

(iv) subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus and up to the date of such certificate, and except as disclosed therein, there has not been (a) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiary considered as one enterprise, (b) any transaction that is material to the Company and its subsidiary considered as one enterprise, except transactions entered into in the ordinary course of business, (c) any obligation, direct or contingent, that is material to the Company and its subsidiary considered as one enterprise, incurred by the Company or its subsidiary, except obligations incurred in the ordinary course of business, (d) any change in the capital stock or outstanding indebtedness of the Company that is material to the Company and its subsidiary considered as one enterprise, (e) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company, or (f) any loss or damage (whether or not insured) to the property of the Company or its subsidiary which has been sustained or will have been sustained and which has a Material Adverse Effect or a Material Adverse Effect on the ability of the Company to perform its obligations under the Exchange Offer or consummate the Exchange Offer.

(k) The Company shall have furnished to you such further certificates and documents as you shall reasonably request (including certificates of officers of the Company) as to the accuracy of the representations and warranties of the Company herein, as to the peformance of the Company of its obligations hereunder and as to the other conditions concurrent and precedent to your obligations hereunder.

(l) You shall have received lock-up letters, dated the date of this Agreement, substantially in the form set forth in Exhibit A hereto, from each of the executive officers and directors of the Company set forth in Schedule A hereto.

(m) You shall have received on the Closing Date, all fees payable to you in cash pursuant to Section 6 hereof.

(n) The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the terms and arrangements in connection with the offering of the Plus Cash Notes.

All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are reasonably satisfactory to your counsel. The Company will furnish you with such number of conformed copies of such opinions, certificates, letters and documents, as you shall reasonably request.

11. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold you harmless against any losses, claims, damages or liabilities, joint or several, to which you may become subject under the Securities Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of the Company herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendments or supplements thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii)

21

any untrue statement or alleged untrue statement of any material fact contained in any Prospectus or other Exchange Offer Materials or any amendment or supplement thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and agrees to reimburse you for any legal or other expenses reasonably incurred by you in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Prospectus, the Schedule TO, any other Exchange Offer Materials, or any amendment or supplement thereto, made in reliance upon and in conformity with written information furnished to the Company by you expressly for use in the Registration Statement, the Prospectus, the Schedule TO or any other Exchange Offer Materials or any amendment or supplement thereto or in the preparation thereof.

The indemnity agreement in this Section 11(a) shall extend upon the same terms and conditions to, and shall inure to the benefit of, you and your affiliates and the partners, directors, officers, employees and agents of you and your affiliates, and each person or entity, if any, who controls or is under common control with, you within the meaning of the Securities Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities which the Company may otherwise have.

(b) You agree to indemnify and hold harmless the Company against any losses, claims, damages or liabilities, joint or several, to which the Company may become subject under the Securities Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of yours herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendments or supplements thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in the Prospectus or other Exchange Offer Materials or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in the case of subparagraphs (ii) and (iii) of this Section 11(b) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon, and in conformity with, written information furnished to the Company by you specifically for use in the Registration Statement, the Prospectus, the Schedule TO, any other Exchange Offer Materials or any amendment or supplement thereto or in the preparation thereof, and you agree to reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action.

The indemnity agreement in this Section 11(b) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each officer of the Company who signed the Registration Statement and each director of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities, which you may otherwise have.

22

(c) Promptly after receipt by an indemnified party under this Section 11 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 11, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve such indemnifying party from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 11 or to the extent the indemnifying party is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party’s election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 11 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party (the Company in the case of Section 11(a) and Piper Jaffray & Co. in the case of Section 11(b)), representing the indemnified parties who are parties to such action), (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of such action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party.

(d) The indemnifying party under this Section 11 shall not be liable for any settlement of any proceeding effected without its written consent, unless the indemnifying party shall have approved the terms of settlement; provided that such consent shall not be unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have

23

been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes (i) an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

(e) In order to provide for just and equitable contribution in any action in which a claim for indemnification is made pursuant to this Section 11 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 11 provides for indemnification in such case, all the parties hereto shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that you are responsible for the portion represented by the percentage that the maximum Dealer Manager’s fee payable to the Dealer Manager pursuant to Section 6 hereof bears to the value of the maximum amount of Plus Cash Notes issuable pursuant to the Exchange Offer, and the Company is responsible for the remaining portion, provided, however, that (i) you shall not be required to contribute any amount in excess of the amount by which the fee paid to you pursuant to Section 6 hereof exceeds the amount of damages which you have been otherwise required to pay and (ii) no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The contribution agreement in this Section 11(d) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls you or the Company within the meaning of the Securities Act or the Exchange Act and each officer of the Company who signed the Registration Statement and each director of the Company.

24

12. Representations, Warranties, Covenants and Agreements to Survive Delivery. All representations, warranties, covenants and agreements of the Company and you herein or in certificates delivered pursuant hereto, and the indemnity and contribution agreements contained in Section 11 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any person controlling you within the meaning of the Securities Act or the Exchange Act, or by or on behalf of the Company or any of its officers, directors or controlling persons within the meaning of the Securities Act or the Exchange Act, and shall survive the completion of the Exchange Offer or termination of this Agreement.

13. Termination. (a) This Agreement shall terminate upon the earliest to occur of (i) thirty days after the Expiration Date, (ii) any of the conditions specified in Section 10 has not been fulfilled as of any date such condition is required to be fulfilled pursuant to Section 10 (and the Dealer Manager shall have notified the Company thereof), (iii) the date on which the Company terminates or withdraws the Exchange Offer for any reason, or (iv) any modification to any of the terms and conditions of the Exchange Offer (other than any term or condition required by law) in the Company’s sole and absolute discretion that results in the Dealer Manager withdrawing pursuant to Section 5 hereof, (the earliest to occur of clauses (i), (ii), (iii) or (iv) being referred to as the “Termination Date”).

(b) Notwithstanding termination of this Agreement pursuant to subsection (a) above, the obligations of the parties pursuant to Sections 6, 7 and 11 shall survive any termination of this Agreement.

If you elect to terminate this Agreement as provided in this Section 13, you shall promptly notify the Company by telephone, telecopy or telegram, in each case confirmed by letter.

14. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to you shall be mailed, delivered, or telecopied (and confirmed by letter) to you c/o Piper Jaffray & Co., 800 Nicollet Mall, Suite 800, Minneapolis, MN 55402-7020 telecopier number (612-303-1772), Attention: General Counsel’s Department; if sent to the Company, such notice shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to ViroPharma Incorporated, 405 Eagleview Boulevard, Exton, PA 19341, Attention: Thomas Doyle, with a copy to Pepper Hamilton LLP, 400 Berwyn Park, 899 Cassatt Road, Berwyn, PA 19312, Attention: Jeffrey P. Libson.

15. Parties. This Agreement shall inure to the benefit of and be binding upon the Dealer Manager and the Company and their respective executors, administrators, successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or entity, other than the parties hereto and their respective executors, administrators, successors and assigns, and the controlling persons within the meaning of the Securities Act or the Exchange Act, officers and directors referred to in Section 11 hereof, any legal or equitable right, remedy or claim in respect of this Agreement or any provisions herein contained. This Agreement, and all conditions and provisions hereof, is intended to be and is for the sole and exclusive benefit of the parties hereto and their respective executors, administrators,

25

successors and assigns and said controlling persons and said officers and directors, and for the benefit of no other person or entity. No Holder of Plus Cash Notes shall be construed a successor or assign by reason merely of such exchange.

16. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

17. Counterparts. This Agreement may be signed in several counterparts, each of which will constitute an original.

26

Please indicate your willingness to act as Dealer Manager on the terms set forth herein and your acceptance of the foregoing provisions by signing in the space provided below for that purpose and returning to us a copy of this letter, whereupon this letter and your acceptance shall constitute a binding agreement between us.

Very truly yours,
VIROPHARMA INCORPORATED
By
	Name:
	Title:

Accepted as of the date first above written:

PIPER JAFFRAY & CO.

By
	Name: Brendan C. Dyson
	Title: Managing Director

27

Schedule A

Persons Subject to Lock-Up

Michel de Rosen

Thomas F. Doyle

Vincent J. Milano

William D. Claypool

Paul A. Brooke

Robert J. Glaser

Michael R. Dougherty

Frank Baldino, Jr.

Exhibit A

Form of Lock-up

                    , 2004

Piper Jaffray & Co.

Piper Jaffray Tower

222 South Ninth Street

Minneapolis, MN 55402

Re: ViroPharma Incorporated

Ladies and Gentlemen:

Reference is made to a Registration Statement on Form S-4 and Form S-3 of ViroPharma Incorporated (the “Company”) (as the same may now or hereafter exist or be amended, the “Registration Statement”) pursuant to which it is proposed that $                     principal amount of the Company’s 6.0% Convertible Senior Plus Cash Notes_SM due 2009 (the “Notes”) will be exchanged for $                     principal amount of the Company’s 6.0% Convertible Notes due 2007 (the “Exchange Offer”), or on such other terms as described in the final prospectus with respect to such offering for which Piper Jaffray & Co. (“Piper Jaffray”) will act as the dealer manager (the “Dealer Manager”) and pursuant to which it is proposed that there will be a public offering of $25,000,000 of the Notes (the “Public Offering”) for which Piper Jaffray will act as the placement agent (the “Placement Agent”). Shares of Common Stock, $0.002 par value per share, of the Company (“Common Stock”) are held by the undersigned.

In order to induce Piper Jaffray, as the Dealer Manager that may participate in the Exchange Offer, and as the Placement Agent that may participate in the Public Offering, to continue its efforts in connection with the Exchange Offer and the Public Offering, the undersigned hereby agrees not to, directly or indirectly, sell, offer to sell, contract to sell, pledge, grant any option for sale or purchase of, agree to sell or otherwise dispose of (collectively “Disposition”), any shares of Common Stock, or any securities convertible into or exercisable for Common Stock (individually and collectively, the “Securities”), beneficially owned by the undersigned now or acquired by the undersigned on or before the effective date of the Registration Statement (the “Effective Date”), or with respect to which the undersigned now has, or on or before the Effective Date acquires, the power of Disposition, for a period commencing on the Effective Date and ending 90 days thereafter (the “Lock-Up Period”), without the prior written consent of Piper Jaffray; provided, however, that the foregoing agreement shall not apply to (i) gifts to family members or charitable contributions of Common Stock or securities convertible into or exercisable for Common Stock made by the undersigned in transfers not involving a public distribution or public offering, if the recipient of such gift or contribution agrees in writing as a condition precedent to such gift or contribution to be bound by the terms hereof, or (ii) transfers of Securities to “affiliates” of the transferor in transfers not involving a public distribution or public offering, if the transferee agrees in writing as a condition precedent to such transfer to be bound by the terms hereof. The term “affiliate” shall have the meaning given such term in Rule 144 under the Securities Act of 1933. The transferor shall notify Piper

Jaffray in writing prior to the transfer and shall deliver the above-mentioned agreement on the part of the permitted transferee, in form and substance satisfactory to Piper Jaffray. During the Lock-Up Period, there shall be no further transfer of Common Stock or securities convertible into or exercisable for Common Stock, by either the undersigned or any permitted transferee, except in accordance with this letter agreement.

The foregoing restriction has been expressly agreed to preclude the holder of the Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Securities during the Lock-Up Period, even if such Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that included, relates to or derives any significant part of its value from Securities.

In furtherance of the foregoing, the Company and its transfer agent are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this letter agreement. The undersigned also agrees and consents to the entry of stock transfer instructions with the Company’s transfer agent against the transfer of any shares of Common Stock or securities convertible into or exercisable for Common Stock.

In addition, the undersigned hereby waives any rights with respect to the registration of Securities, including any “piggyback” or demand rights for registration of the Securities under any federal or applicable state securities laws, that the undersigned may be entitled to exercise as a result of or in connection with the filing of the Registration Statement or the Exchange Offer or the Public Offering generally, and further agrees that, without the prior written consent of Piper Jaffray, it will not, during the period commencing on the date hereof and ending 90 days after the Effective Date, make any demand for or exercise any right with respect to, the registration of any Securities.

Whether or not the Exchange Offer or the Public Offering actually occurs depends upon a number of factors, including market conditions. Any Exchange Offer will only be made pursuant to a dealer-manager agreement, the terms of which are subject to negotiation between the Dealer Manager and the Company. Any Public Offering will only be made pursuant to a placement agent agreement or purchase agreement, the terms of which are subject to negotiation between the Placement Agent and the Company.

The undersigned intends to be legally bound hereby.

Very truly yours,

Printed Name of Holder

A-2

By:
	Signature
	Printed Name of Person Signing
	(and indicate capacity of person signing if signing
	as custodian, trustee, or on behalf of an entity)
Date:

A-3

Exhibit B-1

Form of opinion of Pepper Hamilton LLP

to be delivered pursuant to Section 10(d)

(1) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; (ii) the Company has the corporate power and corporate authority to enter into this Agreement, the Exchange Agent Agreement, the Information Agent Agreement, the Placement Agreement and the Indenture under which the Plus Cash Notes will be issued pursuant to the Exchange Offer and the New Money Offer; and (iii) the execution and delivery by the Company of the Dealer Manager Agreement and the Placement Agreement, the performance by the Company of its obligations thereunder and the issuance and delivery by the Company of the Plus Cash Notes pursuant to the Indenture and consummation by the Company of the Exchange Offer and the New Money Offer have been duly authorized by all necessary corporate action on the part of the Company, and the Dealer Manager Agreement has been duly executed and delivered by the Company.

(2) Each of the Exchange Agent Agreement, the Dealer Manager Agreement and the Information Agent Agreement have been duly authorized, executed and delivered by the Company.

(3) The Company is not, and immediately after having given effect to the Exchange Offer and the New Money Offer, and, upon application of the proceeds therefrom as described in the Registration Statement and Prospectus, will not be, required to be registered as an “investment company” as such term is defined in the 1940 Act.

(4) The Registration Statement has been filed under the Securities Act prior to the Commencement Date and, to our knowledge, no refusal order preventing effectiveness, and after effectiveness, no stop order suspending the effectiveness, of the Registration Statement has been issued by the Commission and, to our knowledge, no proceedings for that purpose have been instituted or are pending or threatened by the Commission;

(5) The Registration Statement and the Prospectus, and each amendment or supplement thereto (other than the financial statements, including supporting schedules, and the financial and statistical data contained or incorporated by reference therein, as to which we express no opinion), as of the effective date of the Registration Statement, complied as to form in all material respects with the requirements of the Securities Act and the applicable Rules and Regulations of the Commission thereunder.

(6) The Schedule TO, each amendment or supplement thereto and the documents required by Item 12 thereof (other than the financial statements, including supporting schedules, and the financial and statistical data contained or incorporated by reference therein, as to which we express no opinion) comply as to form in all material respects with the requirements of the Exchange Act and the Rules and Regulations of the Commission thereunder.

(7) Each of the Incorporated Documents (other than the financial statements, including supporting schedules, and the financial and statistical data contained or incorporated by reference therein, as to which we express no opinion) complied when filed pursuant to the

Exchange Act and the applicable Rules and Regulations of the Commission thereunder, as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations of the Commission thereunder and the Exchange Act and the applicable Rules and Regulations of the Commission thereunder.

(8) The information in the Prospectus under the captions “The Exchange Offer,” “Description of Existing Notes,” “Description of Plus Cash Notes” and “Description of Capital Stock,” insofar as such statements purport to constitute summaries of legal matters, legal proceedings or legal conclusions, has been reviewed by us and provides an accurate summary in all material respects of such matters, proceedings or conclusions.

(9) The statements in the Prospectus under the caption “United States Federal Income Tax Considerations,” insofar as such statements purport to constitute a summary of legal matters, legal proceedings or legal conclusions, has been reviewed by us and provides an accurate summary in all material respects of such matters, proceedings or conclusions.

(10) No consent, approval, authorization, permit or order of or qualification with any U.S. or Delaware government or governmental agency or body having jurisdiction over the Company or over any of its properties or operations, is necessary in connection with the consummation by the Company of the transactions contemplated by the Dealer Manager Agreement, the issuance and delivery of the Plus Cash Notes pursuant to the Exchange Offer and the consummation of the Exchange Offer, except such as have been obtained under the Securities Act, the Exchange Act or the TIA or such as may be required under state or other securities or Blue Sky laws or as contemplated by the Dealer Manager Agreement.

(11) The Indenture has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery of the Indenture by the Trustee, constitutes a valid and binding agreement of the Company under the laws of the State of New York enforceable against the Company in accordance with its terms, and the Indenture has been qualified under the TIA.

(12) The Plus Cash Notes issued by the Company in the Exchange Offer, when (i) executed and authenticated in accordance with the provisions of the Indenture by the Company, assuming due authorization, execution and delivery of the Indenture and authentication of the Plus Cash Notes by the Trustee in accordance with the provisions of the Indenture, and (ii) delivered by the Company in accordance with the terms of the Exchange Offer, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company under the laws of the State of New York enforceable against the Company in accordance with their respective terms.

(13) The Shares issuable by the Company upon conversion of the Plus Cash Notes issued in the Exchange Offer and the New Money Offer have been duly authorized and reserved for issuance by the Company upon conversion of the Plus Cash Notes issued in the Exchange Offer and the New Money Offer and, when issued and delivered by the Company in accordance with the terms of the Indenture, will be validly issued, fully paid and nonassessable, and will not

B-1-2

have been issued in violation of any statutory, contractual or preemptive right, co-sale right, registration right, right of first refusal or other similar right pursuant to the articles of by-laws of the Company or Delaware General Corporation Law; and to our knowledge, the shareholders of the Company have no contractual preemptive rights, co-sale rights, registration rights, rights of first refusal or other similar rights with respect to any of the Shares or applicable to the issuance or sale by the Company of any thereof.

(14) The Company has the corporate power and corporate authority to own, lease and operate its properties and to conduct its business as described in the Prospectus.

(15) The Company is duly qualified to do business as a foreign corporation and is in good standing in the Commonwealth of Pennsylvania, which the Company has informed us are the only jurisdictions in which it owns or leases real property or otherwise conducts business.

(16) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the title “Capitalization” as of the date stated therein; the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and nonassessable, and, to our knowledge, have not been issued in violation of any preemptive right, co-sale right, registration right, right of first refusal or other similar right

(17) To our knowledge, there are no legal or governmental proceedings pending or threatened against the Company required to be disclosed in the Registration Statement or the Prospectus by the Securities Act or the Rules and Regulations thereunder or by the Exchange Act or the applicable Rules and Regulations of the Commission thereunder, other than those described therein.

(18) To our knowledge the Company is not presently in material violation of its respective charter or bylaws.

(19) The execution and delivery by the Company of, and the performance by the Company of its obligations under, the Dealer Manager Agreement, the issuance and delivery by the Company of the Plus Cash Notes pursuant to the Exchange Offer and consummation by the Company of the Exchange Offer and the fulfillment of the terms hereof and thereof, other than performance of the Company’s indemnification and contribution obligations under the Dealer Manager Agreement, as to which we express no opinion, will not (a) result in any violation of the Certificate of Incorporation or By-laws of the Company or (b) to our knowledge, result in a breach or violation of any of the terms and provisions of, or constitute a material default under, any bond, debenture, note or other evidence of indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument that has been filed as an exhibit to (or incorporated by reference in) the Company’s most recent annual report on Form 10-K for the year ended December 31, 2003, or any applicable statute, rule or regulation of the United States or the Delaware General Corporation Law, or any order, writ or decree known to us of any court, government or governmental agency or body of the United States or the State of Delaware pursuant to the Delaware General Corporation Law having jurisdiction over the Company or its subsidiary, or over any of its or their properties or operations; provided, however, that we express no opinion concerning state securities or Blue Sky laws.

B-1-3

(20) Each of the collaboration or strategic alliance agreements set forth on Schedule A* (collectively, the “Strategic Agreements”) constitutes a valid and binding agreement between the parties thereto, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether enforceability is considered in a proceeding at law or in equity), and, to our knowledge, there has not occurred any default under any such Strategic Agreements or any event that with the giving of notice or lapse of time would constitute a default thereunder, except for such defaults or events that would not, individually or in the aggregate, have a Material Adverse Effect.

(21) There are no business relationships or related-party transactions known to us involving the Company or VCO, Incorporated or any other person required to be described in the Registration Statement which have not been described as required.

In the course of the preparation of the Registration Statement and the Prospectus, we have participated in conferences with certain officers, employees and other representatives of the Company, KPMG LLP, the Company’s independent public accountants and your representatives and counsel concerning the information contained in the Registration Statement and the Prospectuses. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus. Based on our participation as described above, nothing has come to our attention that would lead us to believe that the Registration Statement, including any Incorporated Document and other Exchange Offer Materials (except for financial statements, financial statement schedules, and other financial and statistical data contained or incorporated by reference therein, as to which we make no statement), at the time the Registration Statement became effective, contained an untrue statement of a material fact, or omitted 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, or that the Prospectus (except for financial statements, financial statement schedules, and other financial and statistical data contained or incorporated by reference therein, as to which we make no statement), as of its date or as of the date hereof, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

* Schedule A to list Wyeth, GSK and Schering agreements.

B-1-4

Exhibit B-2

Form of opinion of intellectual property counsel

to be delivered pursuant to Section 10(e)

[                    ], 2004

Piper Jaffray & Co.

Piper Jaffray Tower

222 South Ninth Street

Minneapolis, MN 55402

Re:	Convertible Note Exchange Offering
	of ViroPharma Incorporated

Dear Ladies/Gentlemen:

Our firm represents ViroPharma Incorporated (“ViroPharma” or the “Company”) in intellectual property matters and, in particular, those relating to patents. To date, we have been involved on behalf of ViroPharma in the preparation and prosecution of patent applications on a number of inventions made by ViroPharma employees relating to anti-viral agents, therapeutic uses of such agents and methodology for determining the therapeutic efficacy of candidate agents for the treatment and/or prevention of infection caused by certain RNA viruses and associated disease. We have handled no substantive trademark, service mark, trade name, copyright or trade secret matters on behalf of ViroPharma.

We have been requested by the Company to render certain opinions in connection with a convertible note exchange offering of ViroPharma pursuant to the Dealer Manager Agreement, dated (the “Agreement”) between ViroPharma and Piper Jaffray & Co., the latter acting as the exclusive Dealer Manager under the Agreement. Capitalized terms used and not otherwise defined herein are as defined in the Agreement.

We have read each section of the Registration Statement, the Prospectus and the 2003 Annual Report (Form 10-K), under the headings “Business-Patents and Proprietary Technology” and “Risk Factors-Risks Relating to Intellectual Property-We depend on patent and proprietary rights, which may offer only limited protection against potential infringement and if we are unable to protect our patents and proprietary rights, we may lose the right to develop, manufacture, market or sell products and lose sources of revenue” (collectively the “Intellectual Property Portions”). We are familiar with the technology of ViroPharma, to the extent described

Piper Jaffray & Co.

[                ], 2004

Page 2

in the patents and patent applications referred to in the Intellectual Property Portions.

In preparing this letter, we have relied upon representations by ViroPharma that ViroPharma has a right of ownership to the inventions described in the patents and patent applications referred to in the Intellectual Property Portions, on the basis that such inventions were made by one or more employee of ViroPharma under an obligation to assign his or her right in the such inventions to ViroPharma.

Our firm has not caused any search to be conducted to determine the validity of any claim in any patent referred to in the Intellectual Property Portions.

For the purposes of our opinions expressed herein, the phrase “to the best of our knowledge and belief”, or words to that effect, means the actual knowledge of the attorneys of our firm who have worked on ViroPharma’s patent matters, or who are primarily responsible for providing a particular opinion expressed herein.

Based on the foregoing, we hereby state that:

(i) To the best of our knowledge and belief, the Intellectual Property Portions, and any descriptions of statutes, legal and governmental proceedings, contracts and other documents relating to the Company’s patents, patent rights, patent applications and inventions contained therein or in this opinion letter, to the extent that they relate to the Company’s business and products, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein not misleading.

(ii) The Company has caused to be filed the U.S. patent applications referred to in the Intellectual Property Portions and such applications have been duly and properly filed with the United States Patent and Trademark Office. In addition to the pending United States patent applications referred to in the Intellectual Property Portions, the Company has one other pending patent application describing compounds and methods for treating hepatitis C and related virus diseases. The Company has duly and properly informed and instructed foreign patent attorneys and/or agents to duly and properly file the applications for the foreign patents and the other non-United States patent applications referred to in the Intellectual Property Portions, and to the best of our knowledge and belief said foreign patent attorneys and/or agents have duly and properly filed such applications. Except as disclosed in the Intellectual Property Portions, the Company duly holds, either solely or jointly with a research collaboration partner, the U.S. patents and patent applications referred to in the Intellectual Property Portions, and to the best of our knowledge and belief, the foreign patents and the non-United States patent applications referred to in the Intellectual Property Portions.

(iii) To the best of our knowledge and belief, except as disclosed in the Prospectus, the Company has not received any notice from any other person pertaining to or challenging the validity or enforceability of any patents owned or used by or licensed to the Company.

B-2-2

Piper Jaffray & Co.

[                     ], 2004

Page 3

(iv) To the best of our knowledge and belief, except as disclosed in the Prospectus, the Company has conducted its business without claim of infringement of any Intellectual Property of others.

(v) To the best of our knowledge and belief, other than pending patent applications, or as otherwise disclosed in the Prospectus, there is not pending or threatened any action, suit or proceeding to which the Company is a party, before or by any court or governmental agency or body, relating to patents or patent rights or patent applications with respect to the Company’s products.

(vi) To the best of our knowledge and belief, the Company has not threatened action or litigation against another party for infringement of Company’s patents or trademarks.

(vii) To the best of our knowledge and belief, the Company has complied with the United States Patent and Trademark Office’s duty of candor and disclosure for each of the Company’s patents.

This opinion letter is being prepared solely for the benefit of and may be relied on only by Piper Jaffray & Co., acting in its capacity as Dealer Manager under the Agreement, and may not be quoted or relied upon, or published or released in any manner, or submitted to other parties, without the prior express written consent of an officer of Dann, Dorfman, Herrell and Skillman.

We call your attention to the fact that members of this firm are licensed to practice law in the Commonwealth of Pennsylvania and before the United States Patent and Trademark Office as registered patent attorneys. Accordingly, we express no opinion with respect to the laws, rules or regulation of any jurisdiction, as pertaining to patent matters, other than the Commonwealth of Pennsylvania and the United States of America. Also, we express no opinion about matters covered in the Registration Statement, Prospectus or 2003 Annual Report (Form 10-K), except as expressly provided above.

The opinions expressed herein are rendered as of the date of this letter and are necessarily limited to the laws in effect and facts known to us as of such date. We assume no responsibility to update this opinion letter or to otherwise supplement it to reflect changes in the law, facts or circumstances which may subsequently come to our attention.

Respectfully,

DANN, DORFMAN, HERRELL AND SKILLMAN

B-2-3

EX-1.2

Exhibit 1.2

PLACEMENT AGREEMENT

[Ÿ], 2004

PIPER JAFFRAY & CO.

Piper Jaffray Tower

222 South Ninth Street

Minneapolis, MN 55402

Ladies/Gentlemen:

1. General. ViroPharma Incorporated, a Delaware corporation (the “Company”), proposes to offer to the public for cash (the “New Money Offering”) up to $25,000,000 aggregate principal amount of 6.0% Convertible Senior Plus Cash Notes_SM due 2009 (the “Plus Cash Notes”) that are convertible into common stock, par value $0.002 per share (the “Shares”) of the Company.

In the event indications of interest are submitted for more than $25,000,000 aggregate principal amount in the New Money Offering, the additional Plus Cash Notes will be allocated at the discretion of the Placement Agent (as defined below) based on the amount of each person’s indication in the New Money Offering. The Plus Cash Notes issued in the New Money Offering are to be issued pursuant to an Indenture, dated as of [Ÿ], 2004, as amended or modified from time to time (the “Indenture”), between the Company, and U.S. Bank National Association, as trustee (the “Trustee”). Capitalized terms used herein without definition shall have their respective meanings set forth in or pursuant to the Registration Statement (as defined herein), notwithstanding that such terms as used herein are not capitalized in the Registration Statement.

2. Appointment as Agent. By this Placement Agreement (the “Agreement”), the Company hereby engages and appoints you as exclusive Placement Agent (the “Placement Agent”) for the New Money Offering and authorizes you to act as such in connection with the New Money Offering.

(a) Subject to the terms and conditions stated herein, the Company hereby agrees that the Plus Cash Notes to be issued in the New Money Offering will be sold exclusively through the Placement Agent. The Company and Placement Agent agree that the Placement Agent may allow, and dealers may reallow, a discount not in excess of [Ÿ]% per Plus Cash Note in connection with the sale of Plus Cash Notes in the New Money Offering. The Placement Agent agrees to use its best efforts to obtain purchases for the Plus Cash Notes at a price of $1,000 per additional Plus Cash Note or any integral multiple of $1,000.

(b) The Company shall not sell or approve the solicitation of offers for the purchase of Plus Cash Notes in excess of the amount which shall be

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authorized by the Company or in excess of the aggregate offering price of the Plus Cash Notes registered pursuant to the Registration Statement.

As Placement Agent you agree, in accordance with your customary practice, to use best efforts to perform in connection with the New Money Offering those services as are customarily performed by investment banking concerns in connection with similar offers, including, without limitation, soliciting from individuals and institutions the purchase of the Plus Cash Notes pursuant to and in accordance with the terms and conditions of the New Money Offering. You shall act as an independent contractor in connection with the New Money Offering with duties solely to the Company. The Company hereby authorizes the Placement Agent and/or one or more registered brokers or dealers chosen by the Placement Agent, to act as the Company’s agent in making the New Money Offering to residents of any jurisdiction in which such agent designation may be necessary to comply with applicable law. Nothing in this Agreement shall constitute the Placement Agent a partner or joint venturer with the Company or its subsidiary, VCO, Incorporated (“subsidiary”). On the basis of the representations and warranties and agreements of the Company contained herein and subject to and in accordance with the terms and conditions hereof, the Placement Agent agrees to act in such capacity.

3. Registration Statement, Prospectus and Offering Materials. The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”), under the Securities Act of 1933, as amended (the “Securities Act”), the Trust Indenture Act of 1939, as amended (the “TIA”), and applicable rules and regulations (the “Rules and Regulations”) of the Commission under the Securities Act, the TIA and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a registration statement on Form S-3 (File No. 333-113791) and the amendments thereto including a Prospectus (as defined below), covering the registration of the offer and sale of the Plus Cash Notes; the Shares issuable upon conversion of the Plus Cash Notes issued in the New Money Offering; the Shares that may be issued solely at the Company’s option as payment of interest (including any Make-Whole Payment) on the Plus Cash Notes issued in the New Money Offering; and the Shares issuable solely at the Company’s option as payment of the Plus Cash Amount. The term “Registration Statement” as used in this Agreement shall mean such registration statement, including financial statements, schedules and exhibits, in the form in which it becomes effective and, in the event of any amendment thereto or the filing of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations relating thereto after the effective date of such registration statement, shall also mean (from and after the effectiveness of such amendment or the filing of such abbreviated registration statement) such registration statement as so amended, together with any such abbreviated registration statement. The term “Prospectus” as used in this Agreement shall mean the final prospectus included in the Registration Statement. Notwithstanding the foregoing, if any revised prospectus shall be provided to you by the Company for use in connection with the New Money Offering that differs from the prospectus referred to in the immediately preceding sentence (whether or not such revised prospectus is required to be filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term “Prospectus” shall refer to such revised prospectus from and after the time it is first provided to you for such use. Any reference to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the date of the Registration Statement or the Prospectus, as the case may be, and any reference to any amendment or supplement to the Registration Statement or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Rules and Regulations of the Commission thereunder, which, upon filing, are incorporated by reference therein, as required by Item 12 of Form S-3. As used in this Agreement, the term “Incorporated Documents” means the documents which at the time are incorporated by reference in the Registration Statement, the Prospectus or any amendment or supplement thereto. The terms “supplement” and “amendment” or “supplemented” and “amended” as used herein with respect to the Prospectus shall include all documents deemed to be incorporated by reference in the Prospectus that are filed subsequent to the date of the Prospectus and prior to the termination of the Exchange Offer by the Company with the Commission pursuant to the Exchange Act and the Rules and Regulations of the Commission thereunder.

4. Use of the Prospectus and Registration Statement. The Company

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authorizes the Placement Agent to use the Prospectus in connection with the New Money Offering for such period of time as any such materials are required by law to be delivered in connection therewith.

5. Withdrawal. In the event that the Company: (i) uses or permits the use of, or files with the Commission or any other Agency, a registration statement, prospectus or related document, or any amendment or supplement to the Registration Statement or the Prospectus, and such document (a) has not been submitted to you previously for your and your counsel’s comments or (b) has been so submitted, and you or your counsel have made comments which have not been reflected in a manner reasonably satisfactory to you or your counsel, or (ii) breaches, in any material respect, any of its representations, warranties, agreements or covenants herein, or (iii) amends or revises the New Money Offering in a manner not reasonably acceptable to you, then you shall be entitled to withdraw as Placement Agent in connection with the New Money Offering without any liability or penalty to you and without loss of any right to indemnification or contribution provided in Section 11 or to the payment of all fees and expenses payable under Sections 6 and 7 below which have accrued to the date of such withdrawal (it being agreed that in the event of any such withdrawal, for the purpose of determining the fees payable to you pursuant to Section 6, the aggregate principal amount of Existing Notes tendered pursuant to the New Money Offering as of the close of business on the date of such withdrawal that are thereafter acquired by the Company or its subsidiary or affiliates pursuant to the New Money Offering or otherwise shall be deemed to have been acquired as of the date of such withdrawal).

6. Fees. The total fee due and payable by the Company on the date the New Money Offering is consummated will be determined in accordance with the fee schedule set forth below with regard to Plus Cash Notes sold in the New Money Offering.

(a)    3.50% of the aggregate principal amount of Plus Cash Notes sold in the New Money Offering up to $20,000,000 in aggregate principal amount; plus

(b)    4.00% of the aggregate principal amount of Plus Cash Notes sold in the New Money Offering in excess of $20,000,000 and up to $25,000,000 in aggregate principal amount.

The maximum cumulative fee payable by the Company pursuant to this Section 6 to you in connection with the New Money Offering is $900,000.

7. Expenses. The Company agrees that it will pay the costs and expenses incident to the performance of its obligations hereunder whether or not any Plus Cash Notes are offered or sold pursuant to the New Money Offering, including, without limitation (i) all costs and expenses incurred by dealers and brokers (including yourself), commercial banks, trust companies and nominees for their customary mailing and handling expenses incurred in forwarding the Prospectus to their customers, (ii) the filing fees and expenses, if any, incurred with respect to any filing with The Nasdaq National Market (“Nasdaq”), (iii) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. (the “NASD”), of the terms of the New Money Offering, (iv) all costs and expenses incident to the preparation, issuance, execution and delivery of the Plus Cash Notes, (v) all costs and expenses incident to the preparation, printing and filing under the Securities Act of the

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Registration Statement and the Prospectus (including, without limitation, in each case all exhibits, amendments and supplements thereto), (vi) all costs and expenses incident to the qualification of the Plus Cash Notes under state securities laws in accordance with the provisions of Section 9(c) hereof, the filing fees incident to any necessary filings under state securities laws and all costs and expenses in connection with the preparation of the Blue Sky Survey and any supplement thereto (including, without limitation, the costs and expenses incurred with the printing of the Blue Sky Survey and any supplement thereto), (vii) all costs and expenses incurred in connection with the printing (including word processing and duplication costs) and delivery of the Prospectus and Registration Statement including, without limitation, mailing and shipping, (viii) all advertising expenses related to the New Money Offering and the fees and expenses of the Exchange Agent and the Information Agent, (ix) all fees and expenses incurred in marketing the New Money Offering, including but not limited to road show presentations, if any, and (x) the fees and disbursements of Pepper Hamilton, LLP, counsel to the Company, and KPMG LLP, auditors to the Company. In addition, the Company agrees to reimburse the reasonable out-of-pocket expenses of the Placement Agent in connection with the New Money Offering, including, without limitation, reasonable legal fees and expenses of your counsel in connection with the New Money Offering; provided, that, subject to Section 11 hereof, the Company’s obligations under this Agreement and the Dealer Manager Agreement, dated as of [Ÿ], between you and the Company (the “Dealer Manager Agreement”), to reimburse you for your out-of-pocket expenses, including without limitation, legal fees and expenses, shall not exceed $150,000 in the aggregate.

8. Representations, Warranties and Agreements of the Company. The Company represents and warrants to you, and agrees with you, that:

(a) The Registration Statement, including the Prospectus, has been prepared by the Company in conformity with the requirements of the Securities Act and the Rules and Regulations thereunder and has been filed with the Commission; such amendments to such Registration Statement and Prospectus and such abbreviated registration statements pursuant to Rule 462(b) of the Rules and Regulations as may have been required prior to the date hereof have been similarly prepared and filed with the Commission; and the Company will file such additional amendments to such Registration Statement and Prospectus and such abbreviated registration statements as may hereafter be required. Copies of such Registration Statement and Prospectus, including all amendments thereto and all documents incorporated by reference therein, and of any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations have been or, if filed after the Commencement Date, will be, delivered or made available to you and your counsel.

(b) The Registration Statement, including the Prospectus, has been filed as of the Commencement Date and will become effective not later than the Expiration Date; and the Commission has not issued any order refusing or suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Prospectus or instituted proceedings for that purpose. The Registration Statement and the Prospectus, comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the Exchange Act, and the

4

applicable Rules and Regulations of the Commission thereunder. The Registration Statement, when it becomes effective, will not contain and, as amended or supplemented, if applicable, will not contain, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor the Registration Statement contain, and, as amended or supplemented, if applicable, will contain, any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that none of the representations and warranties contained in this subparagraph (b) shall apply to information contained in or omitted from the Registration Statement or Prospectus, or any amendment or supplement thereto, in reliance upon, and in conformity with, written information relating to you furnished to the Company by you specifically for use in the preparation thereof.

(c) The Incorporated Documents previously filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act and the Rules and Regulations of the Commission thereunder; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and no such further amendment will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

(d) Subsequent to the respective dates as of which information is given in the Prospectus: (i) there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiary, considered as one entity, or any change which would adversely affect the power and ability of the Company to perform its obligations under this Agreement, the Dealer Manager Agreement, the Indenture, or the Plus Cash Notes (any such change or effect, where the context so requires, is called a “Material Adverse Change” or a “Material Adverse Effect”); (ii) the Company and its subsidiary, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business which has not been disclosed to the Placement Agent or which, under the Securities Act or the Exchange Act and their respective Rules and Regulations would be required to be disclosed in the Registration Statement or Prospectus; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends paid to the Company, by its subsidiary on any class of capital stock or no repurchase or redemption by the Company or its subsidiary of any class of capital stock.

(e) The Company has been duly incorporated and is validly existing as

5

a corporation in good standing under the laws of the jurisdiction of its incorporation with full power and authority (corporate and other) to own, lease and operate its properties and conduct its business as described in the Prospectus; the Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a Material Adverse Effect.

(f) The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiary listed in Exhibit 21 to the Company’s annual report on Form 10-K for the year ended December 31, 2003 as filed on March 19, 2004 (the “Annual Report”).

(g) The Company’s subsidiary, VCO, Incorporated, has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it was organized; has the corporate power to own, lease and operate its properties and conduct its business as described in the Prospectus; is qualified to do business as a foreign corporation and is in good standing in each jurisdiction, if any, in which the ownership and leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a Material Adverse Effect.

(h) All of the issued and outstanding shares of capital stock of the Company’s subsidiary, VCO, Incorporated, have been duly authorized and validly issued and are fully paid and nonassessable, and except as disclosed in the Registration Statement and Prospectus, are owned by the Company directly (except for directors’ qualifying shares), free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest.

(i) No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company.

(j) The Company has full legal right, power and authority to enter into and perform its obligations under this Agreement, the Dealer Manager Agreement, the Indenture and the Plus Cash Notes and to consummate the New Money Offering. The New Money Offering has been duly and validly authorized by all necessary corporate action by the Company and, except for the authorization of the final terms of the Plus Cash Notes by the Notes Committee of the Company’s Board of Directors, no other corporate proceedings by the Company are necessary to authorize such actions. This Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement on the part of the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy,

6

insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether enforceability is considered in a proceeding of law or in equity). The execution and delivery by the Company of, and the performance by the Company of its obligations under this Agreement, the issuance and delivery by the Company of the Plus Cash Notes pursuant to the New Money Offering, the consummation of the New Money Offering, and the fulfillment of the terms hereof and thereof, do not and will not result in a breach or imposition of any lien, charge or encumbrance upon any property or assets of the Company or its subsidiary pursuant to, (i) the charter or by-laws of the Company or its subsidiary, or (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company or its subsidiary is a party or is bound or to which its or their property is subject; or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or its subsidiary of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or its subsidiary or any of its or their properties; except where any breach, violation, or default described in (i), (ii) or (iii) would not singly or in the aggregate have a Material Adverse Effect. No consent, approval, authorization, filing with or order of any court, or governmental agency or regulatory body, is required in connection with the transactions contemplated by this Agreement, the Dealer Manager Agreement, the Indenture, the New Money Offering, the issuance and delivery of the Plus Cash Notes pursuant to the New Money Offering, and the consummation by the Company or its subsidiary of the transactions contemplated herein, except such as may be required under the Securities Act, the Exchange Act, the TIA or under state or other securities, or Blue Sky laws, all of which requirements have been satisfied other than as contemplated by such agreements or except where such requirement would not have a Material Adverse Effect on the execution and delivery of this Agreement, the Dealer Manager Agreement, the Indenture, the issuance of the Plus Cash Notes or the consummation of the transactions contemplated herein.

(k) Except as disclosed in the Prospectus, there is not any action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator against the Company or its subsidiary or its or their property that is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a Material Adverse Effect on the consummation of the New Money Offering and the transactions contemplated hereby that has not been accurately described in all material respects in the Registration Statement or the Prospectus, or (ii) could reasonably be expected to result in a Material Adverse Change.

(l) To the best of the Company’s knowledge, after due inquiry, the Company is not in violation of any domestic or foreign law, ordinance, administrative or governmental rule or regulation (including without limitation, those of the United States Food and Drug Administration (the “FDA”) and the United States Patent and Trademark Office and any corresponding foreign agencies) or court decree to which it is expressly bound, is not in violation of any term or condition of, and has not failed to obtain, any license, claim, permit, franchise or other administrative or governmental authorization

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necessary, whether domestic or foreign, from any regulatory body or administrative agency or other governmental body having jurisdiction over it (including without limitation, the FDA and any corresponding foreign agencies) to the ownership or lease of its properties and assets or to the conduct of its business as it is presently conducted, which violation, or failure to obtain would, individually or in the aggregate, have a Material Adverse Effect, or which might, if determined adversely to the Company, materially and adversely affect the execution, delivery or performance by the Company of this Agreement. All licenses, claims, permits, franchises or other administrative or governmental authorizations which are held by the Company are, and on the Closing Date (as defined below) will be, valid and subsisting and in good standing except where the failure to be so valid, subsisting and in good standing would not, individually or in the aggregate, have a Material Adverse Effect.

(m) There are no agreements, contracts, leases or documents of the Company or its subsidiary of a character required to be described or referred to in the Registration Statement or the Prospectus or any Incorporated Document or to be filed as an exhibit to the Registration Statement by the Securities Act or the Rules and Regulations thereunder or by the Exchange Act or the Rules and Regulations of the Commission thereunder which have not been accurately described in all material respects in the Registration Statement or Prospectus or any Incorporated Document or filed as exhibits to the Registration Statement or any Incorporated Document.

(n) All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or its subsidiary other than those described in the Prospectus. The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. The authorized and outstanding capital stock of the Company is as set forth in the Prospectus under the caption “Capitalization” and conforms in all material respects to the statements relating thereto contained in the Registration Statement and the Prospectus and any Incorporated Document (and such statements correctly state the substance of the instruments defining the capitalization of the Company); a sufficient number of Shares to be issuable pursuant to the terms of the Plus Cash Notes have been duly authorized for issuance and delivery and, when issued and delivered by the Company in accordance with the terms of the Plus Cash Notes will be duly authorized and validly issued and fully paid and nonassessable, and will be free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest; and no preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Shares issuable pursuant to the terms of the Plus Cash Notes to be issued in the Exchange Offer or the issuance

8

thereof other than those that have been expressly waived prior to the date hereof and those that will automatically expire upon and will not apply to the consummation of the transactions contemplated on or before the Closing Date. No further approval or authorization of any shareholder, the Board of Directors of the Company (except for the authorization of final terms of the Plus Cash Notes by the Notes Committee of the Company’s Board of Directors) or others is required for the issuance or transfer of the Shares issuable pursuant to the terms of the Plus Cash Notes and except as may be required under the Securities Act, the Exchange Act or under state or other securities or Blue Sky laws.

(o) The Indenture has been or will be duly authorized by the Company, has been filed as of the Commencement Date, will be qualified under the TIA not later than the Expiration Date, and assuming due authorization, execution and delivery of the Indenture by the Trustee, when executed and delivered by the Company, will constitute a valid and binding agreement of the Company, enforceable in accordance with its terms, except as the enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

(p) The Plus Cash Notes to be issued pursuant to the New Money Offering have been authorized, and assuming due authorization, execution and delivery of the Indenture by the Trustee, when executed and authenticated in accordance with the provisions of the Indenture and delivered in accordance with the terms of the New Money Offering, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company enforceable in accordance with their terms, except as the enforcement thereof may be limited by the (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). The Plus Cash Notes will conform in all material respects to the description thereof contained in the Registration Statement and Prospectus.

(q) The consolidated financial statements (including the related notes) included or incorporated by reference in the Registration Statement and the Prospectus (and any amendments or supplements thereto) present fairly in all material respects the consolidated financial position of the Company and its subsidiary as of and at the dates indicated and the results of their operations and cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles applied in the United States on a consistent basis throughout the periods indicated except as may otherwise be stated therein. The financial data set forth in the Prospectus under the captions “Selected Consolidated Financial Data” and “Capitalization” fairly present the information set forth therein on a basis consistent with that of the financial statements presented therein. The interim consolidated financial statements (including the related notes) included or incorporated by reference in the Registration Statement and the Prospectus (and any amendments and supplements thereto) have been prepared on a basis consistent with the audited consolidated financial statements, except as otherwise stated therein, and include all adjustments necessary to present fairly the financial information therein. No financial statements or schedules, other than the consolidated financial statements or schedules that are included in the Registration Statement and the Prospectus (and any amendments or supplements thereto),

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are required to be included therein.

(r) The Company and its subsidiary maintain a system of accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(s) KPMG LLP, who have expressed their opinion with respect to the audited financial statements (which term as used in this Agreement includes the related notes thereto) that are included in the Prospectus, are independent public or certified public accountants with respect to the Company within the meaning of the Securities Act and the applicable Rules and Regulations thereunder.

(t) The Company and its subsidiary has good and marketable title to all the properties and assets reflected as owned in the financial statements included in the Prospectus, in each case free and clear of any security interests, mortgages, liens, encumbrances, equities, claims and other defects, except such as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or such subsidiary or disclosed in the Prospectus. The real property, improvements, equipment and personal property held under lease by the Company or any subsidiary are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real property, improvements, equipment or personal property by the Company or such subsidiary.

(u) The Company and its subsidiary have filed all necessary federal, state and foreign income and franchise tax returns or appropriate extensions therefor and have paid all taxes shown thereon as due and, if due and payable, any related or similar assessment, fine or penalty levied against any of them. The Company has made adequate charges, accruals and reserves in the applicable financial statements included in the Prospectus in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or its subsidiary has not been finally determined. The Company is not aware of any tax deficiency that has been or might be asserted or threatened against the Company that could result in a Material Adverse Change.

(v) Each of the Company and its subsidiary owns or possesses adequate rights to use all patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names and copyrights which are necessary to conduct its respective business as described in the Prospectus. The patents, patent rights, trademarks, service marks, trade names or copyrights described in the Prospectus have been

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maintained except those for which a lapse would not result in a Material Adverse Change that is not otherwise disclosed in the Prospectus; the Company has no knowledge of, any infringement of or conflict with asserted rights by the Company against others with respect to any of the Company’s valid patents, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights that is not disclosed in the Prospectus which would, singly or in the aggregate, have a Material Adverse Effect; and the Company has not received any notice of, and has no knowledge of, any infringement of or conflict with asserted rights of others with respect to any valid patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect that is not described in the Prospectus. The Company and its subsidiary do not in the conduct of their businesses infringe or conflict with any right or patent of any third party, or any discovery, invention, product or process which is the subject of a patent application filed by any third party, known to the Company or any of its subsidiary, which such infringement or conflict is reasonably likely to result in a Material Adverse Change that is not described in the Prospectus. A true and complete list of patents owned or licensed by the Company has been provided to the Placement Agent.

(w) Except as disclosed in the Registration Statement and Prospectus, the Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is quoted on Nasdaq, the Company has taken no action designed to terminate, or likely to have the effect of terminating, the registration of the Common Stock under the Exchange Act or delisting the Common Stock from Nasdaq, and the Company has not received any notification that the Commission or Nasdaq is contemplating terminating such registration or listing.

(x) The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company is not, and, as a consequence of the New Money Offering and application of the proceeds therefrom as described in the Prospectus, will not be, required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the 1940 Act and will, until the completion of the New Money Offering and the application of the proceeds therefrom as described in the Prospectus, conduct its business in a manner so that it will not become subject to the 1940 Act and the Rules and Regulations promulgated thereunder.

(y) The Company has not taken, directly or indirectly, any action resulting in a violation of Rule 102 of Regulation M promulgated under the Exchange Act or designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the distribution of the Plus Cash Notes.

(z) Except as otherwise disclosed in the Prospectus, (i) the Company is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of public health or the environment (“Environmental Laws”) which are applicable to its business, except where the failure to comply would not result in a Material Adverse Change, (ii) the Company has received no notice from any governmental authority or third party of an asserted claim under

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Environmental Laws, and (iii) no property which is owned, leased or occupied by the Company has been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site under applicable state or local law.

(aa) No labor dispute with the employees of the Company or its subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of the Company or its subsidiary’s principal suppliers, manufacturers, customers, contractors or collaborators, which, in either case, may reasonably be expected to result in a Material Adverse Effect.

(bb) Each of the Company and its subsidiary are insured by recognized, financially sound and reputable institutions with policies in such amounts and with such deductibles and covering such risks as are generally deemed adequate and customary for their respective businesses, including, but not limited to, policies covering real and personal property owned or leased by the Company and its subsidiary against theft, damage, destruction and acts of vandalism, general liability and Directors and Officers liability. The Company has no reason to believe that it or any subsidiary will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change. Neither of the Company nor any subsidiary has been denied any insurance coverage which it has sought or for which it has applied.

(cc) To the best knowledge of the Company, the present fair saleable value of the assets of the Company exceeds, and, upon the issuance of the securities and the application of the proceeds thereof as contemplated by the Prospectus, will exceed, the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Company as they become absolute and matured; the assets of the Company do not, and, upon the issuance of the securities and the application of the proceeds thereof as contemplated by the Prospectus, will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted, including the capital needs of the Company, taking into account the projected capital requirements and capital availability of the Company; the Company does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature.

(dd) Neither the Company nor its subsidiary nor, to the best of the Company’s knowledge, any employee or agent of the Company or any subsidiary, has made, in the last five years, any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law.

(ee) Each “employee benefit plan” (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the

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regulations and published interpretations thereunder (collectively, “ERISA”) established or maintained by the Company, a subsidiary or their ERISA Affiliates (as defined below) (collectively the “Plans”) is in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company or a subsidiary, any member of any group of organizations described in section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company or such subsidiary is a member. Neither the Company, a subsidiary nor any ERISA Affiliate has ever contributed to, contributes to, been required to contribute to or has any liability with respect to any employee benefit plan subject to Title IV or ERISA, section 412 of the Code or section 302 of ERISA. Each of the Plans established or maintained by the Company, a subsidiary or any of their ERISA Affiliates that is intended to be qualified under section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification. Neither the Company, a subsidiary nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under section 4975 or 4980B of the Code. There are no actions, suits or claims pending, threatened or to the Company’s knowledge, anticipated (other than routine claims for benefits) against any of the Plans, their assets or their fiduciaries.

(ff) There are no business relationships or related-party transactions involving the Company or any subsidiary or any other person required to be described in the Registration Statement which have not been described as required.

(gg) There are no documentary stamp or other issuance or transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement, the Dealer Manager Agreement or the Indenture or the issuance and sale by the Company of the Plus Cash Notes. The Company has not paid or agreed to pay any person any compensation for soliciting another to purchase any Plus Cash Notes (except as contemplated by this Agreement).

(hh) All written communications made during the period from the first public announcement and to the earlier of either the termination date or the closing date of the Exchange Offer, have been or will be filed with the Commission in accordance with the Exchange Act and the Rules and Regulations thereunder, including Rule 13e-4 under the Exchange Act.

(ii) Except as disclosed in the Prospectus, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Securities Act.

(jj) Each of the collaboration or strategic alliance agreements, including without limitation, license agreements, described in the Prospectus (collectively, the “Strategic Agreements”) is in full force and effect and constitutes a valid and binding agreement between the parties thereto, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization,

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moratorium, fraudulent transfer or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether enforceability is considered in a proceeding at law or in equity), and with respect to the Company’s obligations or, to the knowledge of the Company, any obligations of any other party to the Strategic Agreements, there has not occurred any default under any such Strategic Agreements or any event that with the giving of notice or lapse of time would constitute a default thereunder, except for such defaults or events that would not, individually or in the aggregate, have a Material Adverse Effect.

(kk) Statements set forth in the Annual Report, the Prospectus and the Registration Statement, insofar as they purport to describe provisions of the Company’s strategic agreements and provisions of laws and regulations relating to government regulation and intellectual property, are accurate descriptions or summaries in all material respects.

9. Further Agreements of the Company. The Company agrees with you that:

(a) The Company will use its best efforts to cause the Registration Statement and any amendment thereof to become effective as soon as possible. If not yet effective at the time and date that this Agreement is executed and delivered by the parties hereto, the Company will use its best efforts to cause any abbreviated registration statement pursuant to Rule 462(b) of the Rules and Regulations as may be required subsequent to the date the Registration Statement is declared effective to become effective as promptly as possible; the Company will notify you, promptly after it shall receive notice thereof, of the time when the Registration Statement, any subsequent amendment to the Registration Statement or any abbreviated registration statement has become effective or any supplement to the Prospectus has been filed; if for any reason the filing of the final form of Prospectus is required under Rule 424(b) of the Rules and Regulations, the Company will provide evidence satisfactory to you that the Prospectus contains such information and has been filed with the Commission within the time period prescribed; the Company will notify you promptly of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information relating to the New Money Offering; promptly upon your request, the Company will prepare and file with the Commission any amendments or supplements to the Registration Statement or the Prospectus which, in the opinion of your counsel, may be necessary or advisable in connection with the New Money Offering; the Company will promptly prepare and file with the Commission, and promptly notify you of the filing of, any amendments or supplements to the Registration Statement or Prospectus which may be necessary to correct any statements or omissions, if, at any time when a Prospectus relating to the New Money Offering is required to be delivered under the Securities Act and the Exchange Act, any event shall have occurred as a result of which the Prospectus or any other prospectus relating to the New Money Offering as then in effect would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and the Company will file no amendment or supplement to the Registration Statement or the Prospectus or the Incorporated Documents or, prior to the end of the period of time in which the Prospectus relating to the New Money Offering

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is required to be delivered under the Securities Act and the Exchange Act, file any document which upon filing becomes an Incorporated Document, which shall not previously have been submitted to you a reasonable time prior to the proposed filing thereof and will give reasonable consideration to your or your counsel’s comments, if any, thereon, subject, however, in all cases to compliance with the Securities Act and the Rules and Regulations, the Exchange Act and the Rules and Regulations of the Commission thereunder and the provisions of this Agreement. Notwithstanding anything herein to the contrary set forth in this Agreement, the Company reserves the right to terminate the New Money Offering or amend or modify the terms or conditions of the New Money Offering in its sole and absolute discretion, other than the condition that the Registration Statement be declared effective or any term or condition required by law, subject to the Company’s obligations under Sections 6, 7 and 11 of this Agreement and in the event that you withdraw pursuant to Section 5 as a result of any such termination, amendment or modification.

(b) The Company will advise you, promptly after it shall receive notice or obtain knowledge, of the issuance of any order by the Commission refusing or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its best efforts to prevent the issuance of any refusal or stop order or to obtain its withdrawal at the earliest possible moment if such refusal or stop order should be issued.

(c) The Company will use its best efforts to qualify or obtain an exemption for the Plus Cash Notes issuable pursuant to the New Money Offering under the securities laws of such jurisdictions as you may designate and to continue such qualifications in effect or exemptions, as applicable, for so long as may be required for purposes of the New Money Offering, except that the Company shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process or subject itself to taxation in any jurisdiction in which it is not otherwise required to be so qualified or to so execute a general consent to service of process or subject to taxation. In each jurisdiction in which the Plus Cash Notes shall have been qualified or exempted as above provided, the Company will make and file such statements and reports in each year as are or may be required by the laws of such jurisdiction.

(d) The Company will use its best efforts to have the shares of Common Stock underlying the Plus Cash Notes accepted for quotation on Nasdaq.

(e) The Company will make generally available to its security holders and to the Placement Agent by filing with the Commission as soon as is practicable, an earnings statement covering a twelve-month period beginning not later than the first day of the Company’s next fiscal quarter following the effective date of the Registration Statement that satisfies the provisions of Section 11(a) of the Securities Act and the Rules and Regulations of the Commission thereunder.

(f) Without limiting Sections 5, 7 and 13 of this Agreement, if the transactions contemplated hereby are not consummated by reason of any failure, refusal or inability on the part of the Company to perform any agreement on its part to be performed hereunder or to fulfill any condition of your obligations hereunder, the Company will reimburse you for all out-of-pocket expenses (including reasonable fees and reasonable disbursements of your counsel) incurred by you in connection with the New Money Offering.

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(g) During a period of 90 days from the date of the Prospectus, the Company will not, without the prior written consent of the Placement Agent, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any options or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any Shares or any securities convertible into or exercisable or exchangeable for Shares or file any registration statement under the Securities Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Shares, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Shares or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Plus Cash Notes to be sold hereunder, (B) any Shares issued or options to purchase Shares granted pursuant to existing stock-ownership plans of the Company referred to in the Prospectus, (C) any Shares issued in connection with the rights described in the Prospectus, (D) any Shares issued pursuant to any non-employee director stock plan or dividend reinvestment plan, (E) Shares issuable upon the conversion of any of the Company’s outstanding Existing Notes, (F) issuances of Shares (and agreements to provide such Shares) as full or partial consideration in connection with the Company’s acquisition of any entity or of any rights to any product candidate or in connection with the First Amended and Restated Collaboration and License Agreement dated June 26, 2003 between the Company and Wyeth or (G) any Shares issuable upon the conversion of any of the Plus Cash Notes.

10. Conditions of Placement Agent’s Obligations. Your obligations as provided herein shall be subject at all times on and prior to the Closing Date to the accuracy of the representations and warranties of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions:

(a) The Registration Statement shall have been filed and no stop order refusing the effectiveness thereof shall have been issued and the Registration Statement shall become effective as promptly as possible but in no event later than the Closing Date and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for either purpose shall have been initiated or, to the knowledge of the Company or you, threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement, the Prospectus, any Incorporated Document or otherwise) shall have been complied with to the reasonable satisfaction of your counsel.

(b) After execution and delivery of this Agreement and prior to the Closing Date there shall not have occurred from the respective dates as of which information is given in the Prospectus (exclusive of any amendment or supplement thereto) (i) any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company whether or not arising in the ordinary course of business, or (ii) any material adverse change in the financial markets in the United States or in the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development

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involving a prospective change in national or international political, financial or economic conditions, which, in each case the effect of which is such as to make it, in the judgment of the Placement Agent, impracticable or inadvisable to market the Plus Cash Notes or to enforce contracts for the exchange and/or sale of the Plus Cash Notes, or (iii) any trading suspension or material limitation in trading instituted by the Commission or Nasdaq, or generally, any trading suspension or material limitation in trading on the American Stock Exchange or the New York Stock Exchange or on Nasdaq, or the fixing of minimum or maximum prices for trading, or the establishment of required maximum ranges for prices by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or the occurrence of a material disruption in commercial banking or securities settlement or clearance services in the United States, or (iv) the declaration of a banking moratorium by either Federal or New York authorities.

(c) All corporate proceedings and other legal matters in connection with this Agreement, the Registration Statement, the Prospectus, and the registration, authorization, issue, and delivery of the Plus Cash Notes issuable in accordance with the New Money Offering, shall have been completed in a manner reasonably satisfactory to your counsel.

(d) You shall have received the opinion of Pepper Hamilton, LLP, counsel for the Company, dated the Closing Date addressed to you, substantially to the effect set forth in Exhibit B-1 hereto.

(e) You shall have received the opinion of Dann Dorfman Herrell and Skillman, patent counsel for the Company, dated the Closing Date addressed to you, substantially to the effect set forth in Exhibit B-2 hereto.

Counsel rendering the foregoing opinions in (d) and (e) may rely as to questions of law not involving the laws of the United States of America and the State of Delaware, upon opinions of local counsel, and as to questions of fact upon representations or certifications of officers of the Company, and of government officials, in which case their opinion is to state that they are so relying and that they have no knowledge of any material misstatement or inaccuracy in any such opinion, representation or certificate. Copies of any opinion, representation or certificate so relied upon shall be delivered to you, as Placement Agent, and to your counsel.

(f) You shall have received on the Closing Date an opinion of Shearman & Sterling LLP, in form and substance satisfactory to you, with respect to the sufficiency of all such corporate proceedings and other legal matters relating to this Agreement and the transactions contemplated hereby as you may reasonably require, and the Company shall have furnished to such counsel such documents as they may have reasonably requested for the purpose of enabling them to pass upon such matters.

(g) At the time of the execution of this Agreement, you shall have received from KPMG LLP, a letter dated such date, in form and substance satisfactory to you containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain

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financial information for the fiscal years 2001, 2002 and 2003 contained in the Prospectus.

(h) You shall have received by or on the effective date of the Registration Statement, a bring-down comfort letter, dated as of the effective date (or one business day prior thereto) as the case may be, from KPMG LLP addressed to you which shall reaffirm the statements made in the letter referenced in (g) above.

(i) You shall have received by or on the Closing Date, a bring-down comfort letter dated as of the Closing Date (or one business day prior thereto) as the case may be, from KPMG LLP addressed to you, which shall reaffirm the statements made in the letters referenced in (g) and (h) above.

(j) You shall have received a certificate of the Company, dated as of the Closing Date, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying on behalf of the Company that, and you shall be satisfied that:

(i) the representations and warranties of the Company in this Agreement are true and correct in all material respects, as if made on and as of the Closing Date or such other date as of which any representation speaks, as the case may be, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date, as the case may be;

(ii) no stop order refusing or suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Securities Act;

(iii) when the Registration Statement became effective and at all times subsequent thereto up to the date of such certificate, the Registration Statement and the Prospectus, and any amendments or supplements thereto and the Incorporated Documents, contained all material information required to be included therein by the Securities Act and the Rules and Regulations thereunder or the Exchange Act and the applicable Rules and Regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Securities Act and the Rules and Regulations thereunder or the Exchange Act and the applicable Rules and Regulations of the Commission thereunder, as the case may be; the Registration Statement, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; the Prospectus, and any amendment or supplement thereto, did not and does not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances

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under which they were made, not misleading; and since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; and

(iv) subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus and up to the date of such certificate, and except as disclosed therein, there has not been (a) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its subsidiary considered as one enterprise, (b) any transaction that is material to the Company and its subsidiary considered as one enterprise, except transactions entered into in the ordinary course of business, (c) any obligation, direct or contingent, that is material to the Company and its subsidiary considered as one enterprise, incurred by the Company or its subsidiary, except obligations incurred in the ordinary course of business, (d) any change in the capital stock or outstanding indebtedness of the Company that is material to the Company and its subsidiary considered as one enterprise, (e) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company, or (f) any loss or damage (whether or not insured) to the property of the Company or its subsidiary which has been sustained or will have been sustained and which has a Material Adverse Effect or a Material Adverse Effect on the ability of the Company to perform its obligations under the New Money Offering or consummate the New Money Offering.

(k) The Company shall have furnished to you such further certificates and documents as you shall reasonably request (including certificates of officers of the Company) as to the accuracy of the representations and warranties of the Company herein, as to the performance of the Company of its obligations hereunder and as to the other conditions concurrent and precedent to your obligations hereunder.

(l) You shall have received lock-up letters, dated the date of this Agreement, substantially in the form set forth in Exhibit A hereto, from each of the executive officers and directors of the Company set forth in Schedule A hereto.

(m) You shall have received on the Closing Date, all fees payable to you in cash pursuant to Section 6 hereof.

(n) The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the terms and arrangements in connection with the offering of the Plus Cash Notes.

All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are reasonably satisfactory to your counsel. The Company will furnish you with such number of conformed copies of such opinions, certificates, letters and documents as you shall reasonably request.

11. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold you harmless against any losses, claims, damages or liabilities, joint or several, to which you may become

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subject under the Securities Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of the Company herein contained; (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any amendments or supplements thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in any Prospectus or any amendment or supplement thereto, including any Incorporated Document, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and agrees to reimburse you for any legal or other expenses reasonably incurred by you in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, or Prospectus, or any amendment or supplement thereto, made in reliance upon, and in conformity with, written information furnished to the Company by you, expressly for use in the Registration Statement, the Prospectus or any amendment or supplement thereto or in the preparation thereof.

The indemnity agreement in this Section 11(a) shall extend upon the same terms and conditions to, and shall inure to the benefit of, you and your affiliates and the partners, directors, officers, employees and agents of you and your affiliates, and each person or entity, if any, who controls or is under common control with, you within the meaning of the Securities Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities, which the Company may otherwise have.

(b) You agree to indemnify and hold harmless the Company against any losses, claims, damages or liabilities, joint or several, to which the Company may become subject under the Securities Act, the Exchange Act or otherwise, specifically including, but not limited to, losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon (i) any breach of any representation, warranty, agreement or covenant of yours herein contained, (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any amendments or supplements thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement and the Prospectus or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in the case of subparagraphs (ii) and (iii) of this Section 11(b) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon, and in conformity with, written information furnished to the Company by you specifically for use in the

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Registration Statement, or any amendment or supplement thereto or in the preparation thereof, and you agree to reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage,liability or action.

The indemnity agreement in this Section 11(b) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each officer of the Company who signed the Registration Statement and each director of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. This indemnity agreement shall be in addition to any liabilities which you may otherwise have.

(c) Promptly after receipt by an indemnified party under this Section 11 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 11, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve such indemnifying party from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 11 or to the extent the indemnifying party is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party’s election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 11 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party (the Company in the case of Section 11(a) and Piper Jaffray & Co. in the case of Section 11(b)), representing the indemnified parties who are parties to such action), (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of such action,

21

or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party.

(d) The indemnifying party under this Section 11 shall not be liable for any settlement of any proceeding effected without its written consent, unless the indemnifying party shall have approved the terms of settlement, provided that such consent shall not be unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes (i) an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

(e) In order to provide for just and equitable contribution in any action in which a claim for indemnification is made pursuant to this Section 11 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 11 provides for indemnification in such case, all the parties hereto shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that you are responsible for the portion represented by the percentage that the maximum Placement Agent’s fee payable to the Placement Agent pursuant to Section 6 hereof bears to the value of the maximum amount of Plus Cash Notes issuable pursuant to the New Money Offering, and the Company is responsible for the remaining portion, provided, however, that (i) you shall not be required to contribute any amount in excess of the amount by which the fee paid to you pursuant to Section 6 hereof exceeds the amount of damages which you have been otherwise required to pay and (ii) no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The contribution agreement in this Section 11(d) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls you or the Company within the meaning of the Securities Act or the Exchange Act and each officer of the Company who signed the Registration Statement and each director of the Company.

12. Representations, Warranties, Covenants and Agreements to Survive Delivery. All representations, warranties, covenants and agreements of the Company and you herein or in certificates delivered pursuant hereto, and the indemnity and contribution agreements contained in Section 11 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any person controlling you within the meaning

22

of the Securities Act or the Exchange Act, or by or on behalf of the Company or any of its officers, directors or controlling persons within the meaning of the Securities Act or the Exchange Act, and shall survive the completion of the New Money Offering or termination of this Agreement.

13. Termination.

(a) This Agreement shall terminate upon the earliest to occur of (i) thirty days after the Expiration Date, (ii) any of the conditions specified in Section 10 has not been fulfilled as of any date such condition is required to be fulfilled pursuant to Section 10 (and the Placement Agent shall have notified the Company thereof), (iii) the date on which the Company terminates or withdraws the New Money Offering for any reason, or (iv) any modification to the terms and conditions of the New Money Offering (other than any condition required by law) in the Company’s sole and absolute discretion that results in the Placement Agent withdrawing pursuant to Section 5 hereof, (the earliest to occur of clauses (i), (ii), (iii) or (iv) being referred to as the “Termination Date”).

(b) Notwithstanding termination of this Agreement pursuant to subsection (a) above, the obligations of the parties pursuant to Sections 6, 7 and 11 shall survive any termination of this Agreement.

If you elect to terminate this Agreement as provided in this Section 13, you shall promptly notify the Company by telephone, telecopy or telegram, in each case confirmed by letter.

14. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to you shall be mailed, delivered, or telecopied (and confirmed by letter) to you c/o Piper Jaffray & Co., 800 Nicollet Mall, Suite 800, Minneapolis, MN 55402-7020 telecopier number (612-303-1772), Attention: General Counsel’s Department; if sent to the Company, such notice shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to ViroPharma Incorporated, 405 Eagleview Boulevard, Exton, PA 19341, Attention: Thomas Doyle, with a copy to Pepper Hamilton, LLP, 400 Berwyn Park, 899 Cassatt Road, Berwyn, PA 19312, Attention: Jeffrey P. Libson.

15. Parties. This Agreement shall inure to the benefit of and be binding upon the Placement Agent and the Company and their respective executors, administrators, successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or entity, other than the parties hereto and their respective executors, administrators, successors and assigns, and the controlling persons within the meaning of the Securities Act or the Exchange Act, officers and directors referred to in Section 11 hereof, any legal or equitable right, remedy or claim in respect of this Agreement or any provisions herein contained. This Agreement, and all conditions and provisions hereof, is intended to be and is for the sole and exclusive benefit of the parties hereto and their respective executors, administrators, successors and assigns and said controlling persons and said officers and directors, and for the benefit of no other person or entity. No Holder of Plus Cash Notes shall be construed a successor

23

or assign by reason merely of such exchange.

16. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

17. Counterparts. This Agreement may be signed in several counterparts, each of which will constitute an original.

24

Please indicate your willingness to act as Placement Agent on the terms set forth herein and your acceptance of the foregoing provisions by signing in the space provided below for that purpose and returning to us a copy of this letter, whereupon this letter and your acceptance shall constitute a binding agreement between us.

Very truly yours,

VIROPHARMA INCORPORATED

By:

Name:

Title:

Accepted as of the date first above written:

PIPER JAFFRAY & CO.
By:
Name:	Brendan C. Dyson
Title:	Managing Director

Schedule A

Persons Subject to Lock-Up

Michel de Rosen

Thomas F. Doyle

Vincent J. Milano

William D. Claypool

Paul A. Brooke

Robert J. Glaser

Michael R. Dougherty

Frank Baldino, Jr.

Exhibit A

Form of Lock-Up

Piper Jaffray & Co.

Piper Jaffray Tower

222 South Ninth Street

Minneapolis, MN 55402

            , 2004

Re: ViroPharma Incorporated

Ladies and Gentlemen:

Reference is made to a Registration Statement on Form S-4 and Form S-3 of ViroPharma Incorporated (the “Company”) (as the same may now or hereafter exist or be amended, the “Registration Statement”) pursuant to which it is proposed that $             principal amount of the Company’s 6% Convertible Senior Plus Cash Notes_SM due 2009 (the “Notes”) will be exchanged for $             principal amount of the Company’s 6.0% Convertible Notes due 2007 (the “Exchange Offer”), or on such other terms as described in the final prospectus with respect to such offering for which Piper Jaffray & Co. (“Piper Jaffray”) will act as the dealer manager (the “Dealer Manager”) and pursuant to which it is proposed that there will be a public offering of $25,000,000 of the Notes (the “Public Offering”) for which Piper Jaffray will act as the placement agent (the “Placement Agent”). Shares of Common Stock, $0.002 par value per share, of the Company (“Common Stock”) are held by the undersigned.

In order to induce Piper Jaffray, as the Dealer Manager that may participate in the Exchange Offer, and as the Placement Agent that may participate in the Public Offering, to continue its efforts in connection with the Exchange Offer and the Public Offering, the undersigned hereby agrees not to, directly or indirectly, sell, offer to sell, contract to sell, pledge, grant any option for sale or purchase of, agree to sell or otherwise dispose of (collectively “Disposition”), any shares of Common Stock, or any securities convertible into or exercisable for Common Stock (individually and collectively, the “Securities”), beneficially owned by the undersigned now or acquired by the undersigned on or before the effective date of the Registration Statement (the “Effective Date”), or with respect to which the undersigned now has, or on or before the Effective Date acquires, the power of Disposition, for a period commencing on the Effective Date and ending 90 days thereafter (the “Lock-Up Period”), without the prior written consent of Piper Jaffray; provided, however, that the foregoing agreement shall not apply to (i) gifts to family members or charitable contributions of Common Stock or securities convertible into or exercisable for Common Stock made by the undersigned in transfers not involving a public distribution or public offering, if the recipient of such gift or contribution agrees in writing as a condition precedent to such gift or contribution to be bound by the terms hereof, or (ii) transfers of Securities to “affiliates” of the transferor in transfers not involving a public distribution or public offering, if the transferee agrees in writing as a condition precedent

to such transfer to be bound by the terms hereof. The term “affiliate” shall have the meaning given such term in Rule 144 under the Securities Act of 1933. The transferor shall notify Piper Jaffray in writing prior to the transfer and shall deliver the above-mentioned agreement on the part of the permitted transferee, in form and substance satisfactory to Piper Jaffray. During the Lock-Up Period, there shall be no further transfer of Common Stock or securities convertible into or exercisable for Common Stock, by either the undersigned or any permitted transferee, except in accordance with this letter agreement.

The foregoing restriction has been expressly agreed to preclude the holder of the Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Securities during the Lock-Up Period, even if such Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that included, relates to or derives any significant part of its value from Securities.

In furtherance of the foregoing, the Company and its transfer agent are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this letter agreement. The undersigned also agrees and consents to the entry of stock transfer instructions with the Company’s transfer agent against the transfer of any shares of Common Stock or securities convertible into or exercisable for Common Stock.

In addition, the undersigned hereby waives any rights with respect to the registration of Securities, including any “piggyback” or demand rights for registration of the Securities under any federal or applicable state securities laws, that the undersigned may be entitled to exercise as a result of or in connection with the filing of the Registration Statement or the Exchange Offer or the Public Offering generally, and further agrees that, without the prior written consent of Piper Jaffray, it will not, during the period commencing on the date hereof and ending 90 days after the Effective Date, make any demand for or exercise any right with respect to, the registration of any Securities.

Whether or not the Exchange Offer or the Public Offering actually occurs depends upon a number of factors, including market conditions. Any Exchange Offer will only be made pursuant to a dealer-manager agreement, the terms of which are subject to negotiation between the Dealer Manager and the Company. Any Public Offering will only be made pursuant to a placement agent agreement or purchase agreement, the terms of which are subject to negotiation between the Placement Agent and the Company.

The undersigned intends to be legally bound hereby.

Very truly yours,
	Printed Name of Holder
By:
	Signature
Printed Name of Person Signing (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity)
Date:

Exhibit B-1

Form of opinion of Pepper Hamilton LLP

to be delivered pursuant to Section 10(d)

(1) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; (ii) the Company has the corporate power and corporate authority to enter into this Agreement and the Indenture under which the Plus Cash Notes will be issued pursuant to the Exchange Offer and the New Money Offer; and (iii) the execution and delivery by the Company of the Dealer Manager Agreement and the Placement Agreement, the performance by the Company of its obligations thereunder and the issuance and delivery by the Company of the Plus Cash Notes pursuant to the Indenture and consummation by the Company of the Exchange Offer and the New Money Offer have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement has been duly executed and delivered by the Company.

(2) The Company is not, and immediately after having given effect to the Exchange Offer and the New Money Offer and upon application of the proceeds therefrom as described in the Registration Statement and Prospectus, will not be, required to be registered as an “investment company” as such term is defined in the 1940 Act.

(3) The Registration Statement has been filed under the Securities Act prior to the Commencement Date and, to our knowledge, no refusal order preventing effectiveness, and after effectiveness, no stop order suspending the effectiveness, of the Registration Statement has been issued by the Commission and, to our knowledge, no proceedings for that purpose have been instituted or are pending or threatened by the Commission;

(4) The Registration Statement and the Prospectus, and each amendment or supplement thereto (other than the financial statements, including supporting schedules, and the financial and statistical data contained or incorporated by reference therein, as to which we express no opinion), as of the effective date of the Registration Statement, complied as to form in all material respects with the requirements of the Securities Act and the applicable Rules and Regulations of the Commission thereunder.

(5) Each of the Incorporated Documents (other than the financial statements, including supporting schedules, and the financial and statistical data contained or incorporated by reference therein, as to which we express no opinion) complied when filed pursuant to the Exchange Act and the applicable Rules and Regulations of the Commission thereunder, as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations of the Commission thereunder and the Exchange Act and the applicable Rules and Regulations of the Commission thereunder.

(6) The information in the Prospectus under the captions “The Exchange Offer,” “Description of Existing Notes,” “Description of Plus Cash Notes” and “Description of Capital Stock,” insofar as such statements purport to constitute summaries of legal matters, legal proceedings or legal conclusions, has been reviewed by us and provides an accurate summary in all material respects of such matters, proceedings or conclusions.

(7) The statements in the Prospectus under the caption “United States Federal Income Tax Considerations,” insofar as such statements purport to constitute a summary of legal matters, legal proceedings or legal conclusions, has been reviewed by us and provides an accurate summary in all material respects of such matters, proceedings or conclusions.

(8) No consent, approval, authorization, permit or order of or qualification with any U.S. or Delaware government or governmental agency or body having jurisdiction over the Company or over any of its properties or operations, is necessary in connection with the consummation by the Company of the transactions contemplated by the Placement Agreement, the issuance and delivery of the Plus Cash Notes pursuant to the New Money Offer and the consummation of the New Money Offer, except such as have been obtained under the Securities Act, the Exchange Act or the TIA or such as may be required under state or other securities or Blue Sky laws or as contemplated by the Placement Agreement.

(9) The Indenture has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery of the Indenture by the Trustee, constitutes a valid and binding agreement of the Company under the laws of the State of New York enforceable against the Company in accordance with its terms, and the Indenture has been qualified under the TIA.

(10) The Plus Cash Notes issued by the Company in the New Money Offer, when (i) executed and authenticated in accordance with the provisions of the Indenture by the Company, assuming due authorization, execution and delivery of the Indenture and authentication of the Plus Cash Notes by the Trustee in accordance with the provisions of the Indenture, and (ii) delivered by the Company in accordance with the terms of the New Money Offer, will be entitled to the benefits of the Indenture and will be valid and binding obligations of the Company under the laws of the State of New York enforceable against the Company in accordance with their respective terms.

(11) The Shares issuable by the Company upon conversion of the Plus Cash Notes issued in the Exchange Offer and the New Money Offer have been duly authorized and reserved for issuance by the Company upon conversion of the Plus Cash Notes issued in the Exchange Offer and the New Money Offer and, when issued and delivered by the Company in accordance with the terms of the Indenture, will be validly issued, fully paid and nonassessable, and will not have been issued in violation of any statutory, contractual or preemptive right, co-sale right, registration right, right of first refusal or other similar right pursuant to the articles of by-laws of the Company or Delaware General Corporation Law; and to our knowledge, the shareholders of the Company have no contractual preemptive rights, co-sale rights, registration rights, rights of first refusal or other similar rights with respect to any of the Shares or applicable to the issuance or sale by the Company of any thereof.

(12) The Company has the corporate power and corporate authority to own, lease and operate its properties and to conduct its business as described in the Prospectus.

(13) The Company is duly qualified to do business as a foreign corporation and is in good standing in the Commonwealth of Pennsylvania, which the Company has informed us are

B-1-2

the only jurisdictions in which it owns or leases real property or otherwise conducts business.

(14) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the title “Capitalization” as of the date stated therein; the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and nonassessable, and, to our knowledge, have not been issued in violation of any preemptive right, co-sale right, registration right, right of first refusal or other similar right

(15) To our knowledge, there are no legal or governmental proceedings pending or threatened against the Company required to be disclosed in the Registration Statement or the Prospectus by the Securities Act or the Rules and Regulations thereunder or by the Exchange Act or the applicable Rules and Regulations of the Commission thereunder, other than those described therein.

(16) To our knowledge the Company is not presently in material violation of its respective charter or bylaws.

(17) The execution and delivery by the Company of, and the performance by the Company of its obligations under, the Placement Agreement, the issuance and delivery by the Company of the Plus Cash Notes pursuant to the New Money Offer and consummation by the Company of the New Money Offer and the fulfillment of the terms hereof and thereof, other than performance of the Company’s indemnification and contribution obligations under the Placement Agreement, as to which we express no opinion, will not (a) result in any violation of the Certificate of Incorporation or By-laws of the Company or (b) to our knowledge, result in a breach or violation of any of the terms and provisions of, or constitute a material default under, any bond, debenture, note or other evidence of indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument that has been filed as an exhibit to (or incorporated by reference in) the Company’s most recent annual report on Form 10-K for the year ended December 31, 2003, or any applicable statute, rule or regulation of the United States or the Delaware General Corporation Law, or any order, writ or decree known to us of any court, government or governmental agency or body of the United States or the State of Delaware pursuant to the Delaware General Corporation Law having jurisdiction over the Company or its subsidiary, or over any of its or their properties or operations; provided, however, that we express no opinion concerning state securities or Blue Sky laws.

(18) Each of the collaboration or strategic alliance agreements, set forth in Schedule A* (collectively, the “StrategicAgreements”) constitutes a valid and binding agreement between the parties thereto, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles (regardless of whether enforceability is considered in a proceeding at law or in equity), and, to our knowledge, there has not occurred any default under any such Strategic Agreements or any event that with the giving of notice or lapse of time would constitute a default thereunder, except for such defaults or events that would not, individually or in the aggregate, have a Material Adverse Effect.

* Schedule A to list Wyeth, GSIC and Schering agreements

B-1-3

(19) There are no business relationships or related-party transactions known to us involving the Company or VCO, Incorporated or any other person required to be described in the Registration Statement which have not been described as required.

In the course of the preparation of the Registration Statement and the Prospectus, we have participated in conferences with certain officers, employees and other representatives of the Company, KPMG LLP, the Company’s independent public accountants and your representatives and counsel concerning the information contained in the Registration Statement and the Prospectuses. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus. Based on our participation as described above, nothing has come to our attention that would lead us to believe that the Registration Statement, including any Incorporated Document (except for financial statements, financial statement schedules, and other financial and statistical data contained or incorporated by reference therein, as to which we make no statement), at the time the Registration Statement became effective, contained an untrue statement of a material fact, or omitted 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, or that the Prospectus (except for financial statements, financial statement schedules, and other financial and statistical data contained or incorporated by reference therein, as to which we make no statement), as of its date or as of the date hereof, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

B-1-4

Exhibit B-2

Form of opinion of intellectual property counsel

to be delivered pursuant to Section 10(e)

[                     ], 2004

Piper Jaffray & Co.

Piper Jaffray Tower

222 South Ninth Street

Minneapolis, MN 55402

Re:	Convertible Note Exchange Offering
	of ViroPharma Incorporated

Dear Ladies/Gentlemen:

Our firm represents ViroPharma Incorporated (“ViroPharma” or the “Company”) in intellectual property matters and, in particular, those relating to patents. To date, we have been involved on behalf of ViroPharma in the preparation and prosecution of patent applications on a number of inventions made by ViroPharma employees relating to anti-viral agents, therapeutic uses of such agents and methodology for determining the therapeutic efficacy of candidate agents for the treatment and/or prevention of infection caused by certain RNA viruses and associated disease. We have handled no substantive trademark, service mark, trade name, copyright or trade secret matters on behalf of ViroPharma.

We have been requested by the Company to render certain opinions in connection with a convertible note exchange offering of ViroPharma pursuant to the Dealer Manager Agreement, dated                      (the “Agreement”) between ViroPharma and Piper Jaffray & Co., the latter acting as the exclusive Dealer Manager under the Agreement. Capitalized terms used and not otherwise defined herein are as defined in the Agreement.

We have read each section of the Registration Statement, the Prospectus and the 2003 Annual Report (Form 10-K), under the headings “Business-Patents and Proprietary Technology” and “Risk Factors-Risks Relating to Intellectual Property-We depend on patent and proprietary rights, which may offer only limited protection against potential infringement and if we are unable to protect our patents and proprietary rights, we may lose the right to develop, manufacture, market or sell products and lose sources of revenue” (collectively the “Intellectual Property Portions”). We are familiar with the technology of ViroPharma, to the extent described

34

Piper Jaffray & Co.

[                     ], 2004

Page 2

in the patents and patent applications referred to in the Intellectual Property Portions.

In preparing this letter, we have relied upon representations by ViroPharma that ViroPharma has a right of ownership to the inventions described in the patents and patent applications referred to in the Intellectual Property Portions, on the basis that such inventions were made by one or more employee of ViroPharma under an obligation to assign his or her right in the such inventions to ViroPharma.

Our firm has not caused any search to be conducted to determine the validity of any claim in any patent referred to in the Intellectual Property Portions.

For the purposes of our opinions expressed herein, the phrase “to the best of our knowledge and belief”, or words to that effect, means the actual knowledge of the attorneys of our firm who have worked on ViroPharma’s patent matters, or who are primarily responsible for providing a particular opinion expressed herein.

Based on the foregoing, we hereby state that:

(i) To the best of our knowledge and belief, the Intellectual Property Portions, and any descriptions of statutes, legal and governmental proceedings, contracts and other documents relating to the Company’s patents, patent rights, patent applications and inventions contained therein or in this opinion letter, to the extent that they relate to the Company’s business and products, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein not misleading.

(ii) The Company has caused to be filed the U.S. patent applications referred to in the Intellectual Property Portions and such applications have been duly and properly filed with the United States Patent and Trademark Office. In addition to the pending United States patent applications referred to in the Intellectual Property Portions, the Company has one other pending patent application describing compounds and methods for treating hepatitis C and related virus diseases. The Company has duly and properly informed and instructed foreign patent attorneys and/or agents to duly and properly file the applications for the foreign patents and the other non-United States patent applications referred to in the Intellectual Property Portions, and to the best of our knowledge and belief said foreign patent attorneys and/or agents have duly and properly filed such applications. Except as disclosed in the Intellectual Property Portions, the Company duly holds, either solely or jointly with a research collaboration partner, the U.S. patents and patent applications referred to in the Intellectual Property Portions, and to the best of our knowledge and belief, the foreign patents and the non-United States patent applications referred to in the Intellectual Property Portions.

(iii) To the best of our knowledge and belief, except as disclosed in the Prospectus, the Company has not received any notice from any other person pertaining to or challenging the validity or enforceability of any patents owned or used by or licensed to the Company.

35

Piper Jaffray & Co.

[                     ], 2004

Page 3

(iv) To the best of our knowledge and belief, except as disclosed in the Prospectus, the Company has conducted its business without claim of infringement of any Intellectual Property of others.

(v) To the best of our knowledge and belief, other than pending patent applications, or as otherwise disclosed in the Prospectus, there is not pending or threatened any action, suit or proceeding to which the Company is a party, before or by any court or governmental agency or body, relating to patents or patent rights or patent applications with respect to the Company’s products.

(vi) To the best of our knowledge and belief, the Company has not threatened action or litigation against another party for infringement of Company’s patents or trademarks.

(vii) To the best of our knowledge and belief, the Company has complied with the United States Patent and Trademark Office’s duty of candor and disclosure for each of the Company’s patents.

This opinion letter is being prepared solely for the benefit of and may be relied on only by Piper Jaffray & Co., acting in its capacity as Dealer Manager under the Agreement, and may not be quoted or relied upon, or published or released in any manner, or submitted to other parties, without the prior express written consent of an officer of Dann, Dorfman, Herrell and Skillman.

We call your attention to the fact that members of this firm are licensed to practice law in the Commonwealth of Pennsylvania and before the United States Patent and Trademark Office as registered patent attorneys. Accordingly, we express no opinion with respect to the laws, rules or regulation of any jurisdiction, as pertaining to patent matters, other than the Commonwealth of Pennsylvania and the United States of America. Also, we express no opinion about matters covered in the Registration Statement, Prospectus or 2003 Annual Report (Form 10-K), except as expressly provided above.

The opinions expressed herein are rendered as of the date of this letter and are necessarily limited to the laws in effect and facts known to us as of such date. We assume no responsibility to update this opinion letter or to otherwise supplement it to reflect changes in the law, facts or circumstances which may subsequently come to our attention.

Respectfully,

DANN, DORFMAN, HERRELL AND SKILLMAN

36

EX-4.3

Exhibit 4.3

VIROPHARMA INCORPORATED

To

U.S. BANK NATIONAL ASSOCIATION

as Trustee

INDENTURE

Dated as of

[            ], 2004

6% Convertible Senior Plus Cash Notes due 2009

TABLE OF CONTENTS

		Page
ARTICLE ONE DEFINITIONS		1
Section 1.1	Definitions	1
ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES		9
Section 2.1	Designation Amount and Issue of Notes	9
Section 2.2	Form of Notes	10
Section 2.3	Notes Issuable in Global Form; Payments of Interest	10
Section 2.4	Execution of Notes	11
Section 2.5	Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary	12
Section 2.6	Payment of Interest; Interest Rights Preserved	14
Section 2.7	Persons Deemed Owners	17
Section 2.8	Mutilated, Destroyed, Lost or Stolen Notes	17
Section 2.9	Temporary Notes	18
Section 2.10	Cancellation of Notes Paid, Etc	18
Section 2.11	CUSIP Numbers	19
ARTICLE THREE REDEMPTION OF NOTES		19
Section 3.1	Initial Prohibition on Redemption	19
Section 3.2	Notice of Redemptions; Selection of Notes	19
Section 3.3	Payment of Notes Called for Redemption	21
Section 3.4	Conversion Arrangement on Call for Redemption	21
Section 3.5	Redemption at Option of Holders	22
ARTICLE FOUR [INTENTIONALLY OMITTED]		25
ARTICLE FIVE PARTICULAR COVENANTS OF THE COMPANY		25

i

Section 5.1	Payment of Principal and Interest	25
Section 5.2	Maintenance of Office or Agency	25
Section 5.3	Appointments to Fill Vacancies in Trustee’s Office	26
Section 5.4	Provisions as to Paying Agent	26
Section 5.5	Existence	27
Section 5.6	Maintenance of Properties	27
Section 5.7	Payment of Taxes and Other Claims	27
Section 5.8	Stay, Extension and Usury Laws	28
Section 5.9	Compliance Certificate	28
Section 5.10	Prohibition on Private Transactions Involving Existing Notes	28
Section 5.11	Money for Notes Payments to Be Held in Trust	28
Section 5.12	Statement as to Compliance; Notice of Default	30
Section 5.13	Waiver of Certain Covenants	30
ARTICLE SIX NOTEHOLDERS’ LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE		30
Section 6.1	Noteholders’ Lists	30
Section 6.2	Preservation and Disclosure of Lists	30
Section 6.3	Reports by Trustee	31
Section 6.4	Reports by Company	31
ARTICLE SEVEN REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT		31
Section 7.1	Events of Default	31
Section 7.2	Payments of Notes on Default; Suit Therefor	33
Section 7.3	Application of Monies Collected by Trustee	35
Section 7.4	Proceedings by Noteholder	35
Section 7.5	Proceedings by Trustee	36

ii

Section 7.6	Remedies Cumulative and Continuing	36
Section 7.7	Direction of Proceedings and Waiver of Defaults by Majority of Noteholders	36
Section 7.8	Notice of Defaults	37
Section 7.9	Undertaking to Pay Costs	37
ARTICLE EIGHT THE TRUSTEE		38
Section 8.1	Duties and Responsibilities of Trustee	38
Section 8.2	Reliance on Documents, Opinions, Etc.	39
Section 8.3	No Responsibility for Recitals, Etc.	40
Section 8.4	Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes	40
Section 8.5	Monies to be Held in Trust	40
Section 8.6	Compensation and Expenses of Trustee	40
Section 8.7	Officers’ Certificate as Evidence	41
Section 8.8	Conflicting Interests of Trustee	41
Section 8.9	Eligibility of Trustee	41
Section 8.10	Resignation or Removal of Trustee	41
Section 8.11	Acceptance by Successor Trustee	43
Section 8.12	Succession by Merger, Etc.	43
Section 8.13	Preferential Collection of Claims	44
Section 8.14	Trustee’s Application for Instructions from the Company	44
ARTICLE NINE THE NOTEHOLDERS		44
Section 9.1	Action by Noteholders	44
Section 9.2	Proof of Execution by Noteholders	45
Section 9.3	Who Are Deemed Absolute Owners	45
Section 9.4	Company-Owned Notes Disregarded	45

iii

Section 9.5	Revocation of Consents; Future Holders Bound	45
ARTICLE TEN MEETINGS OF NOTEHOLDERS		46
Section 10.1	Purpose of Meetings	46
Section 10.2	Call of Meetings by Trustee	46
Section 10.3	Call of Meetings by Company or Noteholders	46
Section 10.4	Qualifications for Voting	47
Section 10.5	Regulations	47
Section 10.6	Voting	47
Section 10.7	No Delay of Rights by Meeting	48
ARTICLE ELEVEN SUPPLEMENTAL INDENTURES		48
Section 11.1	Supplemental Indentures Without Consent of Noteholders	48
Section 11.2	Supplemental Indenture with Consent of Noteholders	49
Section 11.3	Effect of Supplemental Indenture	50
Section 11.4	Notation on Notes	50
Section 11.5	Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee	51
ARTICLE TWELVE CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE		51
Section 12.1	Company May Consolidate, Etc on Certain Terms	51
Section 12.2	Successor Corporation to be Substituted	51
Section 12.3	Opinion of Counsel to be Given Trustee	52
ARTICLE THIRTEEN SATISFACTION AND DISCHARGE OF INDENTURE		52
Section 13.1	Discharge of Indenture	52
Section 13.2	Deposited Monies to be Held in Trust by Trustee	53
Section 13.3	Paying Agent to Repay Monies Held	53
Section 13.4	Return of Unclaimed Monies	53

iv

Section 13.5	Reinstatement	53
ARTICLE FOURTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS		54
Section 14.1	Indenture and Notes Solely Corporate Obligations	54
ARTICLE FIFTEEN CONVERSION OF NOTES		54
Section 15.1	Voluntary Conversion Privilege and Conversion Consideration	54
Section 15.2	Exercise of Conversion Privilege	56
Section 15.3	Voluntary Conversion Make-Whole Payment	58
Section 15.4	Adjustment of Conversion Consideration	58
Section 15.5	Notice of Adjustments	69
Section 15.6	Notice of Certain Corporate Action	70
Section 15.7	Company’s Obligation Regarding Common Stock	71
Section 15.8	Taxes on Conversions	71
Section 15.9	Covenant as to Common Stock	71
Section 15.10	Cancellation of Converted Notes	72
Section 15.11	Provisions in Case of Reclassification, Consolidation, Merger or Sale of Assets	72
Section 15.12	Auto-Conversion by the Company	72
Section 15.13	Beneficial Ownership Limitation	76
Section 15.14	Fractional Shares	76
Section 15.15	Notification to Trustee	77
Section 15.16	Company’s Obligation	77
ARTICLE SIXTEEN MISCELLANEOUS PROVISIONS		78
Section 16.1	Provisions Binding on Company’s Successors	78
Section 16.2	Official Acts by Successor Corporation	78
Section 16.3	Addresses for Notices, Etc.	78

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Section 16.4	Governing Law	78
Section 16.5	Evidence of Compliance with Conditions Precedent; Certificates to Trustee	79
Section 16.6	Legal Holidays	79
Section 16.7	Trust Indenture Act	79
Section 16.8	No Security Interest Created	79
Section 16.9	Benefits of Indenture	79
Section 16.10	Table of Contents, Headings, Etc.	80
Section 16.11	Authenticating Agent	80
Section 16.12	Execution in Counterparts	81
Section 16.13	Severability	81

vi

Reconciliation and Tie Between the Trust Indenture Act of 1939 and Indenture, dated as of [                    ], between Viropharma Incorporated and U.S. Bank National Association as Trustee.

TRUST INDENTURE ACT SECTION	INDENTURE SECTION
Section 310(a)(1)	8.9
(a)(2)	8.9
(a)(3)	N.A.
(a)(4)	N.A.
(a)(5)	8.9
(b)	8.8; 8.9; 8.10; 8.11
Section 311(a)	8.13
(b)	8.13
(b)(2)	8.13
Section 312(a)	6.1; 6.2(a)
(b)	6.2(b)
(c)	6.2(c)
Section 313(a)	6.3(a)
(b)	6.3(a)
(c)	6.3(a)
(d)	6.3(b)
Section 314(a)	6.4
(b)	N.A.
(c)(1)	16.5
(c)(2)	16.5
(c)(3)	N.A.
(d)	N.A.
(e)	16.5
Section 315(a)	8.1
(b)	7.8
(c)	8.1
(d)	8.1
(d)(1)	8.1(a)
(d)(2)	8.1(b)
(d)(3)	8.1(c)
(e)	7.9
Section 316(a)	7.7
(a)(1)(A)	7.7
(a)(1)(B)	7.7
(a)(2)	N.A.
(b)	7.4
Section 317(a)(1)	7.5
(a)(2)	7.5
(b)	5.4
Section 318(a)	16.7

* Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.

** Note: N.A. means Not Applicable.

vii

INDENTURE

INDENTURE, dated as of [                    ], 2004, between Viropharma Incorporated, a Delaware corporation (hereinafter called the “Company”), having its principal office at 405 Eagleview Boulevard, Exton, Pennsylvania 19341, and U.S. Bank National Association, as trustee hereunder (hereinafter called the “Trustee”), having its designated corporate office at One Federal Street, 3rd Floor, Boston, MA 02110.

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 6% Convertible Senior Plus Cash Notes due 2009 (hereinafter called the “Notes”), in an aggregate principal amount not to exceed $124,122,500, 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, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to elect repayment upon a Fundamental Change, and a form of conversion notice to be borne by the Notes are to be substantially in the forms hereinafter provided for; 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 this Indenture 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 ONE

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 that 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.

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

“Agent Members” has the meaning specified in Section 2.3.

“Authorized Newspaper” means a newspaper, printed in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Whenever successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different Authorized Newspapers in the same city meeting the foregoing requirements and in each case on any Business Day.

“Auto-Conversion” means either a Cash Auto-Conversion as defined in Section 15.12(a) or a Stock Auto-Conversion as defined in Section 15.12(d), as applicable.

“Auto-Conversion Date” means either a Cash Auto-Conversion Date, as defined in Section 15.12(b) or a Stock Auto-Conversion Date, as defined in Section 15.12(e)(i).

“Auto-Conversion Notice” means either a Cash Auto-Conversion Notice as defined in Section 15.12(a) or a Stock Auto-Conversion Notice as defined in Section 15.12(f).

“Auto-Conversion Price” has the meaning specified in Section 15.12(a). The Auto-Conversion Price is subject to appropriate adjustment upon certain events as described in Section 15.4.

“Average Sale Price” has the meaning specified in Section 15.4.

“Base Shares” means [    ] shares of Common Stock.

“Board of Directors” means the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder.

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by 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” means 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.

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“Cash Auto-Conversion” has the meaning specified in Section 15.12(a).

“Cash Auto-Conversion Notice” has the meaning specified in Section 15.12(b).

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

“Closing Price” has the meaning specified in Section 15.14.

“Commencement Date” has the meaning specified in Section 15.4.

“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

“Common Stock” means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. 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 (namely, the Common Stock, par value $.002 per share) 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, however, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

“Company” means the corporation named as the “Company” in the first paragraph of this Indenture, and, subject to the provisions of Article Twelve, shall include its successors and assigns.

“Company Notice” has the meaning specified in Section 3.5(b).

“Company Request” and “Company Order” mean, respectively, a written request or order signed in the name of the Company by the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer or a Vice President of the Company and any of the foregoing or any Assistant Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee.

“conversion,” when used with reference to the Notes, shall mean and include each of a voluntary conversion or an Auto-Conversion.

“Conversion Agent” means any Person authorized by the Company pursuant to Section 5.2 to convert Notes in accordance with Article 15.

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“Conversion Consideration” has the meaning specified in Section 15.1(a).

“Conversion Date” has the meaning specified in Section 15.2.

“Corporate Trust Office” or other similar term, means the designated office of the Trustee at which at any particular time its corporate trust business shall be administered, which office is, at the date as of which this Indenture is dated, located at One Federal Street, 3^rd Floor, Boston, MA 02110, Attention: Corporate Trust Services (Viropharma Incorporated, 6% Convertible Senior Plus Cash Notes due 2009).

“corporation” means a corporation, association, partnership, company (including limited liability company), joint-stock company or business trust.

“Current Event” has the meaning specified in Section 15.4(h).

“Custodian” means U.S. Bank National Association, as custodian with respect to the Notes in global form, or any successor entity thereto.

“daily volume-weighted average price” has the meaning specified in Section 15.14.

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

“Defaulted Interest” has the meaning specified in Section 2.6.

“Depositary” means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.5 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.

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

“DTC” means The Depository Trust Company.

“Event of Default” means any event specified in Section 7.1.

“Ex-Dividend Time” has the meaning specified in Section 15.4.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time.

“Existing Notes” shall mean the 6% Convertible Subordinated Notes due 2007 issued pursuant to the Existing Note Indenture.

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“Existing Note Indenture” shall mean that certain Indenture, dated as of March 1, 2000, between the Company and Summit Bank, as trustee, as amended and supplemented from time to time.

“Existing Rights Plan” means that certain Rights Agreement, dated as of September 10, 1998, between the Company and StockTrans, Inc., as Rights Agent, as amended and supplemented from time to time.

“Expiration Time” has the meaning specified in Section 15.4(f).

“Fundamental Change” means the occurrence of any transaction or event in connection with which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which consideration is not all or substantially all common stock (a) listed on, or will be listed on or immediately after the transaction or event, on a United States national securities exchange or (b) approved for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices.

“Fundamental Change Purchase Notice” has the meaning specified in Section 3.5(c).

“Global Note” means a Note in global form registered in the name of the Depositary or its nominee.

“group” means a “group” as such term is used in Section 13(d)(3) of the Exchange Act.

“Holder” means the Person in whose name a Note is registered in the Note Register.

“Indebtedness” means, with respect to any Person, and without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services; (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers’ acceptances; (c) all obligations and liabilities (contingent or otherwise) in respect of real or personal property leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase such leased property; (d) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (e) all direct or indirect guaranties or similar agreements by such Person in respect of, and

5

obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d); (f) any indebtedness or other obligations described in clauses (a) through (e) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person; and (g) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f).

“Indenture” means this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented.

“Interest Payment Date” has the meaning specified in Section 2.6.

“Make-Whole Payment” means the interest to be paid or provided for by the Company upon an Auto-Conversion in an amount equal to two (2) full years of interest on the principal amount of the Notes so converted, less any interest paid or provided for on the principal amount of such Notes so Auto-Converted prior to the Auto-Conversion Date. For purposes of this definition, interest shall be computed on the basis of 365 days elapsed over a 360-day year. By way of illustration, “two (2) full years of interest” on a principal amount equal to $1,000 is $121.67 ($1,000 x (730/360) x 6%).

“Maturity” means the date on which the principal of the Notes becomes due and payable as therein or herein provided, whether at the Stated Maturity or upon voluntary conversion or Auto-Conversion or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise.

“Note” or “Notes” means any Note or Notes, as the case may be, authenticated and delivered under this Indenture, including the Global Note.

“Note Register” has the meaning specified in Section 2.5.

“Note Registrar” has the meaning specified in Section 2.5.

“Noteholder” or “holder” as applied to any Note, or other similar terms (but excluding the term “beneficial holder”), means any Person in whose name at the time a particular Note is registered on the Note Registrar’s books.

“Officers’ Certificate”, when used with respect to the Company, means a certificate signed by both (a) the Chairman of the Board, the Chief Executive Officer, the 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) the Treasurer or any Assistant Treasurer, the Controller or any Assistant Controller, or the Secretary or any Assistant Secretary of the Company.

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“Opinion of Counsel” means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or other counsel reasonably acceptable to the Trustee.

“Optional Redemption” has the meaning specified in Section 3.1(b).

“Other Event” has the meaning specified in Section 15.4(h).

“Outstanding”, when used with reference to Notes and subject to the provisions of Section 9.4, means, 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, (i) for the 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 (ii) which shall have been otherwise defeased in accordance with Article Thirteen;

(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 2.8; and

(d) Notes converted into Common Stock pursuant to Article Fifteen and Notes deemed not outstanding pursuant to Article Three.

“Paying Agent” means any Person (including the Company) authorized by the Company to pay the principal of or interest on any Notes on behalf of the Company.

“Person” means a corporation, an association, a partnership, a limited liability company, 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.

“Placement Agreement” means that certain Placement Agreement, dated April 28, 2004, between the Company and Piper Jaffray & Co., as amended or supplemented from time to time.

“Plus Cash Amount” has the meaning specified in Section 15.1(a).

“Plus Cash Shares” has the meaning specified in Section 15.1(a).

“Predecessor Note” means, with respect to any Note, every previous Note evidencing all or a portion of the same debt as that evidenced by such Note; and, for the purposes

7

of this definition, any Note authenticated and delivered under Section 2.8 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note.

“Purchased Shares” has the meaning specified in Section 15.4(f)(i).

“Redemption Date,” when used with respect to any Note to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture.

“Reference Date” has the meaning specified in Section 15.4(d)(i).

“Regular Record Date” for the interest payable on any Interest Payment Date on the Notes means the date specified for that purpose as contemplated by Section 2.6, whether or not a Business Day.

“Repurchase Date” has the meaning specified in Section 3.5(a).

“Responsible Officer”, when used with respect to the Trustee, means an officer of the Trustee in the Corporate Trust Office assigned and duly authorized by the Trustee to administer this Indenture.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time.

“Significant Subsidiary” means, as of any date of determination, a Subsidiary of the Company, if as of such date of determination either (a) the assets of such subsidiary equal 10% or more of the Company’s total consolidated assets or (b) the total revenue of which represented 10% or more of the Company’s consolidated total revenue for the most recently completed fiscal year.

“Special Record Date” for the payment of any Defaulted Interest on the Notes means a date fixed by the Trustee pursuant to Section 2.6.

“Stated Maturity” means the date specified in the Notes as the fixed date on which the principal of, or interest on, such Notes is due and payable.

“Stock Auto-Conversion” has the meaning specified in Section 15.12(d).

“Stock Auto-Conversion Notice” has the meaning specified in Section 15.12(f).

“Stock Substitution Notice” has the meaning specified in Section 15.12(d).

“Stock Substitution Period” has the meaning specified in Section 15.12(e).

“Stock Substitution Period Commencement Date” has the meaning specified in Section 15.12(e).

“Stock Substitution Price” has the meaning specified in Section 15.12(f).

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“Stock Substitution Reference Price” has the meaning specified in Section 15.12(d)(i).

“Subsidiary” means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interest entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or managing general partner of which is such Person or a subsidiary of such Person or (b) the only general partners of which are such Person or of one or more subsidiaries of such Person (or any combination thereof).

“Threshold Price” means [$                ], as adjusted pursuant to Section 15.4.

“Time of Determination” has the meaning specified in Section 15.4.

“Trading Day” has the meaning specified in Section 15.14.

“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended, as it was in force at the date 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” means U.S. Bank National Association 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.

“Valuation Days” has the meaning specified in Section 15.12(e).

The definitions of certain other terms are as specified in those sections where such definitions appear.

ARTICLE TWO

ISSUE, DESCRIPTION, EXECUTION,

REGISTRATION AND EXCHANGE OF NOTES

Section 2.1 Designation Amount and Issue of Notes. The Notes shall be designated as “6% Convertible Senior Plus Cash Notes due 2009”. Notes not to exceed the aggregate principal amount of $124,122,500 (except pursuant to Sections 2.5, 2.8, 3.3, 3.5 and 15.2 hereof) 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 to or upon the written order of the Company, signed by (a) its Chairman of the Board, Chief Executive Officer, 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) its Treasurer or any Assistant Treasurer, its Controller or any Assistant Controller or its Secretary or any Assistant Secretary, without any further action by the Company hereunder.

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The Notes shall mature and the principal thereof shall be due and payable, together with all accrued and unpaid interest thereon, on June 1, 2009. The Notes shall be convertible into shares of Common Stock as set forth herein. The Notes shall be issuable in denominations of $1,000 and any integral multiple thereof.

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 and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.

Any of the 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 to conform to usage.

Section 2.3 Notes Issuable in Global Form; Payments of Interest. Except as otherwise provided in this Section 2.3 or in Section 2.5, the Notes shall be issuable only in global form and deposited with the Trustee, at its Corporate Trust Office (or such other location as it may determine from time to time for such purpose), as custodian for the Depositary or the nominee thereof, and registered in the name of the Depositary or the nominee thereof, and any such Global Note shall represent such of the Outstanding Notes as shall be set forth in the books and records of the Trustee and may provide that it shall represent the aggregate amount of Outstanding Notes from time to time as adjusted in the books and records of the Trustee, and that the aggregate amount of Outstanding Notes represented thereby may from time to time be increased or decreased to reflect exchanges.

Notwithstanding anything to the contrary contained herein, each of the Company’s and any Holder’s obligations or exercise of any right or procedure described herein shall be made in accordance with and subject to the procedures of the Trustee and the Depositary or the nominee thereof. Members of, or participants in, the Depositary (“Agent Members”) shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Note held in global form.

Any adjustment of the aggregate amount of Outstanding Notes represented by a Global Note to reflect the amount, or any increase or decrease in the amount, of Outstanding Notes represented thereby shall be made by the Trustee in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be

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delivered to the Trustee pursuant to Section 2.4. Subject to the provisions of Section 2.4, the Trustee shall, if required, deliver and redeliver any Global Note in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 2.4 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Global Note shall be in writing but need not comply with Section 5.9 and need not be accompanied by an Opinion of Counsel.

The provisions of the last sentence of Section 2.4 shall apply to any Note represented by a Global Note if such Note was never issued and sold by the Company and the Company delivers to the Trustee the Global Note together with written instructions (which need not comply with Section 5.9 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Notes represented thereby, together with the written statement contemplated by the last sentence of Section 2.4.

Notwithstanding the provisions of Section 2.7, payment of principal of and interest on any Global Note shall be made to the Person or Persons specified in such Note.

All Global Notes shall bear the following legend:

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, 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 BECAUSE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE.

Every Note shall be dated the date of its authentication and shall bear interest from the applicable date in each case as 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 (12) 30-day months.

Section 2.4 Execution of Notes. The Notes shall be signed in the name and on behalf of the Company by the manual or facsimile signature of its Chairman of the Board, Chief Executive Officer, 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 attested by the manual or facsimile signature of its Secretary or any of its Assistant Secretaries or its Treasurer

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or any of its Assistant Treasurers (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 16.11), 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 proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer.

Notwithstanding the foregoing, if any Note shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Note to the Trustee for cancellation as provided in Section 2.10 together with a written statement (which need not comply with Section 5.9 and need not be accompanied by an Opinion of Counsel) stating that such Note has never been issued and sold by the Company, for all purposes of this Indenture, such Note shall be deemed not to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.

Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary.

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. The Note Register shall be in written form or in any form capable of being converted into written form within a reasonably prompt 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.

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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 maintained by the Company pursuant to Section 5.2. 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 issued upon any registration of transfer or exchange of Notes 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.

All Notes presented or surrendered for registration of transfer or for exchange, redemption or conversion shall be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, and the Notes shall be duly executed by the Noteholder thereof or his attorney duly authorized in writing.

No service charge shall be made to any holder for any registration of transfer or exchange of Notes, but the Company may require payment by the holder of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes.

Neither the Company nor the Trustee nor any Note 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, (b) any Notes or portions thereof called for redemption pursuant to Section 3.2, (c) any Notes or portions thereof surrendered for conversion pursuant to Article Fifteen or (d) any Notes or portions thereof tendered for redemption (and not withdrawn) pursuant to Section 3.5.

Notwithstanding any other provisions of this Indenture (other than the provisions set forth in this Section 2.5), a Global Note may not be transferred as a whole or in part except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary.

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 Notes in global form. Initially, the Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Custodian for Cede & Co.

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

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If a Note in certificated form is issued in exchange for any portion of a Global Note on or after the close of business at the office or agency where such exchange occurs on any record date and before the opening of business at such office or agency on the next succeeding interest payment date, interest will not be payable on such interest payment date in respect of such certificated Note, but will be payable on such interest payment date, subject to the provisions of Section 2.3, only to the Person to whom interest in respect of such portion of such Global Note is payable in accordance with the provisions of this Indenture.

Notes in certificated form issued in exchange for all or a part of a Global Note 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 Note have been redeemed, converted, canceled, exchanged for Notes in certificated form, or transferred to a transferee who receives Notes in certificated form thereof, such Global Note shall, upon receipt thereof, be 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 Note is exchanged for Notes in certificated form, redeemed, converted, repurchased or canceled, 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 Note, the principal amount of such Global Note 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 Note, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase.

In the event of any redemption, the Company will not be required to:

(1) issue, register the transfer of or exchange Notes during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Notes to be redeemed and ending at the close of business on the day of that mailing; or

(2) register the transfer of or exchange any new note called for redemption, except, in the case of any Notes being redeemed in part, any portion not being redeemed.

The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the term of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

The Trustee shall have no responsibility for the actions or omissions of the Depositary, or the accuracy of the books and records of the Depositary.

Section 2.6 Payment of Interest; Interest Rights Preserved. Except as otherwise provided herein, interest on any Note that is payable, and is punctually paid or duly provided for, semi-annually on any June 1 and December 1 of each year (each such date, an “Interest Payment Date”), shall be paid or duly provided for commencing December 1, 2004 to the Person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 5.2; provided, however, that each installment of interest on any Note may at the Company’s option be paid or provided for by (i) mailing a check

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for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 2.7, to the address of such Person as it appears on the Note Register or (ii) if the Trustee shall have received written bank wire instructions prior to the Regular Record Date for such payment, transfer to an account maintained by the payee located inside the United States; provided, however, that payments to the Depositary shall be made by wire transfer of immediately available funds to the account of the Depositary or its nominee; provided further, however, that notwithstanding the foregoing interest payable upon redemption (unless the date of redemption is an interest payment date) will be payable (i) to the Person to whom principal is payable and (ii) as set forth in the next succeeding sentence. In the case of any Note (or portion thereof) that is converted into Common Stock during the period from (but excluding) a Regular Record Date to (but excluding) the next succeeding interest payment date either (x) if such Note (or portion thereof) has been called for redemption pursuant to Section 3.2 on a redemption date which occurs during such period, or is to be redeemed in connection with a Fundamental Change on a Repurchase Date (as defined in Section 3.5) that occurs during such period, the Company shall not be required to pay interest on such interest payment date in respect of any such Note (or portion thereof) except to the extent required to be paid upon redemption of such Note or portion thereof pursuant to Section 3.3 or 3.5 hereof or (y) if such Note (or portion thereof) has not been called for redemption on a redemption date that occurs during such period and is not to be redeemed in connection with a Fundamental Change on a Repurchase Date that occurs during such period, such Note (or portion thereof) that is submitted for conversion during such period shall be accompanied by cash or shares of Common Stock in value equal to the interest payable on such succeeding interest payment date on the principal amount so converted, as provided in the fifth paragraph of Section 15.2 hereof. The term “Regular Record Date” with respect to any Interest Payment Date shall mean the May 15 or November 15 preceding June 1 or December 1, respectively.

Notwithstanding the foregoing or anything to the contrary contained herein, interest may be paid or duly provided for in shares of the Company’s Common Stock, solely at the Company’s option; provided, however, that the Company shall not make any payment of interest in shares of Common Stock unless the simple average of the daily volume-weighted average prices of the Common Stock for the ten (10) Trading Days ending on and including the second Trading Day immediately preceding the applicable Interest Payment Date equals or exceeds the Threshold Price. If the Company elects to make any payment of or provision for interest in shares of its Common Stock, the shares to be delivered will be valued at 95% of the simple average of the daily volume-weighted average prices of the Common Stock for the ten (10) Trading Days ending on and including the second Trading Day immediately preceding the applicable Interest Payment Date. The Company shall provide the Trustee and the Holders with notice of its intention to pay interest in Common Stock not later than 12:00 noon (New York City time) on the applicable Regular Record Date (except that notice with respect to interest accruing from the date of issuance of the Notes through December 1, 2004 shall be provided no later than 12:00 noon (New York City time) on November 15, 2004). The Company shall not issue fractional shares of Common Stock or any scrip representing fractional shares of Common Stock upon such payment of interest. If any fractional share of Common Stock otherwise would be issuable upon the payment of or provision for interest, the Company, at its option, may either make an adjustment therefore in cash at the current market value thereof to the Holder of the Notes or round the fractional shares up to the nearest whole share, provided that if such Holder holds more than one Note the number of full shares that shall be issuable upon the payment of or provision for interest shall be computed on the basis of the aggregate principal amount (and the aggregate interest amount payable thereon) of all of the Notes held by such Holder. 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 applicable Interest Payment Date and such Closing Price shall be determined as provided in Section 15.14.

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Any interest on any Note that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest”) shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may 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 proposed to be paid on each Note and the date of the proposed payment (which shall not be less than 30 days after such notice is received by the Trustee) and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or 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 Company shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment. The Company shall promptly notify the Trustee of such Special Record Date and, in the name and at the expense of the Company, the Trustee 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 Holder of Notes at his address as it appears in the Note Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper in each Place of Payment, but such publications shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are 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 on the Notes in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Notes may be listed, and upon such notice as may be required by such exchange, 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.

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Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note.

Section 2.7 Persons Deemed Owners. Prior to due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of and (subject to Sections 2.5 and 2.6) interest on, such Note and for all other purposes whatsoever, whether or not such Note is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

None of the Company, the Trustee, any Paying Agent or the Note Registrar shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

Notwithstanding the foregoing, with respect to any Global Note, 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 any Depositary, as a Holder, with respect to such Global Note or impair, as between such Depositary and owners of beneficial interests in such Global Note, the operation of customary practices governing the exercise of the rights of such Depositary (or its nominee) as a Holder of such Global Note.

Section 2.8 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 the Company’s written request the Trustee or an authenticating agent appointed by the Trustee shall authenticate and make available for delivery, 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.

Following receipt by the Trustee or such authenticating agent, as the case may be, of satisfactory security or indemnity and evidence, as described in the preceding paragraph, the Trustee or such authenticating agent may authenticate any such substituted Note and make available for delivery such Note. Upon the issuance of any substituted Note, the Company may require the payment by the holder of a sum sufficient to cover any tax, assessment 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 has been tendered for redemption (and not withdrawn) or is to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may,

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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 every case of destruction, loss or theft, the applicant shall also furnish to the Company, the Trustee and, if applicable, any Paying Agent or conversion agent evidence to their satisfaction 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 2.8 by virtue of the fact that any Note is destroyed, lost or stolen shall constitute, solely as between the Company and the Noteholder of the substitute Note, 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 2.9 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 the 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 Global Note) shall 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 make available for delivery 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 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 2.10 Cancellation of Notes Paid, Etc. All Notes surrendered for the purpose of payment, redemption, 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

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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. The Trustee shall dispose of such canceled Notes in accordance with its customary procedures. 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.

Section 2.11 CUSIP Numbers. The Company in issuing the Notes may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Noteholders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the “CUSIP” numbers.

ARTICLE THREE

REDEMPTION OF NOTES

Section 3.1 Initial Prohibition on Redemption. (a) Except as otherwise provided in Section 3.5, the Notes may not be redeemed by the Company, in whole or in part, at any time prior to June 1, 2006.

(b) Optional Redemption by the Company. At any time on or after June 1, 2006, and prior to Maturity, the Notes may be redeemed at the option of the Company (an “Optional Redemption”), in whole or in part, upon notice as set forth in Section 3.2, at a redemption price equal to 100% of the principal amount so redeemed, if any, up to but excluding the date fixed for redemption.

Section 3.2 Notice of Redemptions; 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 written request received by the Trustee not fewer than forty-five (45) days prior (or such shorter period of time as may be acceptable to the Trustee) to the date fixed for redemption, 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 not fewer than thirty (30) nor 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, however, that if the Company shall give such notice, it shall also give written notice, and written notice of the 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. Concurrently with the mailing of any such notice of redemption, the Company shall issue a press release announcing such redemption, the form and content of which press release shall be determined by the Company in its sole discretion. The failure to issue any such press release or any defect therein shall not affect the validity of the redemption notice or any of the proceedings for the redemption of any Note called for redemption.

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Each such notice of redemption shall specify the aggregate principal amount of Notes to be redeemed, the CUSIP number or numbers of the Notes being redeemed, the date fixed for redemption (which shall be a Business Day), 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 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. If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be redeemed (including CUSIP numbers, if any). 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 3.2, 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 in immediately available funds 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, however, that if such payment is to be made on the redemption date, the Company must deposit such payment with the Trustee or Paying Agent, as the case may be, on or before 2:00 p.m. New York City time on the Business Day prior to such date. The Company shall be entitled to retain any interest, yield or gain on amounts deposited with the Trustee or any Paying Agent pursuant to this Section 3.2 in excess of amounts required hereunder to pay the redemption price together with accrued interest to, but excluding, the date fixed for redemption. If any Note called for redemption is converted pursuant hereto prior to such redemption, 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 written request, or, if then held by the Company, shall be discharged from such trust. Whenever any 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 less than all of the outstanding Notes are to be redeemed, the Trustee shall select the Notes or portions thereof of the Global Note or the Notes in certificated form to be redeemed (in principal amounts of $1,000 or integral multiples thereof) by lot, on a pro rata basis or by another method the Trustee deems fair and appropriate. If any Note selected for partial redemption is submitted for conversion in part after such selection, the portion of such Note submitted for conversion 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 all purposes hereof, notwithstanding that any such Note is submitted for conversion in part before the mailing of the notice of redemption.

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Upon any redemption of less than all of the outstanding Notes, the Company and the Trustee may (but need not), solely for purposes of determining the pro rata allocation among such Notes as are unconverted and outstanding at the time of redemption, 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 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 fixed for redemption 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 said date) interest on the Notes or portion of Notes so called for redemption shall cease to accrue and, after the close of business on the Business Day next preceding the date fixed for redemption, such Notes shall cease 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 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, however, 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 instead of the holders surrendering such Notes for redemption on such date.

Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery 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 redemption during the continuance of a default in payment of interest on the Notes. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal 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 shall remain convertible into Common Stock until the principal and interest shall have been paid or duly provided for.

Section 3.4 Conversion Arrangement on Call for Redemption. In connection with any redemption of Notes under this Article Three, the Company may arrange for the

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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 (but excluding) the date fixed for redemption, of such Notes. Notwithstanding anything to the contrary contained in this Article Three, 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 Fifteen) 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 extended through such time), subject to payment of the above amount as aforesaid. At the written 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.

Section 3.5 Redemption at Option of Holders.

(a) If there shall occur a Fundamental Change at any time prior to maturity of the Notes, then each Noteholder shall have the right, at such holder’s option, to require the Company to redeem all of such holder’s Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, on the date (the “Repurchase Date”) that is forty-five (45) Business Days after the date of such Fundamental Change (or, if such 45th day is not a Business Day, the next succeeding Business Day) at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to (but excluding) the Repurchase Date; provided, however, that, if such Repurchase Date is a June 1 or December 1, then the interest payable on such date shall be paid to the holders of record of the Notes on the next preceding May 15 or November 15, respectively.

Upon presentation of any Note redeemed in part only, the Company shall execute and, upon the Company’s written direction to the Trustee, 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.

(b) On or before the thirtieth day after the occurrence of a Fundamental Change, the Company or at its written request (which must be received by the Trustee at least five (5) Business Days prior to the date the Trustee is requested to give notice as described below, unless the Trustee shall agree in writing to a shorter period), the Trustee, in the name of and at the expense of the Company, shall mail or cause to be mailed to all holders of record on the date of the Fundamental Change a notice (the “Company Notice”) of the occurrence of such Fundamental Change and of the redemption right at the option of the holders arising as a result thereof. Such notice shall be mailed in the manner and with the effect set forth in the first

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paragraph of Section 3.2 (without regard for the time limits set forth therein). If the Company shall give such notice, the Company shall also deliver a copy of the Company Notice to the Trustee at such time as it is mailed to Noteholders. Concurrently with the mailing of any Company Notice, the Company shall, if it has not previously done so, issue a press release announcing such Fundamental Change referred to in the Company Notice, the form and content of which press release shall be determined by the Company in its sole discretion. The failure to issue any such press release or any defect therein shall not affect the validity of the Company Notice or any proceedings for the redemption of any Note which any Noteholder may elect to have the Company redeem as provided in this Section 3.5.

Each Company Notice shall specify the circumstances constituting the Fundamental Change, the Repurchase Date, the price at which the Company shall be obligated to redeem Notes, that the holder must exercise the redemption right on or prior to the close of business on the Repurchase Date (the “Fundamental Change Expiration Time”), that the holder shall have the right to withdraw any Notes surrendered prior to the Fundamental Change Expiration Time, a description of the procedure which a Noteholder must follow to exercise such redemption right and to withdraw any surrendered Notes, the place or places where the holder is to surrender such holder’s Notes, the amount of interest accrued on each Note to the Repurchase Date and the “CUSIP” number or numbers of the Notes (if then generally in use).

The Company shall cause a copy of such Company Notice to be published in The Wall Street Journal or another daily newspaper of national circulation and shall post such Company Notice on its website.

No failure of the Company to give the foregoing notices and no defect therein shall limit the Noteholders’ redemption rights or affect the validity of the proceedings for the redemption of the Notes pursuant to this Section 3.5.

(c) For a Note to be so redeemed at the option of the Holder, a Holder must deliver to the Trustee or at the office or agency maintained by the Company for such purpose in the Borough of Manhattan, The City of New York pursuant to Section 5.2, prior to the close of business on or before the Repurchase Date, (i) written notice of the Holder’s exercise of such right (the “Fundamental Change Purchase Notice”), which notice shall set forth (A) the name of the Holder, (B) the certificate numbers of the Notes with respect to which the repurchase right is being exercised, (C) the principal amount of the Notes to be repurchased (and, if any Note is to be repurchased in part, the portion of the principal amount thereof to be repurchased, which shall be in integral multiples of $1,000) and (D) a statement that an election to exercise the repurchase right is being made thereby pursuant to the applicable provisions of the Notes and (ii) surrender the Notes subject to the Fundamental Change Purchase Notice. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for repayment shall be determined by the Company, whose determination shall be final and binding absent manifest error.

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(d) On or prior to the Repurchase Date, the Company will deposit with the Trustee or with one or more Paying Agent s (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 Repurchase Date all the Notes to be redeemed on such date at the appropriate redemption price, together with accrued interest to (but excluding) the Repurchase Date; provided, however, that if such payment is to be made on the Repurchase Date, the Company must deposit such payment with the Trustee or Paying Agent, as the case may be, on or before 2:00 p.m. New York City time on the Business Day prior to such date. Payment for Notes surrendered for redemption (and not withdrawn) prior to the Fundamental Change Expiration Time will be made promptly (but in no event more than five (5) Business Days) following the Repurchase Date either (i) by mailing checks for the amount payable to the holders of such Notes entitled thereto as they shall appear on the registry books of the Company or (ii) by wire transfer to an account maintained by such holders located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee.

(e) Any Holder that has delivered a Fundamental Change Purchase Notice shall have the right to withdraw such notice by delivery of a written notice of withdrawal to the Trustee or any such Paying Agent prior to the close of business on the Repurchase Date. The notice of withdrawal shall state the principal amount and the certificate numbers of the Notes as to which the withdrawal notice relates and the principal amount, if any, that remains subject to the Fundamental Change Purchase Notice. A Note in respect of which a Holder has exercised its right to require repurchase upon a Fundamental Change may thereafter be converted into Common Stock only if, and at such time as, such Holder withdraws its Fundamental Change Purchase Notice in accordance with the preceding sentence.

(f) In the case of a reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 15.11 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive stock, securities or other property or assets (including cash), which includes shares of Common Stock of the Company or shares of common stock of another Person that are, or upon issuance will be, tradeable on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such stock, securities or other property or assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (accompanied by an Opinion of Counsel that such supplemental indenture complies with this Indenture and the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of the Notes to cause the Company to repurchase the Notes following a Fundamental Change, including without limitation the applicable provisions of this Section 3.5 and the definitions of Common Stock and Fundamental Change, as appropriate, as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to such other Person if different from the Company and the common stock issued by such Person (in lieu of the Company and the Common Stock of the Company).

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Nothing contained in this Section 3.5(f) shall be deemed to define the parameters used to determine whether a Fundamental Change has occurred.

(g) The Company will comply with the provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act to the extent then applicable in connection with the redemption rights of the holders of Notes in the event of a Fundamental Change.

ARTICLE FOUR

SENIOR INDEBTEDNESS

Section 4.1 Designation. For all purposes the Notes are hereby designated as “Designated Senior Indebtedness” pursuant to the Existing Notes Indenture.

ARTICLE FIVE

PARTICULAR COVENANTS OF THE COMPANY

Section 5.1 Payment of Principal and Interest. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of (including the redemption price upon redemption pursuant to Article Three), and interest, on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes.

Section 5.2 Maintenance of Office or Agency. Solely for purposes of this Indenture, the Company will maintain an office or agency in New York, New York, where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion or redemption 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 of agency of the Trustee in New York, New York (which shall initially be located at U.S. Bank National Association, U.S. Bank Trust New York, 100 Wall Street, Suite 1600, New York, NY 10005, Attention: Corporate Trust Services (Viropharma Incorporated, 6% Convertible Senior Plus Cash Notes due 2009).

The Company may also from time to time designate co-registrars and one or more 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. The Company will give prompt written notice 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 each of the Corporate Trust Office and the office of agency of the Trustee in New York, New York (which shall initially be located at U.S. Bank National Association, U.S. Bank Trust New York, 100 Wall Street, Suite 1600, New York, NY 10005, Attention: Corporate Trust Services (Viropharma Incorporated, 6% Convertible Senior Plus Cash Notes due 2009)), shall be considered as one such office or agency of the Company for all purposes of this Indenture.

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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. If co-registrars have been appointed in accordance with this Section, the Trustee shall mail such notices only to the Company and the holders of Notes it can identify from its records.

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, the Company 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 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;

(2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of or interest on the Notes when the same shall be due and payable; and

(3) that at any time during the continuance of an Event of 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 or interest on the Notes, deposit with the Paying Agent a sum (in funds which are immediately available on the due date for such payment) sufficient to pay such principal 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, however, that if such deposit is made on the due date, such deposit shall be received by the Paying Agent on or before 2:00 p.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 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 or interest so becoming due and will promptly 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 or interest on the Notes when the same shall become due and payable.

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(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.

The Trustee shall not be responsible for the actions of any other Paying Agents (including the Company if acting as its own Paying Agent) and shall have no control of any funds held by such other Paying Agents.

Section 5.5 Existence. Subject to Article Twelve, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and rights (charter and statutory); provided, however, that the Company shall not be required to preserve any such right if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Noteholders.

Section 5.6 Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any subsidiary and not disadvantageous in any material respect to the Noteholders.

Section 5.7 Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any Significant Subsidiary or upon the income, profits or property of the Company or any Significant Subsidiary, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company or any Significant Subsidiary and (iii) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Notes or with respect to this Indenture; provided, however, that, in the case of clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or discharged

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any such tax, assessment, charge or claim (A) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company, or (B) if the amount, applicability or validity is being contested in good faith by appropriate proceedings.

Section 5.8 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 had been enacted.

Section 5.9 Compliance Certificate. The Company shall deliver to the Trustee, within one hundred twenty (120) days after the end of each fiscal year of the Company, a certificate signed by either the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and the status thereof of which the signer may have knowledge.

The Company will deliver to the Trustee, forthwith upon becoming aware of (i) any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or (ii) any Event of Default, an Officers’ Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto.

Any notice required to be given under this Section 5.9 shall be delivered to a Responsible Officer of the Trustee at its Corporate Trust Office.

Section 5.10 Prohibition on Private Transactions Involving Existing Notes. For the eighteen month period commencing on the date hereof and expiring on [                    ], 2005, so long as any Notes remain outstanding during such eighteen-month period, the Company covenants that it shall not engage in any private or open-market repurchases, debt-for-equity swaps, or similar transactions with respect to the Existing Notes.

Section 5.11 Money for Notes Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any Notes, it shall, on or before each due date of the principal of, or interest on, the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act.

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Whenever the Company shall have one or more Paying Agents for the Notes, it shall, before each due date of the principal of, or interest on, the Notes, deposit with a Paying Agent a sum sufficient to pay the principal or interest, so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal or interest and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of its action or failure so to act.

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

(1) hold all sums held by it for the payment of principal of or interest on the Notes, in trust for the benefit of the Persons entitled thereto, until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

(2) give the Trustee notice of any default by the Company (or any other obligor upon the Notes under a supplemental indenture entered into in accordance herewith) in the making of any such payment of principal or interest; and

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

The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums.

Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Note and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company upon Company Request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment of such principal of or interest on any Note, without interest thereon, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease.

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Section 5.13 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 5.5, 5.7, 5.10 if, before the time for such compliance, the Holders of at least a majority in principal amount of the Outstanding Notes, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect.

ARTICLE SIX

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, semiannually, not more than fifteen (15) days after each May 15 and November 15 in each year beginning with November 15, 2004, 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 by the Company to the Trustee so long as the Trustee is acting as the sole 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 or co-registrar in respect of the Notes, 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.

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(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 sixty (60) days after May 15 of each year commencing with the year 2005, the Trustee shall transmit to holders of Notes such reports dated as of May 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 promptly notify the Trustee in writing when the Notes are listed on any stock exchange or automated quotation system or delisted therefrom.

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), and transmit to holders of Notes, such information, documents and other 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, whether or not the Notes are governed by such Act; provided, however, 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 fifteen (15) days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).

ARTICLE SEVEN

REMEDIES OF THE TRUSTEE AND

NOTEHOLDERS ON AN EVENT OF DEFAULT

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 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; or

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(b) default in the payment of the principal of any of the Notes as and when the same shall become due and payable either at Stated Maturity or in connection with any redemption pursuant to Article Three, by acceleration or otherwise; or

(c) failure on the part of the Company to mail or cause to be mailed within 30 days to all Holders of record on the date of a Fundamental Change a Company Notice pursuant to Section 3.5(b); 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 7.1 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 the Company and a Responsible Officer of the Trustee by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4; or

(e) the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to the Company 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 the Company or any substantial part of the property of the Company, 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 the Company, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or

(f) an involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to the Company 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 the Company or any substantial part of the property of the Company, 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(e) or (f)), 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 twenty-five percent (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 the Trustee if given by Noteholders), may declare the

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principal of 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(e) or (f) occurs, the principal of all the Notes and the interest accrued thereon shall be immediately and automatically due and payable without necessity of further action. 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 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 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 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 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 a 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 taken.

Section 7.2 Payments of Notes on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment 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 any of the Notes as and when the same shall have become due and payable, whether at Stated Maturity of the Notes or in connection with any redemption, by or under this Indenture declaration 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 or interest, as the case may be, with interest upon the overdue principal 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 all other amounts due the Trustee under Section 8.6. Until such demand by the Trustee, the Company may pay the principal of and interest on the Notes to the registered holders, whether or not the Notes are overdue.

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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 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 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 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 reasonable 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. The Trustee shall be entitled to participate as a member of any official Committee of Creditors in the matters as it deems necessary or advisable.

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 agent and counsel, be for the ratable benefit of the holders of the Notes.

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In 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 Seven 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 stamping thereon 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: 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 interest, with interest on the overdue principal and (to the extent 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 interest without preference or priority of principal over interest, or of interest over principal 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 accrued and unpaid interest; and

THIRD: 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 reference to 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 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 twenty-five percent (25%) in aggregate principal amount of the Notes then outstanding shall have made written request upon 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

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more holders of Notes shall have any right in any manner whatever by virtue of or by reference to 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 (including the redemption price upon redemption pursuant to Article Three), and accrued interest on such Note, on or after the respective due dates expressed in such Note or in the event of redemption, 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.

Section 7.5 Proceedings by Trustee. In case of an Event of Default known to a Responsible Officer of the Trustee, 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 are necessary 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 provided in Section 2.8, all powers and remedies given by this Article Seven 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 Seven 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

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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, (b) the Trustee may take any other action which is not inconsistent with such direction and (c) the Trustee may decline to take any action that would benefit some Noteholder to the detriment of other Noteholders. 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 on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes into Common Stock, (iii) a default in the payment of redemption price pursuant to Article Three or (iv) a default in respect of a covenant or provisions hereof which under Article Eleven cannot be modified or amended without the consent of the holders of each or all Notes then outstanding or affected thereby. 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.

Section 7.8 Notice of Defaults. The Trustee shall, within ninety (90) days after a Responsible Officer of the Trustee has knowledge of 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; provided, however, that except in the case of default in the payment of the principal of 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 determines 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 his 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 and expenses, 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, however, that the provisions of this Section 7.9 (to the extent permitted by law) 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 ten percent 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 interest on any Note 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 Fifteen.

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ARTICLE EIGHT

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 Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his 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 the Trust Indenture Act 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 the Trustee was negligent in ascertaining the pertinent facts;

(c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written 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;

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(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;

(e) the Trustee shall not be liable in respect of any payment (as to the correctness of amount, entitlement to receive or any other matters relating to payment) or notice effected by the Company or any Paying Agent or any records maintained by any co-registrar with respect to the Notes; and

(f) if any party fails to deliver a notice relating to an event the fact of which, pursuant to this Indenture, requires notice to be sent to the Trustee, the Trustee may conclusively rely on its failure to receive such notice as reason to act as if no such event occurred.

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 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, debenture, note, coupon or other paper or document (whether in its original or facsimile form) 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 of its own selection 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,

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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; 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 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.

(g) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as duties;

(h) The Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default or Event of Default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture; and

(i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.

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 in writing 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) as mutually agreed to from time to time in writing between the Company and the Trustee, 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) as mutually agreed to from time to time in writing between the Company and the Trustee, 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 (or any officer, director or employee of the Trustee), in any capacity under this Indenture and its agents and any authenticating agent for, and to hold them harmless against, any and all loss, liability, claim or expense incurred without negligence, willful misconduct, recklessness or bad faith on the part of the Trustee or such officers, directors, employees and agent or authenticating agent, as the case

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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, 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 funds held in trust for the benefit of the holders of particular Notes. 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(e) or (f) with respect to the Company 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 or willful misconduct on the part of the Trustee, be deemed to be conclusively proved and established by an Officers’ Certificate delivered to the Trustee.

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 (or if such Person is a member of a bank holding company system, its bank holding company shall have 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 8.9, 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 to the holders of Notes. 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 resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted

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appointment sixty (60) days after the mailing of such notice of resignation to the Noteholders, the resigning Trustee may, upon ten (10) business days’ notice to the Company and the Noteholders, appoint a successor identified in such notice or may petition, at the expense of the Company, 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 (6) months may, subject to the provisions of Section 7.9, on behalf of himself 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 (6) 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 (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee; provided, however, that if no successor Trustee shall have been appointed and have accepted appointment sixty (60) days after either the Company or the Noteholders has removed the Trustee, the Trustee so removed may petition any court of competent jurisdiction for an 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, or if such Trustee so removed or any Noteholder fails to act, the Company, 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 amount 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 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 succeeding, whether by equity or asset purchase or exchange, 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 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

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successor to the Trustee or any authenticating agent appointed by such successor trustee may authenticate such Notes in the name of the successor trustee; and in all such cases such certificates shall have the full force that is provided in the Notes or in this Indenture; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or 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 Preferential Collection of Claims. 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).

Section 8.14 Trustee’s Application for Instructions from the Company. Any application by the Trustee for written instructions from the Company (other than with regard to any action proposed to be taken or omitted to be taken by the Trustee that affects the rights of the holders of the Notes or holders of Senior Indebtedness under this Indenture may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than five (5) Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted.

ARTICLE NINE

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 Ten, 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.

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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 registry of such Notes 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.

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 it 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 made by any Person other than the Company or any Note Registrar) for the purpose of receiving payment of or on account of the principal 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 his 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 any Affiliate of 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, however, 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 any Affiliate of 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

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

ARTICLE TEN

MEETINGS OF NOTEHOLDERS

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 Ten 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 Seven;

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

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

(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.

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 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.

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 ten percent (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

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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 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 on the record date pertaining to such meeting. 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 him; 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. Holders entitled to vote a majority of the aggregate principal amount of Notes outstanding shall constitute a quorum.

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 outstanding 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

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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 contained in this Article Ten 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 ELEVEN

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) make provision with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 15.11 and the redemption obligations of the Company pursuant to the requirements of Section 3.5(f);

(b) 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 Person to the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of the Company pursuant to Article Twelve;

(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;

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(e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose;

(f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture that 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 that shall not materially adversely affect the interests of the holders of the Notes;

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

(h) 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.

Upon the written 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 supplemental indenture, 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 that 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 that 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.

Section 11.2 Supplemental Indenture with Consent of Noteholders. With the consent (evidenced as provided in Article Nine) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, 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

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Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or reduce any amount payable on redemption thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest payable in any coin or currency other than that provided in the Notes, or cause the Notes to be subordinated to any of the Company’s unsecured indebtedness, or change the obligation of the Company to redeem any Note upon the happening of a Fundamental Change in a manner adverse to the holder of Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth herein, including Section 15.11, in each case, 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 written 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 its 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 Indenture. Any supplemental indenture executed pursuant to the provisions of this Article Eleven 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 Eleven, this 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 Eleven 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

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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 16.11) 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 to Trustee. Prior to entering into any supplemental indenture, the Trustee may request 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 Eleven.

ARTICLE TWELVE

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 Person or Persons (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 Person (whether or not affiliated with the Company), authorized to acquire and operate the same and that shall be organized under the laws of the United States of America, any state thereof or the District of Columbia; provided, however, that upon any such consolidation, merger, sale, conveyance or lease, the due and punctual payment of the principal of 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 Person (if other than the Company) formed by such consolidation, or into which the Company shall have been merged, or by the Person that shall have acquired or leased such property, and such supplemental indenture shall provide for the applicable conversion rights set forth in Section 15.11.

Section 12.2 Successor Corporation to be Substituted. In case of any such consolidation, merger, sale, conveyance or lease and upon the assumption by the successor Person, 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 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 Person shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of this first part. Such successor Person thereupon may cause to be signed, and may issue either in its own name or in the name of Viropharma Incorporated any or all of the Notes, issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person 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 that previously shall have been signed and delivered by the officers of the Company to the Trustee

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for authentication, and any Notes that such successor Person 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 that shall thereafter have become such in the manner prescribed in this Article Twelve 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 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 Twelve.

ARTICLE THIRTEEN

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 that 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 that 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 interest due or to become due to such date of maturity or redemption date, as the case may be, accompanied by a verification report, as to the sufficiency of the deposited amount, from an independent certified accountant or other financial professional satisfactory to the Trustee, and if 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 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 written demand of the Company accompanied by an Officers’ Certificate and an Opinion of Counsel as required by Section 16.5 and at the cost and expense of

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the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agrees 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 for the sole benefit of the Noteholders, and such monies shall be applied by the Trustee to the payment, 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.

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 written request of the Company, be repaid to it or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such monies.

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 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 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 that such holder may be entitled to collect unless an applicable abandoned property law designates another Person.

Section 13.5 Reinstatement. If 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, 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.

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ARTICLE FOURTEEN

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 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, 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.

ARTICLE FIFTEEN

CONVERSION OF NOTES

Section 15.1 Voluntary Conversion Privilege and Conversion Consideration. (a) Subject to and upon compliance with the provisions of this Article Fifteen, at the option of the Holder thereof, any Note or any portion of the principal amount thereof that is $1,000 or an integral multiple of $1,000 may be voluntarily converted, except as otherwise provided herein, at any time after original issuance thereof and prior to the close of business on May 31, 2009 into (i) that number of fully-paid and non-assessable shares of the Company’s Common Stock as is equal to the Base Shares, plus (ii) $500 (the “Plus Cash Amount”) for each $1,000 principal amount of Notes so converted; provided, that the principal amount of any Notes with respect to which a Stock Substitution Notice has been given cannot be voluntarily converted at any time from and after 4:00 p.m., New York City time, on the Valuation Day which is the twentieth (20th) Trading Day after the Stock Substitution Period Commencement Date on which the daily volume-weighted average price of the Company’s shares of Common Stock exceeds the Stock Substitution Reference Price unless the Company defaults in the delivery of the Base Shares and Plus Cash Amount upon the settlement of the related Stock Auto-Conversion.

Upon the election of any Holder to voluntarily convert all or any portion of the Notes, the Company, at its sole option, may pay the Plus Cash Amount in cash or shares of Common Stock (the “Plus Cash Shares”) if the simple average of the daily volume-weighted average prices of the Common Stock for the 10 Trading Days ending on and including the Second Trading Day immediately preceding the Conversion Date equals or exceeds the Threshold Price. The Common Stock deliverable upon voluntary conversion (whether in respect of Base Shares or Plus Cash Shares, as applicable) and any cash delivered in respect of the Plus Cash Amount are hereinafter referred to in the aggregate as the “Conversion Consideration.” If the Company elects to pay the Plus Cash Amount in Plus Cash Shares, the Plus Cash Shares will be valued at 95% of the simple average of the daily volume-weighted average prices of the Common Stock for the ten (10) Trading Days ending on and including the second Trading Day immediately preceding the Conversion Date. The number of Base Shares and any calculation or determination in respect of the simple average of the daily volume-weighted average price of the Common Stock shall be adjusted as provided for in Section 15.4.

(b) In case a Note or portion thereof has previously been called for redemption at the election of the Company, such voluntary conversion right in respect of the Note or portion so called shall expire at the close of business, New York City time, on the last

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Business Day prior to the Redemption Date, unless the Company defaults in making the payment due upon redemption. In case a Note or portion thereof is the subject of a Stock Substitution Notice issued as provided in Section 15.12 below, such voluntary conversion right in respect of such Note or such portion shall expire at 4:00 p.m., New York City time, on the Valuation Day which is the twentieth (20th) Trading Day after the Stock Substitution Period Commencement Date on which the daily volume-weighted average price of the Company’s shares of Common Stock exceeds the Stock Substitution Reference Price, unless the Company defaults in making the payment due upon the related Stock Auto-Conversion.

(c) A Note in respect of which a Holder has delivered to the Company along with a duly completed “Option to Elect Repayment Upon A Fundamental Change” form on the reverse thereof exercising the option of such Holder to require the Company to purchase such Note may be voluntarily converted only if such notice and the Note is withdrawn by a written notice of withdrawal delivered by the Holder to the Trustee or any Paying Agent prior to the close of business on the Repurchase Date, in accordance with the terms of this Indenture.

(d) Notwithstanding any other term of this Indenture, in the event that the Company elects, in connection with any voluntary conversion of all or any portion of any Holder’s Notes, to pay to a Holder the Plus Cash Amount, the Make-Whole Amount, if any, or both, in shares of Common Stock and the total number of shares of Common Stock to be issued to such Holder or any group of which such Holder is a part as a result of such election, plus the total number of Base Shares to be issued to such Holder as a result of the voluntary conversion, plus the total number of shares of Common Stock otherwise beneficially owned by such Holder or any such group, would, in the absence of the Company’s ability to reduce the number of shares described below, exceed 19.9% of the then outstanding shares of Common Stock, then the Company shall be entitled to reduce the number of shares of Common Stock to be issued to such Holder or any

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such group so that the total number of shares of Common Stock to be issued to such Holder or any such group as a result of the voluntary conversion is equal to the lesser of:

(1) the result derived from subtracting (i) the sum of the number of Base Shares to be issued to such Holder or any such group as a result of the voluntary conversion, plus the total number of shares of Common Stock beneficially owned by such Holder or any such group from (ii) 19.9% of the then outstanding shares of Common Stock; and

(2) the number of shares to be issued to such Holder or any such group to pay the Plus Cash Amount, the Make-Whole Amount, if any, or both, valued at 95% of the simple average of the daily volume-weighted average prices of the Company’s Common Stock for the 10 Trading Days ending on and including the Second Trading Day immediately preceding the Conversion Date.

If the Company reduces the number of shares of Common Stock to be issued to such Holder or any group of which such Holder is a part, then the Company shall be obligated to pay the portion of the Plus Cash Amount not paid for with shares of Common Stock in cash, unless the Board of Directors authorizes it to issue to such Holder or any such group a number of shares of Common Stock that would result in the total number of shares of Common Stock beneficially owned by such Holder or any such group to exceed 19.9% of the then outstanding shares of Common Stock.

Section 15.2 Exercise of Conversion Privilege. In order to exercise the voluntary conversion privilege with respect to any Note in definitive form, the Holder of any Note to be converted shall surrender such Note, duly endorsed or assigned to the Company or in blank, at any office or agency maintained by the Company pursuant to Section 5.2, accompanied by (a) written notice to the Company in substantially the form of the conversion notice attached to the form of Note attached as Exhibit A hereto at such office or agency that the Holder elects to voluntarily convert such Note or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted, (b) the funds, if any, required by this Section 15.2, and (c) if shares or any portion of such Note not to be converted are to be issued in the name of a Person other than the Holder thereof, the name of the Person in which to issue such shares and the transfer taxes, if any, required to be paid by the Holder pursuant to Section 15.8.

In order to exercise the voluntary conversion privilege with respect to any interest in a Global Note, the beneficial owner must also complete, or cause to be completed, the appropriate instruction form for conversion pursuant to the Depositary’s book-entry conversion program, deliver, or cause to be delivered, by book-entry delivery, an interest in such Global Note, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or other agent, and pay the funds, if any, required by this Section 15.2 and any transfer taxes if required pursuant to Section 15.8.

As promptly as practicable after satisfaction of the requirements for voluntary conversion set forth above (the date on which such requirements are satisfied being referred to herein as the “Conversion Date”), but in no event later than three Trading Days after the Conversion Date, 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 Holder (as if such transfer were a

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transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and deliver to such Holder a certificate or certificates for the number of full shares of Common Stock issuable upon the voluntary conversion of such Note or portion thereof in accordance with the provisions of this Article Fifteen (including any Plus Cash Shares, if applicable) and a check or cash in respect of the Plus Cash Amount, if applicable, and any payment in respect of a share of Common Stock arising upon such voluntary conversion, as applicable, as provided in Section 15.14. In addition, if a Holder elects to convert voluntarily all or any portion of the Notes prior to June 1, 2006 and if the conditions under Section 15.3 are satisfied, the Company shall pay in cash or, solely at the Company’s option, in shares of Common Stock, the Make-Whole Payment. In case any Note of a denomination greater than $1,000 shall be surrendered for partial voluntary conversion, and subject to Article Two, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of the Note so surrendered, without charge, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note.

Each voluntary 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 voluntary 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 voluntary conversion shall be for the Conversion Consideration in effect on the date upon which such Note shall be surrendered.

Any Note or portion thereof surrendered for voluntary conversion during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day immediately preceding the following interest payment date that has not been called for redemption during such period, shall be accompanied by cash payment, in immediately available 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 to the extent any overdue interest shall exist at the time of voluntary conversion with respect to any such Note or portion thereof. For the avoidance of doubt, the Company’s right to make payment of any interest otherwise payable in shares of its Common Stock pursuant to Section 2.6 shall not be affected by the Holder’s obligation to deliver cash payment as described in the previous sentence.

On voluntary conversion of a Note, that portion of accrued and unpaid interest, if any, remaining unpaid on such conversion shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through delivery of the Base Shares and Plus Cash Amount (together with the cash or stock payment, if any, in lieu of fractional shares) in exchange for the Note being converted pursuant to the provisions hereof. Except as provided above in this Section 15.2, no payment or other adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the voluntary conversion of such Note as provided in this Article.

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Upon the voluntary conversion of an interest in a Global Note, the Trustee (or other conversion agent appointed by the Company), shall make a notation on such Global Note as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any voluntary conversions of Notes effected through any Conversion Agent other than the Trustee.

Section 15.3 Voluntary Conversion Make-Whole Payment. If a Holder voluntarily converts all or any portion of the Notes prior to June 1, 2006 and if the simple average of the daily volume-weighted average prices of the Common Stock for the 10 trading days ending on and including the second trading day immediately preceding the Conversion Date is greater than the Threshold Price, the Company shall pay to such Holder additional interest (the “Make-Whole Payment”) equal to two years’ interest on the principal amount so converted, computed on the basis of a 360-day year composed of twelve 30-day months, less any interest actually paid or provided for on the principal amount so converted, prior to the Conversion Date. The Make-Whole Payment, if any, shall be paid in cash or, solely at the Company’s option, in shares of Common Stock. If the Company elects to pay the Make-Whole Payment payable pursuant to this Section 15.3 in shares of Common Stock, such shares shall be valued at 95% of the simple average of the daily volume-weighted average prices of the Common Stock for the 10 trading days ending on and including the second trading day immediately preceding the date of voluntary conversion.

Section 15.4 Adjustment of Conversion Consideration.

(a) If the Company shall, after the date hereof, pay or make a dividend or other distribution on its Common Stock exclusively in Common Stock, then, in any such event:

(i) the number of Base Shares each Holder, upon voluntary conversion or Auto-Conversion, shall be entitled to receive shall be increased by the number of shares of Common Stock it would have been entitled to receive (prior to any such adjustment) with respect to such dividend or other distribution if such Note had been converted immediately prior to the earlier of the date of such dividend or distribution or the record date with respect thereto, such adjustment to become effective upon the opening of business on the earlier of the date next following the date of such dividend or distribution, the date next following the record date with respect thereto or the “ex” date (as hereinafter defined) with respect thereto;

(ii) each of the Auto-Conversion Price and the Threshold Price shall be reduced by multiplying such price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the earlier of the date of such dividend or distribution or the record date with respect thereto, and the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective upon the opening of business on the earlier of the date next following the date of such dividend or distribution, the date next following the record date with respect thereto or the “ex” date with respect thereto; and

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(iii) when making any calculation of the simple average of the daily volume-weighted average prices, or the simple average of the Closing Price, of the Common Stock, the daily volume-weighted average prices or the Closing Price, as applicable, of the Common Stock on each day prior to the earlier of the date of such dividend or distribution, the record date with respect thereto or the “ex” date with respect thereto shall be reduced by multiplying such price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the earlier of the date of such dividend or distribution or the record date with respect thereto, and the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution.

(b) In case the outstanding shares of Common Stock shall be subdivided or split into a greater number of shares of Common Stock or combined into a smaller number of shares of Common Stock, then, in any such event:

(i) the number of Base Shares payable on a voluntary conversion or Auto-Conversion in effect at the opening of business on the day next following the day upon which such subdivision, split or combination becomes effective shall be proportionately adjusted (i.e., the number of Base Shares payable on a voluntary conversion or Auto-Conversion shall be proportionately increased in connection with any subdivision or split and proportionately decreased in connection with any combination), any such adjustment to become effective upon the opening of business on the earlier of the day next following the day upon which such subdivision, split or combination becomes effective or the “ex” date with respect to such subdivision, split or combination;

(ii) the Auto-Conversion Price and the Threshold Price in effect at the opening of business on the earlier of the day next following the day upon which such subdivision, split or combination becomes effective or the “ex” date with respect to such subdivision, split or combination shall be proportionately adjusted (i.e., the Auto-Conversion Price and the Threshold Price shall be proportionately decreased in connection with any subdivision or split and proportionately increased in connection with any combination), any such adjustment to become effective upon the opening of business on the earlier of the day next following the day upon which such subdivision, split or combination becomes effective or the “ex” date with respect to such subdivision, split or combination; and

(iii) when making any calculation of the simple average of the daily volume-weighted average price, or the simple average of the Closing Price, of the Common Stock, the daily volume-weighted average prices or the Closing Price, as applicable, of the Common Stock on each day prior to the earlier of the day upon which such subdivision, split or combination becomes effective or the “ex” date with respect to such subdivision, split or combination shall be proportionately adjusted (i.e., proportionately decreased in connection with any subdivision or split and proportionately increased in connection with any combination).

(c) In case the Company shall pay or make a dividend or other distribution on its Common Stock consisting exclusively of, or shall otherwise issue to all holders of its Common Stock, rights (other than pursuant to the Company’s Existing Rights Plan), warrants or options entitling the holders thereof, for a period not

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exceeding 45 days, to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in Section 15.4(h)) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, warrants or options, then, in any such event:

(i) the number of Base Shares payable on a voluntary conversion or Auto-Conversion in effect at the opening of business on the day next following the date fixed for such determination shall be increased by multiplying such number by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate price of the total number of shares so offered would purchase at the current market price per share (determined as provided in Section 15.4(h)), such increase to become effective immediately after the opening of business on the earlier of the day next following the date fixed for such determination or the “ex” date with respect to such dividend or distribution;

(ii) the Auto-Conversion Price and the Threshold Price shall be decreased by multiplying such number or price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate price of the total number of shares so offered would purchase at the current market price per share (determined as provided in Section 15.4(h)), and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such decrease to become effective immediately after the opening of business on the earlier of the day next following the date fixed for such determination or the “ex” date with respect to such dividend or distribution; and

(iii) when making any calculation of the simple average of the daily volume-weighted average prices, or the simple average of the Closing Price, of the Common Stock, the daily volume-weighted average price or the Closing Price, as applicable. of the Common Stock on each day prior to the earlier of the date fixed for such determination or the “ex” date with respect to such dividend or distribution shall be decreased by multiplying such price by a fraction, the numerator of which shall the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate price of the total number of shares so offered would purchase at the current market price per share (determined as provided in Section 15.4(h)), and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase.

(d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class of capital stock,

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securities, cash or assets (excluding any rights, warrants or options referred to in Section 15.4(c), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in Section 15.4(a)), then, in any such event:

(i) the number of Base Shares payable on a voluntary conversion or Auto-Conversion shall be increased by multiplying such number in effect immediately prior to the earlier of such distribution or the determination of stockholders entitled to receive such distribution by a fraction, the numerator of which shall be the current market price per share (determined as provided in Section 15.4(h)) and the denominator of which shall be such current market price less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), on the date of such effectiveness, of the portion of the evidences of indebtedness, shares of capital stock, securities, cash and assets so distributed applicable to one share of Common Stock, such adjustment to become effective immediately prior to the opening of business on the day next following the earlier of (A) the later of (1) the date fixed for the payment of such distribution and (2) the date 20 days after the notice relating to such distribution is given pursuant to Section 15.6 (such later date of (1) and (2) being referred to as the “Reference Date”) or (B) the “ex” date with respect to such distribution;

(ii) the Auto-Conversion Price and the Threshold Price shall be decreased by multiplying such price in effect immediately prior to the earlier of such distribution or the determination of stockholders entitled to receive such distribution by a fraction, the numerator of which shall be the current market price per share (determined as provided in Section 15.4(h)) less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), on the date of such effectiveness, of the portion of the evidences of indebtedness, shares of capital stock, securities, cash and assets so distributed applicable to one share of Common Stock, and the denominator of which shall be such current market price, such adjustment to become effective immediately prior to the opening of business on the earlier of the day next following the Reference Date or the “ex” date with respect to such distribution; and

(iii) when making any calculation of the simple average of the daily volume-weighted average prices, or the simple average of the Closing Price, of the Common Stock, the daily volume-weighted average price or the Closing Price, as applicable, of the Common Stock on each day preceding the earlier of the Reference Date or the “ex” date with respect to such distribution shall be adjusted by multiplying such price by a fraction, the numerator of which shall be the current market price per share (determined as provided in Section 15.4(h)) less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), on the date of such effectiveness, of the portion of the evidences of indebtedness, shares of capital stock, securities, cash and assets so distributed applicable to one share of Common Stock, and the denominator of which shall be such current market price.

The provisions of this Section 15.4(d) shall not be applicable to an event covered by Section 15.4(l). For purposes of this Section 15.4(d) and Sections 15.4(a) and 15.4(c), any

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dividend or distribution for which an adjustment is being made pursuant to this Section 15.4(d) that also includes shares of Common Stock or rights, warrants or options to subscribe for or purchase shares of Common Stock shall be deemed instead to be (A) a dividend or distribution of the evidences of indebtedness, cash, property, shares of capital stock or securities other than such shares of Common Stock or such rights, warrants or options (making any adjustment to the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price, and any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock required by this Section 15.4(d)) immediately followed by (B) a dividend or distribution of such shares of Common Stock or such rights (making any further adjustment to the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price, and any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock required by Sections 15.4(a) or 15.4(c)), except (1) the record date of such dividend or distribution as defined in this Section 15.4(d) (B) shall be substituted as “the date fixed for the determination of stockholders entitled to receive such dividend or other distributions,” “the date fixed for the determination of stockholders entitled to receive such rights, warrants or options” and “the date fixed for such determination” within the meaning of Sections 15.4(a) and 15.4(c) and (2) 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 this 15.4(d).

(e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock exclusively in cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require any adjustment to the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price, and any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock pursuant to this Section 15.4(e) (as adjusted to reflect subdivisions, or combinations of the Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price during the ten Trading Days immediately prior to the date of declaration of such dividend, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in any such event:

(i) the number of Base Shares payable on a voluntary conversion or Auto-Conversion shall be increased so that the same shall equal the number determined by multiplying such number in effect immediately prior to the close of business on the date fixed for the determination of the stockholders of record entitled to such distribution by a fraction, (i) the denominator of which shall be the current market price (determined as provided in Section 15.4(h)) of the Common Stock on the record date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock, and (ii) the numerator of which shall be such Closing Price of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the earlier of the day following the record date fixed for the payment of such distribution or the “ex” date with respect to such distribution;

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(ii) the Auto-Conversion Price and the Threshold Price shall be reduced so that the same shall equal the price determined by multiplying the Auto-Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of the stockholders of record entitled to such distribution by a fraction, (i) the numerator of which shall be the current market price (determined as provided in Section 15.4(h)) of the Common Stock on the record date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock, and (ii) the denominator of which shall be such Closing Price of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the earlier of the day following the record date fixed for the payment of such distribution or the “ex” date with respect to such distribution;

(iii) when making any calculation of the simple average of the daily volume-weighted average prices, or the simple average of the Closing Price, of the Common Stock, the daily volume-weighted average price or the Closing Price, as applicable, of the Common Stock on each day prior to the earlier of the record date fixed for the payment of such distribution or the “ex” date with respect to such distribution shall be decreased so that the same shall equal the price determined by multiplying such price by a fraction, (i) the numerator of which shall be the current market price (determined as provided in Section 15.4(h)) of the Common Stock on such date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock, and (ii) the denominator of which shall be such Closing Price of the Common Stock on such date.

If any adjustment is required to be made as set forth in this Section 15.4(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 15.4(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution.

(f) If a tender or exchange offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that as of the last time (the “Expiration Time”) tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time, then, in each case:

(i) the number of Base Shares payable on a voluntary conversion or Auto-Conversion, shall be increased by multiplying such number in effect immediately prior to the Expiration Time by a fraction of which (i) the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the

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Expiration Time and (ii) the numerator 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 or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the “Purchased Shares”) and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such increase to become effective immediately prior to the opening of business on the Trading Day following the Expiration Time;

(ii) the Auto-Conversion Price and the Threshold Price shall be decreased by multiplying such price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time and (ii) the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of the Purchased Shares and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the Trading Day following the Expiration Time; and

(iii) when making any calculation of the simple average of the daily volume-weighted average prices, or the simple average of the Closing Prices, of the Common Stock, the daily volume-weighted average price or the Closing Price, as applicable, of the Common Stock on each day prior to the earlier of the Expiration Time or the “ex” date with respect to such tender or exchange shall be adjusted by multiplying such price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time and (ii) the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of the Purchased Shares and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the Trading Day following the Expiration Time.

In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the number of Base Shares payable on a

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voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price and any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock shall again be adjusted to be the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price and any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock that would then be in effect if such tender or exchange offer had not been made.

(g) If a tender or exchange offer is made by a Person other than the Company or any Subsidiary for an amount that increases the offeror’s ownership of Common Stock to more than twenty-five percent (25%) of the Common Stock outstanding and involves the payment by such Person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) that as of the last time (the “Offer Expiration Time”) tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, then:

(i) the number of Base Shares payable on a voluntary conversion or Auto-Conversion, shall be increased by multiplying such number in effect immediately prior to the Expiration Time by a fraction of which (i) the denominator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time and (ii) the numerator 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 or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the “Accepted Purchased Shares”) and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) at the Expiration Time and the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such increase to become effective immediately prior to the opening of business on the Trading Day following the Expiration Time;

(ii) the Auto-Conversion Price and the Threshold Price shall be decreased by multiplying such price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time and (ii) the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of the Accepted Purchased Shares and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) at the Expiration Time and the current

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market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the Trading Day following the Expiration Time; and

(iii) when making any calculation of the simple average of the daily volume-weighted average prices, or the simple average of the Closing Price, of the Common Stock, the daily volume-weighted average price or the Closing Price, as applicable, of the Common Stock on each day prior to the earlier of the Expiration Time or the “ex” date with respect to such tender or exchange shall be adjusted by multiplying such price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time and (ii) the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of the Accepted Purchased Shares and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) at the Expiration Time and the current market price (determined in accordance with Section 15.4(h)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the Trading Day following the Expiration Time.

In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price and any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock shall again be adjusted to be the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price and any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock that would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 15.4(g) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article Twelve.

(h) For the purpose of any computation under Sections 15.4(c), (d) and (e), the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that

(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 number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or any calculation of a simple average of daily volume-weighted average prices

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of a share of Common Stock, as applicable, pursuant to Section 15.4(a), (b), (c), (d), (e), (f) or (g) (“Other Event”) occurs on or after the tenth Trading Day prior to the date in question and prior to the “ex” date for the issuance or distribution requiring such computation (the “Current Event”), 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 reciprocal of the fraction by which the number of Base Shares payable on a voluntary conversion or Auto-Conversion is so required to be adjusted as a result of such Other Event,

(2) if the “ex” date for any Other Event occurs after the “ex” date for the Current Event and on or prior to the date in question, 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 fraction by which the number of Base Shares payable on a voluntary conversion or Auto-Conversion is so required to be adjusted as a result of such Other Event,

(3) if the “ex” date for any Other Event occurs on the “ex” date for the Current Event, one of those events shall be deemed for purposes of clauses (1) and (2) of this proviso to have an “ex” date occurring prior to the “ex” date for the Other Event, and

(4) if the “ex” date for the Current Event is on or after the tenth Trading Day prior to the date in question and prior to the date in question, after taking into account any adjustment required pursuant to clause (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 on the date in question (as determined in good faith by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 15.4(d) or (e), whose determination shall be conclusive and described in a Board Resolution) of the portion of the rights, warrants, options, evidences of indebtedness, shares of capital stock, securities, cash or property being distributed applicable to one share of Common Stock.

For the purpose of any computation under Section 15.4(f) or (g), the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices for the five consecutive Trading Days selected by the Company commencing on or after the latest (the “Commencement Date”) of (A) the date 20 Trading Days before the date in question, (B) the date of commencement of the tender or exchange offer requiring such computation and (C) the date of the last amendment, if any, of such tender or exchange offer involving a change in the maximum number of shares for which tenders are sought or a change in the consideration offered, and ending not later than the Trading Day next succeeding the Expiration Time of such tender or exchange offer (or, if such Expiration Time occurs before the close of trading on a Trading Day, not later than the Trading Day during which the Expiration Time occurs); provided, however, that if the “ex” date for any Other Event (other than the tender or exchange offer requiring such computation) occurs on or after the

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Commencement Date and on or prior to the Trading Day next succeeding the Expiration Time for the tender or exchange offer requiring such computation, 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 reciprocal of the same fraction by which the number of Base Shares payable on a voluntary conversion or Auto-Conversion is so required to be adjusted as a result of such other event.

For purposes of this Section 15.4 the term “ex” date, (x) 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, (y) 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 (z) 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 tender or exchange offer.

(i) In addition to those required by paragraphs (a), (b), (c), (d), (e), (f) and (g) of this Section 15.4, to the extent permitted by applicable law, the Company from time to time may increase the number of Base Shares and the Plus Cash Amount payable on a voluntary conversion or Auto-Conversion, as applicable, by any amount for any period of time if the period is at least twenty (20) days and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. Whenever the number of Base Shares and the Plus Cash Amount payable on a voluntary conversion or Auto-Conversion, as applicable, is increased pursuant to the preceding sentence, the Company shall give notice of the increase to the Holders of Notes in the manner provided in Section 16.3 at least fifteen (15) days prior to the date the increased number takes effect, and such notice shall state the increased number of Base Shares and the increased Plus Cash Amount and the period during which it will be in effect.

(j) No adjustment in the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock shall be required unless such adjustment would require an increase or decrease of at least 1% in such number or price; provided, however, that any adjustments, which by reason of this Section 15.4(i) are not required to be made, shall be carried forward and taken into account in any subsequent adjustment.

(k) Each adjustment made pursuant to this Section 15.4 shall be carried forward and taken into account in any subsequent adjustment pursuant to this Section 15.4.

(l) In the event that the Company distributes assets, debt securities, rights, warrants or options (other than those referred to in Section 15.4(c)) pro rata to holders of Common Stock, and the fair market value of the portion of assets, debt securities, rights, warrants or options applicable to one share of Common Stock distributed to holders of Common Stock exceeds the Average Sale Price (as defined below) per share of Common Stock, (or such Average Sale Price exceeds such fair market value by less than $1.00), then so long as any such assets, debt securities, rights, options or warrants have not expired or been redeemed by the Company, the Company shall make proper provision so that the Holder of any Note upon

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voluntary conversion or Auto-Conversion, rather than being entitled to an adjustment in the number of Base Shares will be entitled to receive upon such voluntary conversion or Auto-Conversion, in addition to the Plus Cash Amount and the shares of Common Stock otherwise issuable upon voluntary conversion or Auto-Conversion, the kind and amount of assets, debt securities, rights, warrants and options such Holder would have received had such Holder converted its Note immediately prior to the date of determination of the holders entitled to such distribution, assuming for such purposes that the Plus Cash Amount was paid in cash. In the event that such distribution is not so paid or made, the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price and any calculation of a simple average of daily volume-weighted average prices of Common Stock shall again be adjusted to be the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, and such calculation of a simple average of daily volume-weighted average prices of Common Stock that would then be in effect if such distribution had not been declared.

“Average Sale Price” means the average of the Closing Prices of the Common Stock for the shorter of (i) 30 consecutive Trading Days ending on the last full Trading Day prior to the Time of Determination (as defined below) with respect to the rights, options, warrants or distribution in respect of which the Average Sale Price is being calculated, or (ii) the period (x) commencing on the date next succeeding the first public announcement of (a) the issuance of rights, options or warrants or (b) the distribution, in each case, in respect of which the Average Sale Price is being calculated and (y) proceeding through the last full Trading Day prior to the Time of Determination with respect to the rights, options, warrants or distribution in respect of which the Average Sale Price is being calculated, or (iii) the period, if any, (x) commencing on the date next succeeding the Ex-Dividend Time (as defined below) with respect to the next preceding (a) issuance of rights, warrants or options or (b) distribution, in each case, for which an adjustment is required by the provisions of Section 15.4(c) or Section 15.4(k) and (y) proceeding through the last full Trading Day prior to the Time of Determination with respect to the rights, options, warrants, or distribution in respect of which the Average Sale Price is being calculated. If the Ex-Dividend Time (or in the case of a subdivision, combination or reclassification, the effective date with respect thereto) with respect to a dividend, subdivision, combination or reclassification to which Section 15.4(a), (b) or (c) applies occurs during the period applicable for calculating “Average Sale Price” pursuant to the definition in the preceding sentence, “Average Sale Price” shall be calculated for such period in a manner determined in good faith by the Board of Directors to reflect the impact of such dividend, subdivision, combination or reclassification on the Closing Price of the Common Stock during such period.

“Time of Determination” means the time and date of the earlier of (i) the determination of stockholders entitled to receive rights, warrants or options or a distribution, in each case, to which this Section 15.4 applies and (ii) the time (“Ex-Dividend Time”) immediately prior to the commencement of “ex-dividend” trading for such rights, options, warrants or distribution on the New York Stock Exchange or such other national or regional exchange or market on which the shares of Common Stock are listed or quoted.

Section 15.5 Notice of Adjustments. Whenever the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or any calculation of a simple average of daily volume-weighted average prices of a share of Common

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Stock is adjusted as herein provided, the Company shall compute the adjusted number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or calculation of a simple average of daily volume-weighted average prices of a share of Common Stock in accordance with Section 15.4 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or calculation of a simple average of daily volume-weighted average prices of a share of Common Stock and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed (with a copy to the Trustee or the Conversion Agent) at each office or agency maintained for the purpose of conversion of Notes pursuant to Section 5.2; and the Company shall forthwith cause a notice setting forth the adjusted number of Base Shares payable on a voluntary conversion or Auto-Conversion, or the Auto-Conversion Price, to be mailed, first class postage prepaid, to each Holder of Notes at its address appearing on the Note Register. Unless and until the Trustee (and the Conversion Agent, as the case may be) shall receive such notice, the Trustee (and the Conversion Agent, as the case may be) may assume without inquiry that the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock have not been, and are not required to be, adjusted and that the last number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or calculation of a simple average of daily volume-weighted average prices of a share of Common Stock of which it has written notice remains in effect.

Section 15.6 Notice of Certain Corporate Action. In case:

(a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment to the number of Base Shares payable on a voluntary conversion or Auto-Conversion, the Auto-Conversion Price, the Threshold Price or any calculation of a simple average of daily volume-weighted average prices of a share of Common Stock pursuant to Section 15.4(d) or 15.4(e); or

(b) the Company shall authorize the granting to all holders of its Common Stock of rights, warrants or options to subscribe for or purchase any shares of capital stock of any class or of any other rights (excluding rights distributed pursuant to any stockholder rights plan); or

(c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), 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;

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

(e) the Company or any Subsidiary of the Company shall commence a tender or exchange offer for all or a portion of the Company’s outstanding shares of Common Stock; or

(f) the Company or any Subsidiary of the Company shall amend a tender or exchange offer for all or a portion of the Company’s outstanding shares of Common Stock;

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then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Notes pursuant to Section 5.2, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Note Register, at least 20 days (or 10 days in any case specified in clause 15.6(a), 15.6(b) or 15.6(f) above) prior to the applicable record, effective or expiration 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 granting of rights, warrants or options, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, warrants or options 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, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of any amendment thereto).

Section 15.7 Company’s Obligation Regarding Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of Notes, the whole number of shares of Common Stock then issuable upon the conversion in full of all Outstanding Notes.

The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company shall in good faith and as expeditiously as practicable endeavor to secure such registration or approval, as the case may be.

The Company further covenants that so long as the Common Stock shall be listed or quoted on the New York Stock Exchange, the Nasdaq, or any other national securities exchange, the Company shall, if permitted by the rules of such exchange, list and keep listed so long as the Common Stock shall be so listed on such market or exchange, all Common Stock issuable upon conversion of the Notes.

Section 15.8 Taxes on Conversions. The Company shall pay any and all stamp, documentary or issuance taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Notes pursuant hereto, but shall not pay any taxes measured by net income or otherwise imposed on Holders in connection with a conversion. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Note or Notes to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

Section 15.9 Covenant as to Common Stock. The Company covenants that all shares of Common Stock that may be issued upon conversion of Notes shall upon issue be newly

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issued (and not treasury shares) and shall be duly authorized, validly issued, fully paid and nonassessable and, except as provided in Section 15.8, the Company shall pay all taxes, liens and charges with respect to the issue thereof.

Section 15.10 Cancellation of Converted Notes. All Notes delivered for conversion shall be delivered to the Trustee to be cancelled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 2.10.

Section 15.11 Provisions in Case of Reclassification, Consolidation, Merger or Sale of Assets. In the event that the Company shall be a party to any transaction (including any (i) recapitalization or reclassification of the 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 of the Common Stock), (ii) any consolidation of the Company with, or merger of the Company into, any other person, any merger of another person into the Company (other than a merger that does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), (iii) any sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of the Company or (iv) any compulsory share exchange) pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction to the Base Shares and Plus Cash Amount payable upon conversion such that the Holder of any Note upon such conversion will receive upon conversion (subject to funds being legally available for such purpose under applicable law at the time of such conversion) only the kind and amount of securities, cash and other property receivable upon such transaction by a holder of a number of shares of Common Stock equal to the number of Base Shares into which such Note might have been converted immediately prior to such transaction, together with the Plus Cash Amount. The Company or the Person formed by such consolidation or resulting from such merger or that acquired such assets or that acquired the Company’s shares of Common Stock, as the case may be, shall execute and deliver to the Trustee a supplemental indenture, satisfactory to the Trustee, establishing such rights. Such supplemental indenture shall provide for adjustments that, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section 15.11 shall similarly apply to successive transactions of the foregoing type.

Section 15.12 Auto-Conversion by the Company.

(a) Subject to the terms and conditions of this Section 15.12, the Company may elect, at its sole option, to automatically convert (a “Cash Auto-Conversion”) all of the Notes or any portion of the principal amount thereof that is $1,000 or an integral multiple of $1,000, into the Base Shares and Plus Cash Amount and pay the Plus Cash Amount in cash, at any time on or prior to Maturity; provided that the daily volume-weighted average price of the Company’s Common Stock exceeds [$        ] per share (the “Auto-Conversion Price”) for each of any 20 Trading Days during any consecutive 30 Trading Day period, ending within one Trading Day prior to the date of any Auto-Conversion Notice (as defined below) provided by the Company; and provided further that the Company shall not carry out a Cash Auto-Conversion during any Stock Substitution Period.

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In the event that the date on which all or any portion of the Notes are auto-converted pursuant to a Cash Auto-Conversion occurs prior to June 1, 2006, the Company will also pay in cash or, solely at the Company’s option, in shares of Common Stock, valued at the Stock Substitution Price, as defined below, the Make-Whole Payment on the Cash Auto-Conversion Date.

Any auto-conversion pursuant to a Cash Auto-Conversion of less than all of the Notes will be made on a pro rata basis with reference to the aggregate principal amount held by each Holder of the Notes relative to the aggregate principal amount held by all Holders of the Notes on the Cash Auto-Conversion Date, rounded up to the nearest $1,000 in principal amount on a Holder-by-Holder basis.

(b) Unless the Company shall have previously called for redemption all of the outstanding Notes, the Company or, at the request and expense of the Company, the Trustee, shall give to all Holders of Notes notice (the “Cash Auto-Conversion Notice”) of a Cash Auto-Conversion seven calendar days prior to the date on which all or any portion of the Notes are to be Auto-Converted (a “Cash Auto-Conversion Date), provided that if the seventh calendar day is not a Trading Day the Cash Auto-Conversion Date shall be the next Trading Day. The Company shall also deliver a copy of such Cash Auto-Conversion Notice to the Trustee.

(c) Each Cash Auto-Conversion Notice shall state:

(i) the Cash Auto-Conversion Date;

(ii) the place or places where such Notes are to be surrendered for Cash Auto-Conversion, if any;

(iii) the number of Base Shares and Plus Cash Amount then in effect;

(iv) the Make-Whole Payment amount, if any; and

(v) the CUSIP number of such Notes, if any.

(d) Subject to the terms and conditions of this Section 15.12, the Company may elect, at its sole option, to automatically convert (a “Stock Auto-Conversion”) all of the Notes or any portion of the principal amount thereof that is $1,000 or an integral multiple of $1,000, into the Base Shares and the Plus Cash Amount and pay the Plus Cash Amount in Plus Cash Shares. If the Company so elects to effect a Stock Auto-Conversion, the Company or, at the request and expense of the Company, the Trustee, shall give to all Holders of Notes notice (a “Stock Substitution Notice”) of a Stock Auto-Conversion with a copy of such Stock Substitution Notice to be filed with the Commission as an exhibit to a current report on Form 8-K. The Stock Substitution Notice must specify:

(i) a stock price as selected by the Company, which must be equal to or greater than the Auto-Conversion Price (the “Stock Substitution Reference Price”);

(ii) the percentage of the principal amount of the outstanding Notes that the Company must convert if the conditions described in Section 15.12(e) are met; and

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(iii) the CUSIP number of such Notes, if any.

In the event that the date on which all or any portion of the Notes are Auto-Converted pursuant to a Stock Auto-Conversion occurs prior to June 1, 2006, the Company will also pay in cash or, solely at the Company’s option in shares of Common Stock valued at the Stock Substitution Price, as defined below, the Make-whole Payment on the Stock Auto-Conversion date.

Any Auto-Conversion pursuant to a Stock Auto-Conversion of less than all of the Notes will be made on a pro rata basis with reference to the aggregate principal amount held by each Holder of the Notes relative to the aggregate principal amount held by all Holders of the Notes on the Stock Auto-Conversion Date, rounded up to the amount $1,000 in principal amount on a Holder-by-Holder basis.

(e) Subject to Section 15.13, beginning on and including the Stock Substitution Period Commencement Date, as defined below, the Company cannot withdraw or modify the Stock Substitution Notice until the daily volume-weighted average price of the Company’s shares of Common Stock for each of any 20 Trading Days during any consecutive 30 Trading Day period is less than the applicable Stock Substitution Reference Price and only as permitted in this Section 15.12. The period during which a Stock Substitution Notice cannot be withdrawn or modified is referred to herein as the “Stock Substitution Period.” The first Trading Day (after the Company has given a Stock Substitution Notice) on which the daily volume-weighted average price of the Company’s shares of Common Stock is greater than the Stock Substitution Reference Price is the “Stock Substitution Period Commencement Date.”

Subject to Section 15.13, during any Stock Substitution Period, if the daily volume-weighted average price of the Company’s shares of Common Stock for each of any 20 Trading Days during any consecutive 30 Trading Day period exceeds the Stock Substitution Reference Price, which 20 Trading Days are referred to as the “Valuation Days,” the Company must:

(i) convert the percentage specified in the Stock Substitution Notice of the principal amount of the outstanding Notes and each $1,000 principal amount of Notes so converted shall be converted into Base Shares and the Plus Cash Amount (with any remaining amount less than $1,000 paid as specified in Section 15.12(k)) on the date on which such percentage of principal amount is to be Auto-Converted pursuant to this Seciton 15.12(d) (a “Stock Auto-Conversion Date”), which date shall be seven calendar days after the Company issues a Stock Auto-Conversion Notice (as defined below), provided that if the seventh calendar day is not a Trading Day, the Stock Auto-Conversion Date shall be the next Trading Day;

(ii) pay the aggregate Plus Cash Amount owing pursuant to clause (i) above in Plus Cash Shares as, valued at the Stock Substitution Price, as defined below; and

(iii) pay the Make-Whole Payment, if any, in cash or, solely at the Company’s option, in shares of Common Stock.

(f) No later than the next Trading Day immediately following the 20th Valuation Day, the Company will notify the Holders of the conversion of the Notes into the shares of the Company’s Common Stock and the substitution of Plus Cash Shares for the Plus Cash Amount (the “Stock Auto-Conversion Notice”). The Stock Auto-Conversion Notice shall state:

(i) the Stock Auto-Conversion Date selected by the Company pursuant to 15.12(e)(i);

(ii) the place or places where such Notes are the be surrendered for Stock Auto-Conversion, if any;

(iii) the number of Base Shares and Plus Cash Shares then in effect;

(iv) the Make-Whole Payment amount, if any; and

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(v) the CUSIP number of such Notes, if any.

The Plus Cash Shares to be delivered upon a Stock Auto-Conversion will be valued at 95% of the simple average of the daily volume-weighted average price of the Company’s shares of Common Stock for the 20 Valuation Days (the “Stock Substitution Price”).

(g) For the avoidance of doubt, the Company may elect to carryout a Cash Auto-Conversion at any time after the issuance of a Stock Substitution Notice and prior to the Stock Substitution Period Commencement Date, including with respect to that percentage of Plus Cash Notes referenced in such Stock Substitution Notice.

After the Stock Substitution Period Commencement Date, the Company shall not withdraw or modify the Stock Substitution Notice until the daily volume-weighted average price of the Company’s shares of Common Stock for each of any 20 Trading Days during any consecutive 30 Trading Days is less than the Stock Substitution Reference Price then in effect.

Any notice of the Company’s withdrawal or modification will be effective upon the Company’s filing of such notice with the Trustee, which notification the Company must also file with the Commission by the close of business of the next Business Day as an exhibit to a current report on Form 8-K.

(h) Prior to the Stock Substitution Period Commencement Date, the Company may withdraw or modify the Stock Substitution Notice at any time.

(i) Except as provided elsewhere in this Section 15.12, in connection with any Auto-Conversion of any Note or portion thereof, that portion of accrued and unpaid interest, if any, remaining unpaid on such conversion shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through delivery of the Base Shares, Plus Cash Amount and any Make-Whole Payment (together with the cash or stock payment, if any, in lieu of fractional shares) in exchange for the Note or portion thereof being Auto-Converted. Except as provided elsewhere in this Section 15.12, no payment or other adjustment shall be made for interest accrued on any Note or portion thereof Auto-Converted or for dividends on any shares issued upon the Auto-Conversion of such Note or portion thereof as provided in this Article. Notwithstanding the foregoing, the Holder shall receive the regular interest payment payable to Holders on a regular record date for such interest payment in connection with any Auto-Conversion effected on or after such record date and prior to the interest payment date.

(j) In the event of any Auto-Conversion, the Company shall issue and deliver a certificate or certificates for the number of shares of Common Stock issuable upon Auto-Conversion of the Notes along with any cash or stock due in respect of the Plus Cash Amount or any fractional shares of Common Stock otherwise issuable upon Auto-Conversion as provided in Section 15.14 hereof for issuance and payment to the Holder as promptly after the Auto-Conversion Date as practicable in accordance with the provisions of this Article Fifteen. In the event of a Stock Auto-Conversion, instead of any fractional share of Common Stock that would otherwise be issuable upon Auto-Conversion of any Note, the Company shall issue an additional whole share in lieu of any such fractional share (determined with reference to the aggregate principal amount of all of the Notes held by such Holder).

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(k) All Notes subject to any Auto-Conversion shall be delivered to the Trustee to be canceled at the direction of the Trustee, which shall dispose of the same as provided in Section 2.10 hereof.

(l) Promptly after the Auto-Conversion Date, the Company will provide notice to all Holders of outstanding Notes stating the aggregate principal amount of Plus Cash Notes that were Auto-Converted and describing the aggregate consideration paid therefore. A copy of that notice will be promptly filed with the Commission as an exhibit to a current report on Form 8-K.

(m) If any provision of this Section 15.12 is inconsistent with applicable law at the time of such Auto-Conversion, such law shall govern.

Section 15.13 Beneficial Ownership Limitation in Stock Auto-Conversion. If, upon a Stock Auto-Conversion of some or all of the Notes, the Company is obligated or elects to pay the Plus Cash Amount, any interest required to be paid, if any, and the Make-Whole Payment, if any, in shares of Common Stock, and the total number of shares of Common Stock to be issued to any Holder or any group of which such Holder is a part upon that Stock Auto-Conversion, plus the total number of shares of Common Stock otherwise beneficially owned by such Holder or any such group, would, in the absence of the deemed Stock Auto-Conversion described below, exceed 19.9% of the then outstanding shares of Common Stock, then the principal amount of the Notes legally or beneficially owned by such Holder or any such group being Auto-Converted in such Stock Auto-Conversion shall, effective as of the close of trading on the 20th Valuation Day, be deemed to have been fully Auto-Converted into such number of shares of Common Stock which, when added to the total number of shares of Common Stock otherwise beneficially owned by such Holder or any such group would result in such Holder or any such group beneficially owning 19.9% of the then outstanding shares of Common Stock. The delivery of the such shares shall satisfy the Company’s obligation to pay the principal amount of the Notes so Auto-Converted, any accrued and unpaid interest on such principal amount to the Stock Auto-Conversion Date, and the Make-Whole Payment, if any, and such accrued and unpaid interest and Make-Whole Payment will be deemed to be paid in full and not be cancelled, extinguished or forfeited.

Section 15.14 Fractional Shares. No fractional shares of Common Stock shall be issued upon any voluntary conversion or Auto-Conversion of Notes (whether in connection with the settlement of Base Shares or Plus Cash Shares, as the case may be). If more than one Note shall be surrendered for voluntary conversion at one time by the same Holder, the number of full shares that shall be issuable upon voluntary conversion thereof shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof) so surrendered. Subject to Section 15.12(j), instead of any fractional share of Common Stock that would otherwise be issuable upon voluntary conversion or Auto-Conversion of any Note (or specified portions thereof), the Company shall either,

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at its sole option, (i) pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Closing Price per share of the Common Stock at the close of business on the Trading Day immediately preceding such day, or (ii) issue an additional whole share in lieu of any fractional share that would otherwise be issuable upon voluntary conversion of such Note.

“Trading Day” shall mean each day on which the primary securities exchange or quotation system or over-the-counter market that is used to determine price is open for trading or quotation.

“Closing Price” of a single share of Common Stock on any Trading Day shall mean the closing sale price per share for the Common Stock (or if no closing sale price is reported, the average of the bid and ask prices) on such Trading Day on the principal United States national securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national securities exchange, as reported by the Nasdaq, or, if the Common Stock is not listed on the Nasdaq, the principal United States regional securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States regional stock exchange, as reported by the principal over-the-counter market on which the Common Stock is traded, including the Over the Counter Bulletin Board (the “OTCBB”) or the National Quotation Service Bureau (commonly known as the “Pink Sheets”) or successor markets.

“daily volume-weighted average price” of a single share of Common Stock on any Trading Day shall mean the daily volume-weighted average price per share for the Common Stock on such Trading Day on the principal United States national securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national securities exchange, as reported by the Nasdaq, or, if the Common Stock is not listed on the Nasdaq, the principal United States regional securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States regional stock exchange, as reported by the principal over-the-counter market on which the Common Stock is traded, including the OTCBB or the National Quotation Service Bureau or successor markets, in any event, as reported by the Bloomberg L.P. or such other nationally recognized information source satisfactory to the Trustee.

Section 15.15 Notification to Trustee. If the Company is obligated to pay any Make-Whole Payment upon any Auto-Conversion, it shall deliver to the Trustee a certificate setting forth the amount of interest actually paid or provided for by the Company with respect to the affected Notes prior to the Auto-Conversion Date. Unless and until the Trustee shall receive such certificate, it shall not be charged with knowledge of the facts required by this Section 15.15 to be set forth therein. In no event will the Trustee be required to inquire into or verify the information required to be set forth in such certificate, other than the amount of interest actually paid by the Trustee as Paying Agent with respect to the affected Notes. The Trustee need not inquire into or confirm any amount of interest “provided for” by the Company, unless such amount has actually been delivered to the Trustee as Paying Agent and is being held by the Trustee as Paying Agent pending distribution to the affected holders.

Section 15.16 Company’s Obligation. All calculations, adjustments, conversions and other determinations under this Article Fifteen shall be the sole responsibility and obligation

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of the Company. The Trustee (a) shall have no obligation to review, verify, challenge or contest any such calculation, adjustment, conversion or other determination and (b) shall not be liable for any default or error by the Company under this Article Fifteen.

ARTICLE SIXTEEN

MISCELLANEOUS PROVISIONS

Section 16.1 Provisions Binding on Company’s Successors. All the covenants, stipulations, promises and agreements by the Company contained in this Indenture shall bind its successors and assigns whether so expressed or not.

Section 16.2 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 Person that shall at the time be the lawful sole successor of the Company.

Section 16.3 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 ViroPharma Incorporated, 405 Eagleview Boulevard, Exton, Pennsylvania, Attention: Treasurer. 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 One Federal Street, 3rd Floor, Boston, MA 02110; Attention: Corporate Trust Services (ViroPharma Incorporated, 6% Convertible Senior Plus Cash Notes_SM due 2009).

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 him by first class mail, postage prepaid, at his address as it appears on the Note Register and shall be sufficiently given to him 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 16.4 Governing Law. This Indenture and each 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 the laws of the State of New York.

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Section 16.5 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 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 has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.

Section 16.6 Legal Holidays. In any case in which 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 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 16.7 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, however, that, unless otherwise required by law, notwithstanding the foregoing, this Indenture and the Notes issued hereunder shall not be subject to the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section 314 of the Trust Indenture Act as now in effect or as hereafter amended or modified; provided further that this Section 16.7 shall not require this 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, nor shall it constitute any admission or acknowledgment by any party to the 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. 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 16.8 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 in which property of the Company or its subsidiaries is located.

Section 16.9 Benefits of Indenture. Nothing in this Indenture or in the Notes, express 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.

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Section 16.10 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 16.11 Authenticating Agent. The Trustee may appoint an authenticating agent that 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, 2.8, 2.9, 3.3 and 3.5, 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, 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 16.11, 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 such 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 Company agrees to pay to the authenticating agent from time to time such reasonable compensation for its services as shall be agreed upon in writing between the Company and the authenticating agent.

The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11 shall be applicable to any authenticating agent.

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Section 16.12 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.

Section 16.13 Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, then (to the extent permitted by law) the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 16.14 Beneficial ownership. All references in, and determinations to be made pursuant to, this Indenture regarding any Person’s beneficial ownership of any security shall refer to, and be determined in accordance with, Rule 13d-3 promulgated under the Exchange Act.

U.S. Bank National Association hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions herein above set forth.

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed.

VIROPHARMA INCORPORATED

By:

Name:

Title:

U.S. BANK NATIONAL ASSOCIATION,

as Trustee

By:

Name:

Title:

Exhibit A

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, 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 BECAUSE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE.

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VIROPHARMA INCORPORATED

6% CONVERTIBLE SENIOR PLUS CASH NOTE_SM DUE 2009

No.	$
CUSIP NO.

VIROPHARMA INCORPORATED, a corporation duly organized and existing under the laws of the State of Delaware (herein called the “Company,” which term includes any successor entity under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to                     , or registered assigns, the principal sum of                      ($                    ) at the office or agency of the Company referred to below, on [                    ], 2009 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, and to pay interest on said principal sum semiannually on June 1 and December 1 of each year, commencing December 1, 2004 (each an “Interest Payment Date”) and beginning to accrue as of the date this Note is first issued, at said office or agency, in like coin or currency, at the rate of 6% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in such Indenture, 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 Regular Record Date for such interest, which shall be the May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

The Company may elect, solely at the Company’s option, to pay interest in shares of the Company’s Common Stock if the simple average of the daily volume-weighted average prices of the Company’s Common Stock for the 10 Trading Days ending on and including the second trading day immediately preceding the Interest Payment Date exceeds the Threshold Price. If the Company elects to make any payment of interest in shares of Common Stock, the shares to be delivered will be valued at 95% of the simple average of the daily volume-weighted average price of the Common Stock for the ten (10) Trading Days ending on and including the second Trading Day immediately preceding the Interest Payment Date, as described in the Indenture.

Except as otherwise described in the Indenture, payment of the principal of and interest on this Note shall be made at the office or agency of the Company maintained for such purpose, which initially shall be the Corporate Trust Office of the Trustee referred to on the reverse side hereof, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, provided that the Company may make such payment either by (i) mailing a check in the amount of such payment, payable to or

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upon the written order of the Person entitled thereto pursuant to Section 2.7 of the Indenture (as defined therein) or (ii) transfer to an account maintained by the payee located inside the United States.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

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IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

DATED:                     , 2004	VIROPHARMA INCORPORATED
	By:
	Name:
	Title:
Attest:
	By:
	Name:
	Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

DATED:                     , 2004	U.S. BANK NATIONAL ASSOCIATION, as Trustee
	By:
		Authorized Signatory

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FORM OF REVERSE OF NOTE

ViroPharma Incorporated

6% CONVERTIBLE SENIOR PLUS CASH NOTE_SM DUE 2009

This Note is one of a duly authorized issue of Notes of the Company designated as its 6% Convertible Senior Plus Cash Notes_SM due 2009 (herein called the “Notes”), limited in aggregate original principal amount to $124,122,500 as adjusted from time to time on the books and records of the Trustee, which may be issued under an Indenture, dated as of [                    ], 2004 (the “Indenture”), between the Company and U.S. Bank National Association, as Trustee for the Holders of Notes issued under said Indenture (herein called the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered.

Subject to and upon compliance with the provisions of the Indenture, the Holder of this Note is entitled, at its option, at any time on or before Maturity of the Notes, or in case this Note or a portion hereof is called for redemption or is the subject of an Auto-Conversion Notice, then in respect of this Note or such portion hereof until and including, but (unless the Company defaults in making the payment due upon redemption, repurchase or auto-conversion) not after, the close of business on the Business Day immediately preceding the Redemption Date, Repurchase Date or, with respect to which a Stock Subscription Notice has been given, after 4:00 p.m., New York City Time, on the Valuation Day which is the 20th Trading Day after the Stock Subscription Period Commencement Date on which the daily volume-weighted average price of the Company’s share of Common Stock exceeds the Stock Substitution Reference Price, as the case may be, to convert this Note (or any portion of the principal amount hereof which is U.S. $1,000 or an integral multiple thereof), at the principal amount hereof, or of such portion, into [                    ] fully-paid and non-assessable shares of the Company’s Common Stock (the “Base Shares”) plus $500 cash (the “Plus Cash Amount”).

At the Company’s sole option, it may pay or provide for the Plus Cash Amount deliverable upon voluntary conversion in shares of Common Stock (the “Plus Cash Shares”) if the simple average of the daily volume-weighted average prices of the Company’s Common Stock for the 10 trading days ending on and including the second Trading Day immediately proceeding the Conversion Date equals or exceeds the Threshold Price. The Common Stock deliverable upon voluntary conversion (whether in respect of Base Shares or Plus Cash Shares, as applicable), the Make-Whole Payment (as defined below), and any cash delivered in respect of the Plus Cash Amount are hereafter referred to in the aggregate as the “Conversion Consideration.” If the Company elects to pay the Plus Cash Amount in Plus Cash Shares, the Plus Cash Shares will be valued at 95% of the simple average of the daily volume-weighted average price of the Common Stock for the ten (10) Trading Days ending on and including the second Trading Day immediately preceding the Conversion Date. The number of Base Shares and any calculation or determination in respect of the simple average of the daily volume-weighted average price of the Common Stock shall be adjusted as provided for in Article Fifteen of the Indenture.

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If voluntary conversion occurs prior to June 1, 2006 and if the simple average of the daily volume-weighted average price of the Common Stock for the 10 trading days ending on and including the second trading day immediately preceding the Conversion Date is greater than the Threshold Price, the Company shall pay additional interest (the “Make-Whole Payment”) equal to two years’ interest on the principal amount so converted, computed on the basis of a 360-day year composed of twelve 30-day months, less any interest actually paid or provided for on the principal amount so converted, prior to the date of voluntary conversion. The Make-Whole Payment, if any, shall be paid in cash or, solely at the Company’s option, in shares of Common Stock. If the Company elects to pay the Make-Whole Payment in shares of Common Stock, such shares shall be valued at 95% of the simple average of the daily volume-weighted average price of the Common Stock for the 10 trading days ending on and including the second trading day immediately preceding the date of voluntary conversion.

Holders shall receive the Conversion Consideration after surrender of this Note, duly endorsed or assigned to the Company or in blank, to the Company at its office or agency maintained for such purpose, accompanied by the conversion notice hereon executed by the Holder hereof evidencing such Holder’s election to convert this Note, or if less than the entire principal amount hereof is to be converted, the portion hereof to be converted, and, in case such surrender shall be made during the period from the close of business on any Regular Record Date to the opening of business on the corresponding Interest Payment Date (unless this Note or the portion hereof being converted has been called for redemption on a Redemption Date within such period between and including such Regular Record Date and such Interest Payment Date),

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also accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Note then being converted. Subject to the aforesaid requirement for payment of interest and, in the case of a conversion after the close of business on any Regular Record Date and on or before the corresponding Interest Payment Date, to the right of the Holder of this Note (or any Predecessor Note) of record at such Regular Record Date to receive an installment of interest (even if the Note has been called for redemption on a Redemption Date within such period), no payment or adjustment is to be made on conversion for interest accrued hereon or for dividends on the Common Stock issued on conversion.

No fractions of shares or scrip representing fractions of shares will be issued on voluntary conversion, but instead of any fractional interest the Company shall pay a cash adjustment or a whole share in lieu of a fractional share (determined with reference to the aggregate principal amount so surrendered by such Holder) as provided in Article Fifteen of the Indenture. In addition, the Indenture provides that in case of certain reclassifications, consolidations, mergers, sales or transfers of assets or other transactions pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property, the conversion privilege shall be appropriately modified.

The Company may elect, at its sole option, from time to time as provided in the Indenture, to automatically convert (an “Auto-Conversion”) the Notes or any portion of the principal amount thereof that is $1,000 or an integral multiple of $1,000 into the Base Shares and the Plus Cash Amount, provided that the Closing Price of the Company’s Common Stock exceeds [$        ] per share (the “Auto-Conversion Price”) for each of any twenty (20) Trading Days during any consecutive thirty (30) day Trading Day period, ending within one (1) Trading Day prior to the date of any notification for auto-conversion provided by the Company (the “Auto-Conversion Notice”). In the event that the date on which all or any portion of the Notes will be auto-converted (the “Auto-Conversion Date”) occurs prior to June 1, 2006, the Company will also pay or provide for the Make-Whole Payment (as defined in the Indenture) on the Auto-Conversion Date.

If the Company, in respect of a Stock Auto-Conversion, elects to pay all or any part of the Plus Cash Amount in shares of its Common Stock, the Company must first issue a notice stating a stock substitution reference price (the “Stock Substitution Reference Price”), and if the Closing Price of the Company’s Common Stock is above that price for each of any twenty (20) Trading Days out of any consecutive thirty (30) Trading Day period, then the subject Notes will be Auto-Converted and the Plus Cash Amount will be paid in shares of Common Stock valued at 95% of the simple average of the Closing Prices for the twenty (20) days that the Closing Price of the Company’s Common Stock exceeded the Stock Substitution Reference Price, all in accordance with the provisions of Article Fifteen of the Indenture.

No fractions of shares or scrip representing fractions of shares will be issued on a Stock Auto-Conversion, but instead of any fractional interest the Company shall pay a cash adjustment or a whole share in lieu of a fractional share (determined with reference to the aggregate principal amount so surrendered by such Holder) as provided in Article Fifteen of the Indenture.

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The Notes (other than those Notes that have been converted in accordance with the terms of the Indenture) are subject to redemption at the option of the Company upon not less than 30 days’ or more than 60 days’ notice by mail, as a whole or from time to time in part, at any time after June 1, 2006 at a redemption price equal to 100% of the principal amount so redeemed together, in the case of any such redemption, with accrued interest to (but excluding) the Redemption Date (subject to the right of holders of record on the Regular Record Date to receive interest on the related Interest Payment Date). Any redemption of Notes must be in integral multiples of $1,000. If fewer than all of the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed in principal amounts at maturity of $1,000 or integral multiples thereof by lot, pro rata or by any other method that complies with the requirements of any exchange on which the Notes are listed or quoted and that the Trustee considers fair and appropriate. If a portion of a Holder’s Notes is selected for partial redemption and that holder converts a portion of those Notes prior to the redemption, the converted portion shall be deemed, solely for purposes of determining the aggregate principal amount of the Notes to be redeemed by the Company, to be of the portion selected for redemption.

In certain circumstances involving a Fundamental Change, each Holder shall have the right to require the Company to repurchase all or part of its Notes at a repurchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest through the Repurchase Date (subject to the right of holders of record on the Regular Record Date to receive interest on the related Interest Payment Date). The repurchase price shall be paid in cash.

The Notes do not have the benefit of any sinking fund.

In the event of redemption, conversion or repurchase of this Note in part only, a new Note or Notes for the unredeemed, unconverted or unrepurchased portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof.

If an Event of Default shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in Article Seven of the Indenture.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Notes under the Indenture at any time by the Company and the Trustee with (or, in the limited circumstances set forth in the Indenture, without) the consent of the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.

No reference herein to the Indenture and no provision of this Note or of the Indenture shall

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alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed or to convert this Note as provided in the Indenture.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Note Register, upon surrender of this Note for registration of transfer at the Corporate Trust Office duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof.

No service charge shall be made to a Holder for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

Interest on this Note will accrue from the most recent date to which interest has been paid, or if no interest has been paid, from [                    ], 2004. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Notes is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay).

All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture.

THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

A-9

FORM OF TRANSFER NOTICE

FOR VALUE RECEIVED, the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto

Insert Taxpayer Identification No.

Please print or typewrite name and address including zip code of assignee

the within Note and all rights thereunder, hereby irrevocably constituting and appointing                                          attorney to transfer said Note on the books of the Company with full power of substitution in the premises.

A-10

CONVERSION NOTICE

To: VIROPHARMA INCORPORATED

The undersigned Holder of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 or an integral multiple thereof) below designated, at any time following the date of original issuance thereof, into shares of Common Stock plus cash in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for a fractional share and/or the plus cash amount, as applicable, and any Note representing any unconverted principal amount hereof, be issued and delivered to the registered owner hereof unless a different name has been provided 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 and is delivering herewith a certificate in proper form certifying that the applicable restrictions on transfer have been complied with. Any amount required to be paid by the undersigned on account of interest accompanies this Note.

The undersigned Holder hereby represents and warrants that the shares of Common Stock represented by the sum of (a) the number of shares of Common Stock beneficially owned by the undersigned or any group of which the undersigned is a part, plus (b) the number of shares of Common Stock into or for which all securities beneficially owned by the undersigned or any such group are, directly or indirectly, convertible, exerciseable or exchangeable is                      as of the date of this Conversion Notice.

Terms used in this Conversion Notice and not otherwise defined herein shall have the respective meaning associated to such terms in the Indenture referred to in this Note.

Dated:	By:
		Signature of Registered Holder*
If shares or Notes are to be registered in the name of a Person other than the Holder, please print such Person’s name and address:		Principal amount to be converted (if less than all): $        ,000
Name
Social Security or Taxpayer Identification Number
Street Address
City, State and Zip Code

* 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 delivered, or unconverted Notes are to be issued, other than to and in the name of the registered owner.

1

OPTION TO ELECT REPAYMENT UPON A FUNDAMENTAL CHANGE

(1) Pursuant to Article Three of the Indenture, the undersigned hereby elects to have this Note repurchased by the Company.

(2) The undersigned hereby directs the Trustee or the Company to pay it or              an amount in cash equal to 100% of the principal amount to be repurchased (as set forth below), plus interest accrued to the Repurchase Date, as provided in the Indenture.

Dated:

Signature(s)

Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934.

Signature Guaranteed

Principal amount to be repurchased (at least U.S. $1,000 or an integral multiple of $1,000 in excess thereof):                     

Remaining principal amount following such repurchase (not less than U.S. $1,000):                     

NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Note in every particular, without alteration or any change whatsoever.

1

EX-23.2

Exhibit 23.2

INDEPENDENT AUDITORS’ CONSENT

The Board of Directors

ViroPharma Incorporated:

We consent to the use of our report incorporated herein by reference and to the reference to our firm under the headings “Selected Consolidated Financial Data” and “Experts” in the prospectus.

/s/    KPMG LLP

Philadelphia, Pennsylvania

April 23, 2004

EX-25.1

Exhibit 25.1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM T-1

Statement of Eligibility Under

The Trust Indenture Act of 1939 of a

Corporation Designated to Act as Trustee

¨ Check if an Application to Determine Eligibility of

a Trustee Pursuant to Section 305(b)(2)

U.S. BANK NATIONAL ASSOCIATION

(Exact name of Trustee as specified in its charter)

31-0841368

I.R.S. Employer Identification No.

800 Nicollet Mall Minneapolis, Minnesota	55402
(Address of principal executive offices)	(Zip Code)

Chi C. Ma, Vice President

U.S. Bank National Association

One Federal Street, 3^rd Floor

Boston, MA 02110

(617) 603-6554

(Name, address and telephone number of agent for service)

VIROPHARMA INCORPORATED

(Issuer with respect to the Securities)

Delaware	22-2789550
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

405 Eagleview Boulevard Exton, Pennsylvania	19341
(Address of Principal Executive Offices)	(Zip Code)

6.0% Convertible Senior Plus Cash Notes due 2009

FORM T-1

Item 1. GENERAL INFORMATION. Furnish the following information as to the Trustee.

a) Name and address of each examining or supervising authority to which it is subject.

Comptroller of the Currency

Washington, D.C.

b) Whether it is authorized to exercise corporate trust powers.

Yes

Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation.

None

Items 3-15 Items 3-15 are not applicable because to the best of the Trustee’s knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee.

Item 16. LIST OF EXHIBITS: List below all exhibits filed as a part of this statement of eligibility and qualification.

1. A copy of the Articles of Association of the Trustee.*

2. A copy of the certificate of authority of the Trustee to commence business.*

3. A copy of the certificate of authority of the Trustee to exercise corporate trust powers.*

4. A copy of the existing bylaws of the Trustee.*

5. A copy of each Indenture referred to in Item 4. Not applicable.

6. The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6.

7. Report of Condition of the Trustee as of December 31, 2003, published pursuant to law or the requirements of its supervising or examining authority, Attached as Exhibit 7.

8. A copy of any order pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act: Not applicable.

* Incorporated by reference to Registration Number 333-67188 dated November 16, 2001.

2

NOTE

The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston, Commonwealth of Massachusetts on the 28th day of April 2004.

U.S. BANK NATIONAL ASSOCIATION
By:	/s/    Chi C. Ma
	Chi C. Ma Vice President

By:	/s/    Marie A. Hattinger
	Marie A. Hattinger Vice President

3

Exhibit 6

CONSENT

In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor.

Dated: April 28, 2004

U.S. BANK NATIONAL ASSOCIATION
By:	/s/    Chi C. Ma
	Chi C. Ma Vice President

By:	/s/    Marie A. Hattinger
	Marie A. Hattinger Vice President

4

Exhibit 7

U.S. Bank National Association

Statement of Financial Condition

As of 12/31/2003

($000’s)

	12/31/2003
Assets
Cash and Due From Depository Institutions	$	8,631,361
Federal Reserve Stock		0
Securities		42,963,396
Federal Funds		2,585,353
Loans & Lease Financing Receivables		114,727,656
Fixed Assets		1,840,487
Intangible Assets		9,545,158
Other Assets		8,865,639
Total Assets	$	189,159,050
Liabilities
Deposits	$	128,249,183
Fed Funds		8,683,536
Treasury Demand Notes		0
Trading Liabilities		213,447
Other Borrowed Money		21,664,023
Acceptances		123,996
Subordinated Notes and Debentures		5,953,524
Other Liabilities		5,173,011
Total Liabilities	$	170,060,720
Equity
Minority Interest in Subsidiaries	$	1,002,595
Common and Preferred Stock		18,200
Surplus		11,677,397
Undivided Profits		6,400,138
Total Equity Capital	$	19,098,330
Total Liabilities and Equity Capital	$	189,159,050

To the best of the undersigned’s determination, as of the date hereof, the above financial information is true and correct.

U.S. Bank National Association
By:	/s/    Chi C. Ma
	Vice President

Date: April 28, 2004

5

EX-99.1

Exhibit 99.1

LETTER OF TRANSMITTAL

Offer for all Outstanding

6% Convertible Subordinated Notes due 2007

(CUSIP Nos. 928241AC2, 928241AA6)

in Exchange for the

6% Convertible Senior Plus Cash Notes_SM due 2009

which will be Registered under

the Securities Act of 1933, as Amended,

Prior to Closing

of

ViroPharma Incorporated

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 2004 UNLESS EXTENDED (THE “EXPIRATION DATE”). TENDERS MAY BE WITHDRAWN PRIOR TO 12:00 MIDNIGHT NEW YORK CITY TIME, ON THE EXPIRATION DATE.

Delivery To:

U.S. Bank National Association

Exchange Agent

For 6% Convertible Subordinated Notes due 2007

By Registered U.S Mail, Hand or Overnight

Courier:

U.S. Bank National Association

Corporate Trust Services

60 Livingston Avenue

St. Paul, MN 55107

By Facsimile Transmission:

(651) 495-8158

Attention: Specialized Finance

Confirm by Telephone:

(800) 934-6802

For Information with respect to the Exchange Offer call:

Georgeson Shareholder Communications Inc.

(800) 259-3515

For Indications of Interest in purchasing additional Plus Cash Notes call:

(415) 984-5142

Attention: Jeffrey Winaker or Brian Sullivan

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.

The undersigned acknowledges that he or she has received the Preliminary Prospectus, dated April 28, 2004 (the “Prospectus”), of ViroPharma Incorporated, a Delaware corporation (the “Company”), and this Letter of Transmittal (the “Letter”), which together constitute the Company’s offer to exchange up to $99,122,500 aggregate principal amount of the Company’s 6% Convertible Senior Plus Cash Notes_SM due 2009 (the “Plus Cash Notes”), for an aggregate principal amount of up to $127,900,000 of the Company’s issued and outstanding 6% Convertible Subordinated Notes due 2007 (the “Existing Notes”) from the registered holders thereof (the “Holders”) (the “Exchange Offer”).

For each Existing Note in principal amount of $1,000 accepted for exchange, the Holder of such Note will receive $775 in principal amount of Plus Cash Notes. The Company will settle any fractional Plus Cash Notes in cash. The Plus Cash Notes will bear interest from the date of issuance. Accordingly, holders of Plus Cash Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the date of issuance.

Up to $25,000,000 aggregate principal amount of additional Plus Cash Notes are being offered pursuant to the new money offering. See the “New Money Offering of Additional Plus Cash Notes” section of the Prospectus.

This Letter is to be completed by a Holder and tender of Existing Notes and is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the “Book-Entry Transfer Facility”) pursuant to the procedures set forth in “The Exchange Offer – Procedures for Tendering Existing Notes” section of the Prospectus. Holders who are unable to deliver confirmation of the book-entry tender of their Existing Notes into the Exchange Agent’s account at the Book-Entry Transfer Facility (a “Book-Entry Confirmation”) and all other documents required by this Letter to the Exchange Agent on or prior to the Expiration Date must tender their Existing Notes according to the guaranteed delivery procedures set forth in “The Exchange Offer – Guaranteed Delivery Procedures” section of the Prospectus. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.

The Company reserves the right, at any time, or from time to time, to extend the Exchange Offer and to amend any of the terms and conditions of the Exchange Offer, other than conditions in accordance with applicable law, at its discretion. The Company shall notify the Holders of the Existing Notes of any extension promptly by oral or written notice thereof.

Please read this entire Letter of Transmittal and the Prospectus carefully before checking any box below. The instructions included in this Letter of Transmittal must be followed.

YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE PROVIDED, WITH SIGNATURE GUARANTEE IF REQUIRED AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.

The undersigned has completed the appropriate boxes below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer.

List in the sections provided below each issue of Existing Notes to which this Letter relates. If the space provided below is inadequate, the certificate numbers and principal amount of Existing Notes should be listed and attached on a separate schedule.

DESCRIPTION OF EXISTING NOTES	1	2	3	4
Name(s) and Address(es) of Registered Holder(s) (Please fill in, if blank)	Note Certificate Number(s)*	Aggregate Principal Amount of Existing Note(s)	Principal Amount Tendered**	CUSIP Number
	Total
*      Need not be completed by holders tendering by book-entry transfer. **    Unless otherwise indicated in this column, a Holder will be deemed to have tendered ALL of the Existing Notes represented by the Existing Notes indicated in column 2. See Instruction 2. Existing Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. See Instruction 1.

The numbers and addresses of the holders should be printed exactly as they appear on the certificate representing Existing Notes tendered hereby.

¨ CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:

Name of Tendering Institution                                                                                                                                                                  

Account Number                              Transaction Code Number                                                                                                    

¨ CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:

Name(s) of Registered Holder(s)                                                                                                                                                             

Window Ticket Number (if any)                                                                                                                                                              

Date of Execution of Notice of Guaranteed Delivery                                                                                                                       

Name of Institution which Guaranteed Delivery                                                                                                                                 

For Book-Entry Transfer, Complete the Following:

Account Number                              Transaction Code Number                                                                                                    

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

Upon the terms and subject to the conditions of the Exchange Offer (and if the Exchange Offer is extended or amended, the terms of any such extension or amendment), the undersigned hereby tenders to the Company the aggregate principal amount of Existing Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Existing Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company, all right, title and interest in and to such Existing Notes as are being tendered hereby.

The undersigned understands that tenders of Existing Notes pursuant to any of the procedures described in the Prospectus and in the instructions hereto and acceptance thereof by purchaser will constitute a binding agreement between the undersigned and purchaser.

The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned’s true and lawful agent and attorney-in-fact with respect to such tendered Existing Notes, with full power of substitution, among other things, to cause the Existing Notes to be assigned, transferred and exchanged. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Existing Notes and to acquire Plus Cash Notes issuable upon the exchange of such tendered Existing Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company.

The undersigned hereby represents and warrants that the total number of shares of common stock of the Company beneficially owned by the undersigned or any group of which the undersigned is a part, together with shares issuable upon conversion of the Plus Cash Notes (issuable upon the exchange of tendered Existing Notes) to the undersigned or to such group, does not exceed 19.9% of the outstanding shares of the common stock of the Company.

The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Existing Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in “The Exchange Offer – Withdrawal Rights” section of the Prospectus.

The undersigned hereby represents and warrants that it is not prohibited from selling to or otherwise doing business with “U.S. Persons” and “persons subject to the jurisdiction of the United States” by any of the regulations of the U.S. Department of Treasury Office of Foreign Assets Control, pursuant to 31 C.F.R. Chapter V, or any legislation or executive orders relating thereto.

THE UNDERSIGNED, BY COMPLETING ONE OR MORE OF THE SECTIONS ENTITLED “DESCRIPTION OF EXISTING NOTES” ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE EXISTING NOTES AS SET FORTH IN THE SECTIONS ABOVE.

Unless otherwise indicated herein in the box entitled “Special Issuance Instructions” below, please credit the account indicated above which is maintained at the Book-Entry Transfer Facility.

SPECIAL ISSUANCE INSTRUCTION

(See Instructions 3 and 4)

To be completed ONLY if Existing Notes not accepted for exchange or Plus Cash Notes are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above.

Issue Plus Cash Notes and/or unexchanged Existing Notes to:

Name(s)                                                                                                                                                                                                   

(Please Type or Print)

(Please Type or Print)

Address                                                                                                                                                                                                    

                                         (Zip Code)

(Complete Substitute Form W-9)

¨ Credit Plus Cash Notes and/or unexchanged Existing Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below.

(Book-Entry Transfer Facility Account Number, if applicable)

IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.

PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL

CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.

PLEASE SIGN HERE

(TO BE COMPLETED BY ALL TENDERING HOLDERS)

(Complete Accompanying Substitute Form W-9 below)

x	, 2004
x	, 2004
(Signatures(s) of Owner(s))	(Date)

Area Code and Telephone Number:                                                                                                                                          

If a Holder is tendering any Existing Notes, this Letter must be signed by the registered Holder(s) as the name(s) appear(s) on the certificate(s) for the Existing Notes or by any person(s) authorized to become registered Holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3.

Name(s):                                                                                                                                                                                                  

(Please Type or Print)

Capacity:                                                                                                                                                                                                 

Address:                                                                                                                                                                                                  

(Including Zip Code)

Tax Identification or Social Security Number:                                                                                                                           

SIGNATURE GUARANTEE

(If required by Instruction 3)

Signature(s) Guaranteed by

an Eligible Institution:                                                                                                                                                                        

(Authorized Signature)

(Title)

(Name and Firm)

Dated:                            , 2004

INSTRUCTIONS

Forming Part of the Terms and Conditions of the Exchange Offer for the

Outstanding 6% Convertible Subordinated Notes due 2007

(CUSIP Nos. 928241AC2, 928241AA6)

in Exchange for the

6% Convertible Senior Plus Cash Notes_SM due 2009

Which Will be Registered Under

The Securities Act of 1933, as Amended,

Prior to Closing

of

ViroPharma Incorporated

1. Delivery of this Letter; Guaranteed Delivery Procedures. This Letter, or an electronic confirmation pursuant to the Depository Trust Company’s ATOP system, is to be completed by Holders of Existing Notes for tenders that are made pursuant to the procedures for delivery by book-entry transfer set forth in “The Exchange Offer – Procedures for Tendering Existing Notes” section of the Prospectus. Book-Entry Confirmation, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof), or an electronic confirmation pursuant to the Depository Trust Company’s ATOP system, and any other documents required by this Letter, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering Holder must comply with the guaranteed delivery procedures set forth below. Existing Notes tendered hereby must be in denominations of principal amount of $1,000 or any integral multiple thereof.

Holders who cannot complete the procedure for book-entry transfer on a timely basis or who cannot deliver all other required documents to the Exchange Agent on or prior to the Expiration Date may tender their Existing Notes pursuant to the guaranteed delivery procedures set forth in “The Exchange Offer – Guaranteed Delivery Procedures” section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through a firm which is a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the NYSE Medallion Signature Program or the Stock Exchanges Medallion Program (each an “Eligible Institution”), (ii) prior to 12:00 midnight, New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter (or a facsimile thereof), or an electronic confirmation pursuant to the Depository Trust Company’s ATOP system, and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder and the amount of Existing Notes tendered, stating that the tender is being made thereby and guaranteeing that within three Nasdaq trading days after the Expiration Date, a Book-Entry Confirmation and any other documents requested by this Letter will be deposited by the Eligible Institution with the Exchange Agent, and (iii) a Book-Entry Confirmation and all other documents required by this Letter, must be received by the Exchange Agent within three Nasdaq trading days after the Expiration Date.

The delivery of the Existing Notes and all other required documents will be deemed made only when confirmed by the Exchange Agent.

See “The Exchange Offer” section of the Prospectus.

2. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of Signatures. If this Letter is signed by the registered Holder of the Existing Notes tendered hereby, the signature must correspond exactly with the name as it appears on a security position listing as the Holder of such Existing Notes in the Book-Entry Transfer Facility System without any change whatsoever.

If any tendered Existing Notes are owned of record by two or more joint owners, all of such owners must sign this Letter.

If any tendered Existing Notes are registered in different names, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations.

When this Letter is signed by the registered Holder(s) of the Existing Notes specified herein and tendered hereby, no separate bond powers are required. If, however, the Plus Cash Notes are to be issued to a person other than the registered Holder, then separate bond powers are required.

If this Letter or any bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted.

Signatures on bond powers required by this Instruction 2 must be guaranteed by an Eligible Institution.

Signatures on this Letter need not be guaranteed by an Eligible Institution, provided the Existing Notes are tendered: (i) by a registered Holder of Existing Notes (including any participant in the Book-Entry Transfer Facility system whose name appears on a security position listing as the Holder of such Existing Notes) who has not completed the box entitled “Special Issuance Instructions” on this Letter, or (ii) for the account of an Eligible Institution.

3. Special Issuance Instructions. Holders tendering Existing Notes by book-entry transfer may request that Existing Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such Holder may designate hereon. If no such instructions are given, such Existing Notes not exchanged will be credited to the proper account maintained at The Depository Trust Company. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated.

4. Taxpayer Identification Number. U.S. federal income tax law generally requires that a tendering Holder who is a U.S. person and whose Existing Notes are accepted for exchange must provide the Exchange Agent (as payor) with such Holder’s correct Taxpayer Identification Number (“TIN”) on Substitute Form W-9 below or establish another basis for exemption from U.S. backup withholding. In the case of a tendering Holder who is an individual, such individual’s TIN is his or her social security number. If the Exchange Agent is not provided with the current TIN or an adequate basis for an exemption from backup withholding, the Exchange Agent may be required to withhold 28% of the amount of any reportable payments made after the exchange to such tendering Holder of Existing Notes. Backup withholding is not an additional tax. Rather, the U.S. federal income taxes payable by persons subject to backup withholding will be reduced by the amount of any backup withholding tax that is withheld. If such withholding results in an overpayment of taxes, a refund or credit may be obtained from the Internal Revenue Service.

Certain Holders of Existing Notes are exempt and not subject to these backup withholding and reporting requirements. See the enclosed Guidelines of Certification of Taxpayer Identification Number on Substitute Form W-9 (the “W-9 Guidelines”) for additional instructions.

To prevent backup withholding, each tendering Holder of Existing Notes must provide its correct TIN by completing the Substitute Form W-9 set forth below, certifying, under penalties of perjury, that the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i) the Holder is exempt from backup withholding, or (ii) the Holder has not been notified by the Internal Revenue Service that such Holder is subject to backup withholding as a result of a failure to report all interest or dividends or (iii) the Internal Revenue Service has notified the Holder that such Holder is no longer subject to backup withholding. A tendering Holder who is not a U.S. person must provide the Exchange Agent with the appropriate, properly completed Form W-8: Certificate of

Foreign Status in order to avoid withholding. These forms may be obtained from the Exchange Agent. If the Existing Notes are in more than one name or are not in the name of the actual owner, such Holder should consult the W-9 Guidelines for information on which TIN to report. If such Holder does not have a TIN, such Holder should consult the W-9 Guidelines for instructions on applying for a TIN, apply for a TIN, and write “applied for” in lieu of its TIN in Part I of the Substitute Form W-9. For interest and dividend payments, and certain payments made with respect to readily tradable instruments, generally you will have 60 days to provide a TIN before you are subject to backup withholding on payments. The 60-day rule does not apply to other types of payments. You will be subject to backup withholding on all such payments until you provide your TIN to the requester.

5. Transfer Taxes. The Company will pay all transfer taxes, if any, applicable to the transfer of Existing Notes to it or its order pursuant to the Exchange Offer, provided that such transfer taxes will not be considered to include income taxes, franchise taxes, or any other taxes that are not occasioned solely by the transfer of the Existing Notes. If, however, Plus Cash Notes and/or substitute Existing Notes not exchanged are to be registered or issued in the name of any person other than the registered Holder of the Existing Notes tendered hereby, or if tendered Existing Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Existing Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering Holder.

6. Waiver of Conditions. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus in accordance with applicable law.

7. No Conditional Tenders. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering Holders of Existing Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Existing Notes for exchange.

Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Existing Notes nor shall any of them incur any liability for failure to give any such notice.

8. Withdrawal Rights. Tenders of Existing Notes may be withdrawn (i) at any time prior to 12:00 midnight, New York City time, on the Expiration Date or (ii) at any time after June 25, 2004 if the Company has not accepted the tendered Existing Notes for exchange by that date.

For a withdrawal of a tender of Existing Notes to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth above prior to 12:00 midnight, New York City time, on the Expiration Date or at any time after June 25, 2004 if the Company has not accepted the tendered Existing Notes for exchange by that date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Existing Notes to be withdrawn (the “Depositor”), (ii) specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Existing Notes and otherwise comply with the procedures of such facility, (iii) contain a statement that such Holder is withdrawing his election to have such Existing Notes exchanged, (iv) be signed by the Holder in the same manner as the original signature on the Letter by which such Existing Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee, with respect to the Existing Notes, register the transfer of such Existing Notes in the name of the person withdrawing the tender and (v) specify the name in which such Existing Notes are registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Existing Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no Plus Cash Notes will be

issued with respect thereto unless the Existing Notes so withdrawn are validly retendered. Any Existing Notes that have been tendered for exchange but which are not exchanged for any reason will be credited into the Exchange Agent’s account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set forth in “The Exchange Offer – Procedures for Tendering Existing Notes” section of the Prospectus. Such Existing Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Existing Notes as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Existing Notes may be retendered by following the procedures described above at any time on or prior to 12:00 midnight, New York City time, on the Expiration Date.

9. Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering and requests for Notices of Guaranteed Delivery may be directed to the Exchange Agent, at the address and telephone number indicated above. Requests for additional copies of the Prospectus, this Letter and other related documents may be directed to the information agent, Georgeson Shareholder Communications Inc. (the “Information Agent”), at the following address and telephone numbers:

17 State St., 10^th Floor

New York, NY 10004

Banks and Brokers Call Collect: (212) 440-9800

Call Toll Free: (800) 259-3515

Name:
Business Name, if different from above:
Check appropriate box:	¨ Individuals/Sole Proprietor	¨ Corporation
	¨ Partnership	¨ Other
Address:
SUBSTITUTE Form W-9 Department of the Treasury Internal Revenue Service Payor’s Request for Taxpayer Identification Number (“TIN”)	PART I – please provide your TIN in the box at right and certify by signing and dating below.		Social Security Number or Employer Identification Number (if awaiting TIN write “Applied For”)
	Part II – For payees exempt from backup withholding, see the attached Guidelines for Certification of Taxpayer identification Number on Substitute Form W-9 and complete as instructed therein.
	Certification: Under penalties of perjury, I certify that: (1)    The Number shown on this form is my correct Taxpayer Identification Number (or I am waiting for Taxpayer Identification Number to issued to me);
	(2)    I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and
	(3)    I am a U.S. person (including a U.S. resident alien).
	CERTIFICATION INSTRUCTIONS – You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because you have failed to report all interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.)
	The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.
	Signature:                                                       Date

NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX

IN PART II OF SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center of Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of the exchange, 28 percent of all reportable payments made to me thereafter will be withheld until I provide a number.

Signature                                                                       Date                             

EX-99.2

Exhibit 99.2

Notice of Guaranteed Delivery

for

ViroPharma Incorporated

Offer for all

Outstanding 6% Convertible Subordinated Notes due 2007

(CUSIP Nos. 928241AC2, 928241AA6)

in Exchange for

6% Convertible Senior Plus Cash Notes_SM due 2009

which will be Registered under

the Securities Act of 1933, as Amended,

Prior to Closing

You must use this form, or a form substantially equivalent to this form, to accept the Exchange Offer of ViroPharma Incorporated (the “Company”) made pursuant to the Preliminary Prospectus, dated April 28, 2004 (the “Prospectus”), if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach U.S. Bank National Association, as exchange agent (the “Exchange Agent”), prior to 12:00 midnight, New York City time, on the Expiration Date of the Exchange Offer. This form may be delivered or transmitted by facsimile transmission, mail or hand delivery to the Exchange Agent as set forth below. In addition, in order to utilize the guaranteed delivery procedure to tender outstanding 6% Convertible Subordinated Notes due 2007 (the “Existing Notes”), pursuant to the Exchange Offer, a Letter of Transmittal (or facsimile thereof) or an electronic confirmation pursuant to The Depository Trust Company’s ATOP system, with any required signature guarantees and any other required documents must also be received by the Exchange Agent prior to 12:00 midnight, New York City time, on the Expiration Date. Capitalized terms not defined herein are defined in the Prospectus.

Delivery To:

U.S. Bank National Association

Exchange Agent

For 6% Convertible Subordinated Notes due 2007

By Registered U.S. Mail, Hand or Overnight Courier:

U.S. Bank National Association

Corporate Trust Services

60 Livingston Avenue

St. Paul, MN 55107

By Facsimilie Transmission:(651) 495-8158

Attention: Specialized Finance

Confirm by Telephone:

(800) 934-6802

For Information with respect to the Exchange Offer call:

Georgeson Shareholder Communications Inc.

(800) 259-3515

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.

THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON THE LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.

Ladies and Gentlemen:

Upon the terms and conditions set forth in the Prospectus and the accompanying Letter of Transmittal, the undersigned hereby tenders to the Company the principal amount of Existing Notes set forth below pursuant to the guaranteed delivery procedure described in “The Exchange Offer – Guaranteed Delivery Procedures” section of the Prospectus.

The undersigned understands that tenders of Existing Notes will be accepted only in authorized denominations. The undersigned understands that tenders of Existing Notes pursuant to the Exchange Offer may not be withdrawn after 12:00 midnight, New York City time, on the Expiration Date. Tenders of Existing Notes may be withdrawn as provided in the Prospectus.

DESCRIPTION OF EXISTING NOTES	1	2	3	4
Name(s) and Address(es) of Registered Holder(s) (Please fill in, if blank)	Note Certificate Number(s) / Account Number(s) *	Aggregate Principal Amount of Existing Note(s)	Principal Amount Tendered**	CUSIP Number(s)
	Total
*      For book-entry to The Depositary Trust Company, please provide account number. **    Unless otherwise indicated in this column, a Holder will be deemed to have tendered ALL of the Existing Notes represented by the Existing Notes indicated in column 2. See Instruction 2. Existing Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. See Instruction 1.

All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, executors, personal representatives, administrators, trustees in bankruptcy, successors and assigns of the undersigned.

PLEASE SIGN HERE
x
x
Signature(s) of Owner(s) or Authorized Signatory	Date
Area Code and Telephone Number:

Must be signed by the Holder(s) of Existing Notes as their name(s) appear(s) on a security position listing, or by person(s) authorized to become registered Holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below:

	Please print name(s) and address(es)
Name(s):
Capacity
Address(es):

DO NOT SEND NOTES WITH THE FORM. NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL.

EX-99.3

Exhibit 99.3

Exchange Offer for

Outstanding 6% Convertible Subordinated Notes due 2007

(CUSIP Nos. 928241AC2, 928241AA6)

in Exchange for

6% Convertible Senior Plus Cash Notes_SM due 2009

and the Sale of up to $25,000,000 of 6% Convertible Senior Plus Cash Notes_SM

due 2009 for Cash

Which Will be Registered Under

the Securities Act of 1933, as Amended,

Prior to Closing

of

ViroPharma Incorporated

To: Brokers, Dealers, Commercial Banks,

Trust Companies and Other Nominees

ViroPharma Incorporated (the “Company”) is offering, upon and subject to the terms and conditions set forth in the Preliminary Prospectus, dated April 28, 2004 (the “Prospectus”), and the enclosed Letter of Transmittal (the “Letter of Transmittal”), to exchange its 6% Convertible Senior Plus Cash Notes^SM due 2009 for its outstanding 6% Convertible Subordinated Notes due 2007 (the “Existing Notes”) (the “Exchange Offer”), as described in the Prospectus.

We are requesting that you contact your clients for whom you hold Existing Notes regarding the Exchange Offer. For your information and for forwarding to your clients for whom you hold Existing Notes registered in your name or in the name of your nominee, or who hold Existing Notes registered in their own names, we are enclosing the following documents:

1. Prospectus;

2. The Letter of Transmittal for your use and for the information of your clients;

3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date (as defined below) or if the procedure for book-entry transfer cannot be completed on a timely basis;

4. A form of letter which may be sent to your clients for whose account you hold Existing Notes registered in your name or the name of your nominee, with space provided for obtaining such clients’ instruction with regard to the Exchange Offer;

5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and

6. Return envelopes addressed to U.S. Bank National Association, the Exchange Agent for the Exchange Offer.

Your prompt action is requested. The Exchange Offer will expire at 12:00 midnight, New York City time, on May 25, 2004, unless extended by the Company (the “Expiration Date”). Existing Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date or at any time after June 25, 2004 if we have not accepted the tendered Existing Notes for exchange by that date.

To participate in the Exchange Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), or an electronic confirmation pursuant to the Depository Trust Company’s ATOP system, with any required signature guarantees and any other required documents, should be sent to the Exchange Agent in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus.

Please note that the Depository Trust Company’s ATOP system cannot accommodate indications of interest in purchasing Plus Cash Notes in the new money offering.

If a registered holder of Existing Notes desires to tender, but the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the Prospectus under “The Exchange Offer—Guaranteed Delivery Procedures.”

The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Prospectus and the related documents to the beneficial owners of Existing Notes held by them as a nominee or in a fiduciary capacity. The Company will pay or cause to be paid all stock transfer taxes applicable to the exchange of Existing Notes pursuant to the Exchange Offer, except as set forth in Instruction 5 of the Letter of Transmittal.

The Company has not authorized anyone to make any recommendation to holders as to whether to tender or refrain from tendering in the Exchange Offer.

Any questions related to the procedure for tendering you may have with respect to the Exchange Offer should be directed to U.S. Bank National Association, the Exchange Agent for the Exchange Offer, at its address and telephone number set forth on the front of the Letter of Transmittal. Any other questions you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to Georgeson Shareholder Communications Inc., the Information Agent for the Exchange Offer, at its address and telephone numbers set forth in the instructions to the Letter of Transmittal.

Very truly yours,

ViroPharma Incorporated

NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.

EX-99.4

Exhibit 99.4

Exchange Offer for

Outstanding 6% Convertible Subordinated Notes due 2007

(CUSIP Nos. 928241AC2, 928241AA6)

in Exchange for

6% Convertible Senior Plus Cash Notes_SM due 2009

and the Sale of up to $25,000,000 of 6% Convertible Senior Plus Cash Notes_SM

due 2009 for Cash

which will be Registered under

the Securities Act of 1933, as Amended,

Prior to Closing

of

ViroPharma Incorporated

To Our Clients:

Enclosed for your consideration is a Preliminary Prospectus, dated April 28, 2004 (the “Prospectus”), and the related Letter of Transmittal (the “Letter of Transmittal”), relating to the offer (the “Exchange Offer”) of ViroPharma Incorporated (the “Company”) to exchange its 6% Convertible Senior Plus Cash Notes^SM due 2009 (the “Plus Cash Notes”), for its outstanding 6% Convertible Subordinated Notes due 2007 (the “Existing Notes”), upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. Capitalized terms not defined herein are defined in the Prospectus.

This material is being forwarded to you as the beneficial owner of the Existing Notes held by us for your account but not registered in your name. A tender of such Existing Notes may only be made by us as the holder of record and pursuant to your instructions.

Accordingly, we request instructions as to whether you wish us to tender on your behalf the Existing Notes held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal.

Your instructions should be promptly forwarded to us in order to permit us to tender the Existing Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 12:00 midnight, New York City time, on May 25, 2004, unless extended by the Company (the “Expiration Date”). Any Existing Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date.

Your attention is directed to the following:

• The Exchange Offer is for any and all Existing Notes.

• The Exchange Offer is subject to certain conditions set forth in the Prospectus in the section captioned “The Exchange Offer — Conditions for Completion of the Exchange Offer.”

• Any transfer taxes incident to the transfer of Existing Notes from the holder to the Company will be paid by the Company, except as otherwise provided in the Instructions in the Letter of Transmittal.

• The Exchange Offer expires at 12:00 midnight, New York City time, on May 25, 2004, unless extended by the Company.

If you wish to have us tender your Existing Notes, please so instruct us by completing, executing and returning to us the instruction form on the back of this letter. Please DO NOT complete the Letter of Transmittal. It is furnished to you for information only and may not be used directly by you to tender Existing Notes.

You may also indicate interest for up to $25,000,000 aggregate principal amount of Plus Cash Notes in the new money offering. See the “New Money Offering of Additional Plus Cash Notes” section of the Prospectus for a description of the new money offering.

INSTRUCTIONS WITH RESPECT TO

THE EXCHANGE OFFER

The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer made by ViroPharma Incorporated with respect to its Existing Notes.

This will instruct you to tender the Existing Notes indicated below (or, if no number is indicated below, all Existing Notes) held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the Prospectus and the related Letter of Transmittal.

Please tender the Existing Notes held by you for my account in the principal amounts as indicated below:

6% Convertible Subordinated Notes due 2007

CUSIP No. 928241AC2

Tender $                          (principal amount)*

CUSIP No. 928241AA6

Tender $                         (principal amount)*

¨  Please do not tender any Existing Notes held by you for any account.

Dated:                                                  , 2004

Signature(s):                                                                                                                                                                                               

Print name(s) here:                                                                                                                                                                                   

(Print Address(es)):                                                                                                                                                                                  

(Area Code and Telephone Number(s)):                                                                                                                                          

(Tax Identification or Social Security Number(s)):                                                                                                                      

*Must be in denominations of $1,000 or any integral multiple thereof.

None of the Existing Notes held by us for your account will be tendered unless we receive written instructions from you to do so. After receipt of instructions to tender, unless we receive specific contrary instructions we will tender all the Existing Notes held by us for your account.

EX-99.5

Exhibit 99.5

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION

NUMBER ON SUBSTITUTE FORM W-9

Guidelines for Determining the Proper Identification Number to Give the Payer—Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-00000000. The table below will help determine the proper identification number to give:

For this type of account:	Give the name and SOCIAL SECURITY number of—
1.   Individual account	The individual
2.   Two or more individuals (joint account)	The actual owner of the account or, if combined funds, the first individual on the account (1)
3.   Custodian account of a minor (Uniform Gift to Minors Act)	The minor (2)
4.   a. The usual revocable savings trust (grantor is also trustee)	The grantor-trustee (1)
b. The so-called trust account that is not a legal or valid trust under state law	The actual owner (1)
5.   Sole proprietorship or single-owner LLC	The owner (3)

For this type of account:	Give the name and EMPLOYER IDENTIFICATION number of—
6.   A valid trust, estate, or pension trust	Legal entity (do not furnish the identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title) (4)
7. Corporateor LLC electing corporate status on Form 8832	The corporation
8.   Association, club, religious, charitable, educational, or other tax-exempt organization	The organization
9.   Partnership or multi-member LLC	The partnership
10.   A broker or registered nominee	The broker or nominee
11.   Account with the Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments	The public entity

(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a Social Security Number, that person’s number must be furnished.

(2) Circle the minor’s name and furnish the minor’s social security number.

(3) You must show your individual name, but you may also enter your business or “doing business as” name. You may use either your social security number or employment identification number.

(4) List first and circle the name of the legal trust, estate or pension trust.

NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed.

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION

NUMBER ON SUBSTITUTE FORM W-9

Page 2

Obtaining a Number

If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card, Form W-7 Application for IRS Individual Taxpayer Identification Number, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number.

Payees Exempt from Backup Withholding:

· An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2).

· The United States or any agency or instrumentally thereof.

· A state, the District of Columbia, a possession of the United States, or any subdivision or instrumentally thereof.

· A foreign government, a political subdivision of a foreign government, or any agency or instrumentally thereof.

· An international organization or any agency, or instrumentally thereof.

Payees that may be Exempt from Backup Withholding:

· A corporation.

· A foreign central bank of issue.

· A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States.

· A futures commission merchant registered with the Commodity Futures Trading Commission.

· A real estate investment trust.

· An entity registered at all times during the tax year under the Investment Company Act of 1940.

· A common trust fund operated by a bank under section 584(a).

· A financial institution.

· A middleman known in the investment community as a nominee or custodian.

· A trust exempt from tax under section 664 or described in section 4947.

Payments of dividends and patronage dividends not generally subject to backup withholding include the following:

· Payments to nonresident aliens subject to withholding under section 1441.

· Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident alien partner.

· Payments made by certain foreign organizations.

· Payments of patronage dividends not paid in money.

· Section 404(k) distributions made by an ESOP.

Payments of Interest not generally subject to backup withholding include the following:

· Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer’s trade or business and you have not provided your correct taxpayer identification number to the payer.

· Payments of tax-exempt interest (including exempt-interest dividends under section 852).

· Payments described in section 6049(b)(5) to nonresident aliens.

· Payments on tax-free covenant bonds under section 1451.

· Payments made by certain foreign organizations.

· Mortgage or student loan interest paid to you.

Exempt payees described above should file a Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE “EXEMPT” ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.

Payments that are not subject to information reporting are also not subject to backup withholding. For details, see regulations under sections 6041, 6041A, 6044, 6045, 6049, 6050A, and 6050N.

Privacy Act Notice.—Section 6109 of the Internal Revenue Code requires you to give your correct tax identification number to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this information to the Department of Justice for civil and criminal litigation, and to cities, states, and the District of Columbia to carry out their tax laws.

You must provide your tax identification number whether or not you are required to file a tax return. Payers must generally withhold 30% (29% after December 31, 2003; 28% after December 31, 2005) of taxable interest, dividend, and certain other payments to a payee who does not give a tax identification number to a payee. Certain penalties may also apply.

Penalties

(1)  Penalty for Failure to Furnish Taxpayer Identification Number.—If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.

(2)  Civil Penalty for False Information With Respect to Withholding.—If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500.

(3)  Criminal Penalty for Falsifying Information.—Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.

FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE.