AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 2000
REGISTRATION NO. 333-36152
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INHALE THERAPEUTIC SYSTEMS, INC.
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 94-3134940
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
INHALE THERAPEUTIC SYSTEMS, INC.
150 INDUSTRIAL ROAD
SAN CARLOS, CA 94070
(650) 631-3100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
AJIT S. GILL
CHIEF EXECUTIVE OFFICER
INHALE THERAPEUTIC SYSTEMS, INC.
150 INDUSTRIAL ROAD
SAN CARLOS, CA 94070
(650) 631-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
MARK P. TANOURY, ESQ.
JOHN M. GESCHKE, ESQ.
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CA 94306-2155
(650) 843-5000
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this registration statement.
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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. /X/
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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE AGGREGATE AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
5% Convertible Subordinated Notes due
February 8, 2007.......................... $230,000,000 100%(1)(2) $230,000,000(1) $60,720(5)
Common Stock, $.0001 par value per share.... 2,998,305(3) --(4) --(4) --(4)
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(i) of the Securities Act of 1933.
(2) Exclusive of accrued interest and distributions, if any.
(3) This number represents the number of shares of common stock that are
initially issuable upon conversion of the 5% Convertible Subordinated Notes
due February 8, 2007 registered hereby. For purposes of estimating the
number of shares of common stock to be included upon conversion of the
notes, Inhale calculated the number of shares issuable upon conversion of
the notes based on a conversion price of $76.71 per share of common stock.
In addition to the shares set forth in the table, pursuant to Rule 416 under
the Securities Act of 1933, as amended, the amount to be registered includes
an indeterminate number of shares of common stock issuable upon conversion
of the notes, as this amount may be adjusted as a result of stock splits,
stock dividends and antidilution provisions.
(4) No additional consideration will be received for the common stock and
therefore, no registration fee is required pursuant to Rule 457(i).
(5) $59,331 of which has previously been paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PROSPECTUS DATED MAY 23, 2000
P R O S P E C T U S
[LOGO]
$230,000,000
OF 5% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 8, 2007 AND
2,998,305 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
---------------------
This prospectus relates to 5% Convertible Subordinated Notes due
February 8, 2007 of Inhale Therapeutic Systems, Inc., a Delaware corporation,
held by certain security holders who may offer for sale the notes and the shares
of our common stock into which the notes are convertible at any time at market
prices prevailing at the time of sale or at privately negotiated prices. The
selling security holders may sell the notes or the common stock directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions.
The holders of the notes may convert the notes into shares of our common
stock at any time at a conversion price of $76.71 per share of common stock.
After February 8, 2003, we may redeem the notes, in whole or in part, at the
redemption prices set forth in the section entitled "Description of the
Notes--Optional Redemption by Inhale." Prior to February 8, 2003, we may redeem
the notes, in whole or in part, at the redemption prices set forth in the
section entitled "Description of the Notes--Provisional Redemption".
In the event of a Change of Control, as defined in the section entitled
"Description of the Notes--Repurchase at Option of Holders upon a Change of
Control," each holder of the notes may require us to repurchase the notes at
100% of the principal amount of the notes plus accrued interest. At our option,
we may repurchase the notes for cash or common stock.
The notes are general, unsecured obligations that are subordinated in right
of payment to all of our existing and future senior indebtedness. See
"Description of the Notes--Subordination".
Our common stock currently trades on the Nasdaq National Market under the
symbol "INHL". The last reported sale price on May 22, 2000 was $71.00 per
share.
Our 5% Convertible Subordinated Notes are currently eligible for trading on
the PORTAL Market of the Nasdaq Stock Market.
INVESTING IN OUR COMMON STOCK OR OUR CONVERTIBLE SUBORDINATED NOTES INVOLVES
A HIGH DEGREE OF RISK. PLEASE CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON
PAGE 3 OF THIS PROSPECTUS.
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 date of this prospectus is , 2000
In connection with this offering, no person is authorized to give any
information or to make any representations not contained in this prospectus. If
information is given or representations are made, you may not rely on that
information or representations as having been authorized by us. This prospectus
is neither an offer to sell nor a solicitation of an offer to buy any securities
other than those registered by this prospectus, nor is it an offer to sell or a
solicitation of an offer to buy securities where an offer or solicitation would
be unlawful. You may not imply from the delivery of this prospectus, nor from
any sale made under this prospectus, that our affairs are unchanged since the
date of this prospectus or that the information contained in this prospectus is
correct as of any time after the date of this prospectus.
ABOUT OUR BUSINESS
THE FOLLOWING IS A SHORT SUMMARY OF OUR BUSINESS. YOU SHOULD CAREFULLY READ
THE "RISK FACTORS" SECTION OF THIS PROSPECTUS AND OUR AMENDED ANNUAL REPORT ON
FORM 10-K/A FOR THE YEAR ENDED 1999 FOR MORE INFORMATION ON OUR BUSINESS AND THE
RISKS INVOLVED IN INVESTING IN THE NOTES AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THE NOTES. IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED IN
THIS PROSPECTUS, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT
THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM OUR EXPECTATIONS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES ARE DISCUSSED IN "RISK FACTORS" BEGINNING AT PAGE 3 OF THIS
PROSPECTUS AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS" IN OUR AMENDED ANNUAL REPORT.
We are creating a drug delivery system to easily and painlessly deliver a
wide range of drugs, including peptides, proteins, nucleic acids and other
molecules, by inhalation to the deep lung for treatment of systemic and
respiratory diseases. We are using this system principally to enable
non-invasive delivery of protein drugs currently administered by injection. Our
most advanced program, which is sponsored by Pfizer Inc., is inhaleable insulin.
Pfizer commenced dosing for its Phase III human clinical trials in June 1999. In
addition to our insulin program with Pfizer, we have development collaborations
with Biogen, Inc., Aventis Behring L.L.C. (formerly Centeon L.L.C., a joint
venture of Hoechst AG and Rhone-Poulenc S.A., which have now merged to form
Aventis S.A.), and Eli Lilly & Co. We also have early stage feasibility and
research collaborations with several other companies and have tested seven drugs
in human clinical trials.
Currently there are approximately 35 macromolecule drugs marketed in the
United States and about 120 other such drugs in clinical trials. Sales of the
top 15 genetically engineered protein drugs (a subset of macromolecule drugs)
were estimated at $14 billion worldwide in 1997. Most of these drugs are
currently delivered by injection. Injections are undesirable for numerous
reasons including patient discomfort, inconvenience and risk of infection. Poor
patient acceptance of, and compliance with, injectable therapies can lead to
increased incidence of medical complications and higher disease management
costs. Alternatives to injection such as oral, transdermal and nasal delivery
have to date been commercially unattractive due to low natural
bioavailability--the amount of drug absorbed from the delivery site into the
bloodstream relative to injection. As an alternative to the invasiveness of
injection, we believe a deep lung inhalation delivery system could expand the
market for protein drug therapies by increasing patient acceptance and improving
compliance and may enable new therapeutic uses of certain protein drugs.
We are creating a proprietary platform integrating customized formulation,
dry powder processing and packaging with a proprietary inhalation device to
enable efficient, reproducible delivery of drugs for systemic and local lung
indications. For specific drug products, we formulate and process bulk drugs
supplied by collaborative partners into dry powders which are packaged into
individual dosing units referred to as blister packs. The blister packs are
designed to be loaded into our device, which patients then activate to inhale
the aerosolized drugs. We have developed an inhalation device that is being used
several times per day for several months in outpatient trials for insulin. In
addition, we have demonstrated room temperature stability of a year or more for
a number of protein drugs, and have scaled-up our powder processing and
packaging for late stage clinical trials and small scale production for certain
drugs.
As an alternative to invasive delivery techniques, we believe that a deep
lung delivery system could potentially expand the market for protein drug
therapies by increasing patient acceptance and improving compliance, which in
turn could decrease medical complications and the associated costs of disease
management. Additionally, deep lung delivery may enable new therapeutic uses of
certain protein drugs. We are focusing development efforts on applying our
pulmonary delivery system
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primarily to drugs for systemic and local lung diseases that either have proven
efficacy and are approved for delivery by injection or are in late stage
clinical trials.
A cornerstone of our business strategy is to work with collaborative
partners to develop and commercialize drugs for deep lung delivery. In a typical
collaboration, our partner will support the application of our technology to a
particular drug by providing the drug, funding clinical development, and
marketing the resulting commercial product. We typically will supply the
delivery system and receive research and development and progress payments
during development, and receive revenues from powder manufacturing, device
supply, and royalties from sales of any commercial products.
In addition to Pfizer's sponsorship of the inhaleable insulin program, we
have active development programs with several other corporate partners. Our most
recent collaboration is with Biogen for pulmonary delivery of
Interferon-Beta-1a, sold under the trade name AVONEX-Registered Trademark-, the
leading drug worldwide for the treatment of Multiple Sclerosis. We are also
engaged in development collaborations with Aventis Behring on alpha-1 proteinase
inhibitor for genetic emphysema, and with Lilly for an undisclosed protein drug.
We are also engaged in early stage feasibility and research programs with
respect to other compounds. We anticipate that any product that may be developed
would be commercialized with a collaborative partner and believe our partnering
strategy will enable us to reduce the investment required to develop a large and
diversified potential product portfolio.
Our principal executive offices are located at 150 Industrial Road, San
Carlos, CA 94070. Our telephone number is (650) 631-3100. We maintain an
Internet home page at www.inhale.com. The contents of our web page are not a
part of this prospectus.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING AN INVESTMENT
IN THE NOTES OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES. THIS
PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT ARE "FORWARD-LOOKING
STATEMENTS" FOR PURPOSES OF THESE PROVISIONS, INCLUDING ANY PROJECTIONS OF
EARNINGS, REVENUES OR OTHER FINANCIAL ITEMS, ANY STATEMENTS OF THE PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ANY STATEMENTS CONCERNING
PROPOSED NEW PRODUCTS OR SERVICES, ANY STATEMENTS REGARDING FUTURE ECONOMIC
CONDITIONS OR PERFORMANCE AND ANY STATEMENT OF ASSUMPTIONS UNDERLYING ANY OF THE
FOREGOING. IN SOME CASES, FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE
USE OF TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECTS", "PLANS", "ANTICIPATES",
"ESTIMATES", "POTENTIAL", OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
COMPARABLE TERMINOLOGY. ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, THERE CAN BE NO
ASSURANCE THAT SUCH EXPECTATIONS OR ANY OF THE FORWARD-LOOKING STATEMENTS WILL
PROVE TO BE CORRECT AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED OR ASSUMED IN THE FORWARD-LOOKING STATEMENTS. OUR FUTURE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, AS WELL AS ANY FORWARD-LOOKING STATEMENTS,
ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO
THE RISK FACTORS SET FORTH BELOW AND FOR THE REASONS DESCRIBED ELSEWHERE IN THIS
PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS AND REASONS WHY RESULTS MAY DIFFER
INCLUDED IN THIS PROSPECTUS ARE MADE AS OF THE DATE HEREOF AND WE ASSUME NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENT OR REASON WHY ACTUAL
RESULTS MIGHT DIFFER.
WE DO NOT KNOW IF OUR DEEP LUNG DRUG DELIVERY SYSTEM IS COMMERCIALLY FEASIBLE.
We are in an early stage of development. There is a risk that our deep lung
drug delivery technology will not be commercially feasible. Even if our deep
lung delivery technology is commercially feasible, it may not be commercially
accepted across a range of large and small molecule drugs. We have tested seven
deep lung delivery formulations in humans, but many of our potential
formulations have not been tested in humans.
Many of the underlying drug compounds contained in our deep lung
formulations have been tested in humans by other companies using alternative
delivery routes. Our potential products require extensive research, development
and pre-clinical (animal) and clinical (human) testing. Our potential products
also may involve lengthy regulatory review before they can be sold. We do not
know if and cannot assure you that any of our potential products will prove to
be safe and effective or meet regulatory standards. There is a risk that any of
our potential products will not be able to be produced in commercial quantities
at acceptable cost or marketed successfully. Our failure to achieve commercial
feasibility, demonstrate safety, achieve clinical efficacy, obtain regulatory
approval or, together with partners, successfully market products will
negatively impact our revenues and results of operations.
WE DO NOT KNOW IF OUR DEEP LUNG DRUG DELIVERY SYSTEM IS EFFICIENT.
We may not be able to achieve the total system efficiency needed to be
competitive with alternative routes of delivery. Total system efficiency is
determined by the amount of drug loss during manufacture, in the delivery
device, in reaching the site of absorption, and during absorption from that site
into the bloodstream. Deep lung bioavailability is the percentage of a drug that
is absorbed into the bloodstream when that drug is delivered directly to the
lungs as compared to when the drug is delivered by injection. Bioavailability is
the initial screen for whether deep lung delivery of any systemic drug is
commercially feasible. We would not consider a drug to be a good candidate for
development and commercialization if its drug loss is excessive at any one stage
or cumulatively in the manufacturing and delivery process or if its deep lung
bioavailability is too low.
3
WE DO NOT KNOW IF OUR DEEP LUNG DRUG FORMULATIONS ARE STABLE.
We may not be able to identify and produce powdered versions of drugs that
retain the physical and chemical properties needed to work with our delivery
device. Formulation stability is the physical and chemical stability of the drug
over time and under various storage, shipping and usage conditions. Formulation
stability will vary with each deep lung formulation and the type and amount of
ingredients that are used in the formulation. Problems with powdered drug
stability would negatively impact our ability to develop and market our
potential products or obtain regulatory approval.
WE DO NOT KNOW IF OUR DEEP LUNG DRUG DELIVERY SYSTEM IS SAFE.
We may not be able to prove potential products to be safe. Our products
require lengthy laboratory, animal and human testing. Most of our products are
in preclinical testing or the early stage of human testing. If we find that any
product is not safe, we will not be able to commercialize the product. The
safety of our deep lung formulations will vary with each drug and the
ingredients used in its formulation.
WE DO NOT KNOW IF OUR DEEP LUNG DRUG DELIVERY SYSTEM PROVIDES CONSISTENT DOSES
OF MEDICINE.
We may not be able to provide reproducible dosages of stable formulations
sufficient to achieve clinical success. Reproducible dosing is the ability to
deliver a consistent and predictable amount of drug into the bloodstream over
time both for a single patient and across patient groups. Reproducible dosing
requires the development of:
- an inhalation device that consistently delivers predictable amounts of dry
powder formulations to the deep lung;
- accurate unit dose packaging of dry powder formulations; and
- moisture resistant packaging.
We may not be able to develop reproducible dosing of any potential product.
The failure to do so means that we would not consider it a good candidate for
development and commercialization.
WE DEPEND ON PARTNERS FOR REGULATORY APPROVALS AND COMMERCIALIZATION OF OUR
PRODUCTS.
Because we are in the business of developing technology for delivering drugs
to the lungs and licensing this technology to companies that make and sell
drugs, we do not have the people and other resources to do the following things:
- make bulk drugs to be used as medicines;
- design and carry out large scale clinical studies;
- prepare and file documents necessary to obtain government approval to sell
a given drug product; and
- market and sell our products when and if they are approved.
When we sign a collaborative development agreement or license agreement to
develop a product with a drug company, the drug company agrees to do some or all
of the things described above. If our partner fails to do any of these things,
we cannot complete the development of the product.
WE MAY NOT OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS ON A TIMELY BASIS, OR AT
ALL.
There is a risk that we will not obtain regulatory approval for our products
on a timely basis, or at all. Our product must undergo rigorous animal and human
testing and an extensive review process mandated by the United States Food and
Drug Administration ("FDA") and equivalent foreign
4
authorities. This process generally takes a number of years and requires the
expenditure of substantial resources; although the time required for completing
such testing and obtaining such approvals is uncertain. We have not submitted
any of our products to the FDA for marketing approval. We have no experience
obtaining such regulatory approval.
In addition, we may encounter delays or rejections based upon changes in FDA
policy, including policy relating to good manufacturing practice compliance,
during the period of product development. We may encounter similar delays in
other countries.
Even if regulatory approval of a product is granted, the approval may limit
the indicated uses for which we may market our product. In addition, our
marketed product, our manufacturing facilities and Inhale, as the manufacturer,
will be subject to continual review and periodic inspections. Later discovery
from such review and inspection of previously unknown problems may result in
restrictions on our product or on us, including withdrawal of our product from
the market. The failure to obtain timely regulatory approval of our products,
any product marketing limitations or a product withdrawal would negatively
impact our revenues and results of operations.
WE DO NOT KNOW IF OUR TECHNOLOGIES CAN BE INTEGRATED SUCCESSFULLY TO BRING
PRODUCTS TO MARKET.
We may not be able to integrate all of the relevant technologies to provide
a deep lung drug delivery system. Our integrated approach to systems development
relies upon several different but related technologies:
- dry powder formulations;
- dry powder processing technology;
- dry powder packaging technology; and
- deep lung delivery devices.
At the same time we must:
- establish collaborations with partners;
- perform laboratory and clinical testing of potential products; and
- scale-up our manufacturing processes.
We must accomplish all of these steps without delaying any aspect of
technology development. Any delay in one component of product or business
development could delay our ability to develop, obtain approval of or market
therapeutic products using our deep lung delivery technology.
WE MAY NOT BE ABLE TO MANUFACTURE OUR PRODUCTS IN COMMERCIAL QUANTITIES.
POWDER PROCESSING. We have no experience manufacturing products for
commercial purposes. We have only performed powder processing on the small scale
needed for testing formulations and for early stage and larger clinical trials.
We may encounter manufacturing and control problems as we attempt to scale-up
powder processing facilities. We may not be able to achieve such scale-up in a
timely manner or at a commercially reasonable cost, if at all. Our failure to
solve any of these problems could delay or prevent late stage clinical testing
and commercialization of our products and could negatively impact our revenues
and results of operations.
To date, we have relied on one particular method of powder processing. There
is a risk that this technology will not work with all drugs or that the cost of
drug production will preclude the commercial viability of certain drugs.
Additionally, there is a risk that any alternative powder processing methods we
may pursue will not be commercially practical for aerosol drugs or that we will
not have, or be able to acquire the rights to use, such alternative methods.
5
POWDER PACKAGING. Our fine particle powders and small quantity packaging
require special handling. We have designed and qualified automated filling
equipment for small and moderate quantity packaging of fine powders. We face
significant technical challenges in scaling-up an automated filling system that
can handle the small dose and particle sizes of our powders in commercial
quantities. There is a risk that we will not be able to scale-up our automated
filling equipment in a timely manner or at commercially reasonable costs. Any
failure or delay in such scale-up would delay product development or bar
commercialization of our products and would negatively impact our revenues and
results of operations.
INHALATION DEVICE. We face many technical challenges in further developing
our inhalation device to work with a broad range of drugs, to produce such a
device in sufficient quantities and to adapt the device to different powder
formulations. In addition, we are attempting to develop a smaller inhalation
device, which presents particular technical challenges. There is a risk that we
will not successfully achieve any of these challenges. Our failure to overcome
any of these challenges would negatively impact our revenues and results of
operations.
For late stage clinical trials and initial commercial production, we intend
to use one or more contract manufacturers to produce our drug delivery device.
There is a risk that we will not be able to enter into or maintain arrangements
with any potential contract manufacturers or effectively scale-up production of
our drug delivery devices through contract manufacturers. Our failure to do so
would negatively impact our revenues and results of operations.
WE DEPEND ON SOLE OR EXCLUSIVE SUPPLIERS FOR OUR INHALATION DEVICE AND BULK
DRUGS.
We plan to subcontract the manufacture of our pulmonary delivery device
before commercial production of our first product. We have identified contract
manufacturers that we believe have the technical capabilities and production
capacity to manufacture our devices and which can meet the requirements of good
manufacturing practices required by regulatory authorities. We cannot be assured
that we will be able to obtain and maintain satisfactory contract manufacturing
on commercially acceptable terms, if at all. Our dependence on third parties for
the manufacture of our inhalation device may negatively impact our cost of goods
and our ability to develop and commercialize products on a timely and
competitive basis.
We obtain the bulk drugs we use to formulate and manufacture the dry powders
for our deep lung delivery system from sole or exclusive sources of supply. For
example, with respect to our source of bulk insulin, we have entered into a
collaborative agreement with Pfizer which has, in turn, entered into an
agreement with Aventis to manufacture biosynthetic recombinant insulin. Under
the terms of their agreement, Pfizer and Aventis agreed to construct a jointly
owned manufacturing plant in Frankfurt, Germany. Until its completion, Pfizer
will provide us with insulin from Aventis's existing plant. If our sole or
exclusive source suppliers fail to provide bulk drugs in sufficient quantities
when required, our revenues and results of operations will be negatively
impacted.
WE DO NOT KNOW IF THE MARKET WILL ACCEPT OUR DEEP LUNG DRUG DELIVERY SYSTEM.
The commercial success of our potential products depends upon market
acceptance by health care providers, third-party payors like health insurance
companies and Medicare, and patients. Our products under development use a new
method of drug delivery and there is a risk that our potential products will not
be accepted by the market. Market acceptance will depend on many factors,
including:
- the safety and efficacy of our clinical trials;
- favorable regulatory approval and product labeling;
- the frequency of product use;
6
- the availability of third-party reimbursement;
- the availability of alternative technologies; and
- the price of our products relative to alternative technologies.
There is a risk that health care providers, patients or third-party payors
will not accept our deep lung drug delivery system. If the market does not
accept our potential products, our revenues and results of operations would be
significantly and negatively impacted.
IF OUR PRODUCTS ARE NOT COST EFFECTIVE, GOVERNMENT AND PRIVATE INSURANCE PLANS
MAY NOT PAY FOR OUR PRODUCTS.
In both domestic and foreign markets, sales of our products under
development will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, such third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
Legislation and regulations affecting the pricing of pharmaceuticals may change
before our proposed products are approved for marketing. Adoption of such
legislation and regulations could further limit reimbursement for medical
products. A government or third-party payor decision to not provide adequate
coverage and reimbursements for our products would limit market acceptance of
such products.
WE EXPECT TO CONTINUE TO LOSE MONEY FOR THE NEXT SEVERAL YEARS.
We have never been profitable and, through March 31, 2000, we have an
accumulated deficit of approximately $123.3 million. We expect to continue to
incur substantial and increasing losses over at least the next several years as
we expand our research and development efforts, testing activities and
manufacturing operations, and as we further expand our late stage clinical and
early commercial production facility. All of our potential products are in
research or in the early stages of development except for our insulin
collaboration. We have generated no revenues from approved product sales. Our
revenues to date have consisted primarily of payments under short-term research
and feasibility agreements and development contracts. To achieve and sustain
profitable operations, we must, alone or with others, successfully develop,
obtain regulatory approval for, manufacture, introduce, market and sell products
using our deep lung drug delivery system. There is a risk that we will not
generate sufficient product or contract research revenue to become profitable or
to sustain profitability.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.
We anticipate that our existing capital resources will enable us to maintain
currently planned operations through at least the next 24 months. However, this
expectation is based on our current operating plan, which is expected to change
as a result of many factors, and we may need additional funding sooner than
anticipated. In addition, we may choose to raise additional capital due to
market conditions or strategic considerations, even if we believe we have
sufficient funds for our current or future operating plans. To the extent that
additional capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities could result in dilution to our
stockholders.
We have no credit facility or other committed sources of capital. To the
extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the development
and commercialization of our technologies. Such funds may not be available on
favorable terms, or at all. In particular, our substantial leverage may limit
our ability to obtain additional financing. If adequate funds are not available
on reasonable terms, we may be required to curtail operations significantly or
to obtain funds by entering into financing, supply or collaboration agreements
on unattractive terms. Our inability to raise capital could negatively impact
our business.
7
OUR PATENTS MAY NOT PROTECT OUR PRODUCTS AND OUR PRODUCTS MAY INFRINGE ON
THIRD-PARTY PATENT RIGHTS.
We have filed patent applications covering certain aspects of our device,
powder processing technology, and powder formulations and deep lung route of
delivery for certain molecules, and we plan to file additional patent
applications. We currently have 49 issued U.S. and foreign patents that cover
certain aspects of our technology and we have a number of patent applications
pending. There is a risk that many of the patents applied for will not issue, or
that any patents that issue or have issued will not be valid and enforceable.
Enforcing our patent rights would be time consuming and costly.
Our access or our partners' access to the drugs to be formulated will affect
our ability to develop and commercialize our technology. Many drugs, including
powder formulations of certain drugs that are presently under development by us,
are subject to issued and pending U.S. and foreign patents that may be owned by
our competitors. We know that there are issued patents and pending patent
applications relating to the deep lung delivery of large molecule drugs,
including several for which we are developing deep lung delivery formulations.
This situation is highly complex, and the ability of any one company, including
Inhale, to commercialize a particular drug is unpredictable.
We intend generally to rely on the ability of our partners to provide access
to the drugs that are to be formulated by us for deep lung delivery. There is a
risk that our partners will not be able to provide access to such drug
candidates. Even if such access is provided, there is a risk that our partners
or we will be accused of, or determined to be, infringing a third-party's patent
rights and will be prohibited from working with the drug or be found liable for
damages that may not be subject to indemnification. Any such restriction on
access to drug candidates or liability for damages would negatively impact our
revenues and results of operations.
OUR COMPETITORS MAY DEVELOP AND SELL BETTER DRUG DELIVERY SYSTEMS.
We are aware of other companies engaged in developing and commercializing
pulmonary drug delivery systems and enhanced injectable drug delivery systems.
Many of these companies have greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than we
do and represent significant competition for us. Acquisitions of or
collaborations with competing drug delivery companies by large pharmaceutical
companies could enhance our competitors' financial, marketing and other
resources. Accordingly, our competitors may succeed in developing competing
technologies, obtaining regulatory approval for products or gaining market
acceptance before us. Developments by others could make our products or
technologies uncompetitive or obsolete. Our competitors may introduce products
or processes competitive with or superior to ours.
INVESTORS SHOULD BE AWARE OF INDUSTRY-WIDE RISKS.
In addition to the risks associated specifically with Inhale described
above, investors should also be aware of general risks associated with drug
development and the pharmaceutical industry. These include, but are not limited
to:
- changes in and compliance with government regulations;
- handling of hazardous materials;
- hiring and retaining qualified people; and
- insuring against product liability claims.
8
WE EXPECT OUR STOCK PRICE TO REMAIN VOLATILE.
Our stock price is volatile. In the last twelve months, based on closing
prices on the Nasdaq National Market, our stock price ranged from $23.00 to
$126.63. We expect it to remain volatile. A variety of factors may have a
significant effect on the market price of our common stock, including:
- fluctuations in our operating results;
- announcements of technological innovations or new therapeutic products;
- announcement or termination of collaborative relationships by Inhale or
our competitors;
- governmental regulation;
- clinical trial results or product development delays;
- developments in patent or other proprietary rights;
- public concern as to the safety of drug formulations developed by Inhale
or others; and
- general market conditions.
Any litigation brought against us as a result of this volatility could
result in substantial costs and a diversion of our management's attention and
resources, which could negatively impact our financial condition, revenues and
results of operations.
OUR OUTSTANDING INDEBTEDNESS HAS INCREASED SUBSTANTIALLY.
As of March 31, 2000, we had approximately $244.6 million in long-term debt,
including debt evidenced by the notes. This increased indebtedness has and will
continue to impact us by:
- significantly increasing our interest expense and related debt service
costs;
- making it more difficult to obtain additional financing; and
- constraining our ability to react quickly in an unfavorable economic
climate.
Currently, we are not generating sufficient cash flow to satisfy the annual
debt service payments that will be required as a result of the sale of the
notes. This may require us to use a portion of the proceeds from the sale of the
notes 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.
THE NOTES ARE SUBORDINATED TO ANY EXISTING AND FUTURE SENIOR DEBT
The notes are contractually subordinated in right of payment to our existing
and future Senior Debt. As of March 31, 2000, we had approximately $4.9 million
of Senior Debt. The indenture does not limit the creation of additional Senior
Debt (or any other indebtedness). In connection with the expansion of our
facilities, we expect that we may significantly increase our Senior Debt in the
near future. Any significant additional indebtedness incurred may materially
adversely impact our ability to service our debt, including the notes. Due to
the subordination provisions, in the event of our insolvency, funds which we
would otherwise use to pay the holders of the notes will be used to pay the
holders of Senior Debt to the extent necessary to pay the Senior Debt in full.
As a result of these payments, our general creditors may recover less, ratably,
than the holders of our Senior Debt and such general creditors may recover more,
ratably, than the holders of our notes or our other subordinated indebtedness.
In addition, the holders of our Senior Debt may, under certain circumstances,
restrict or prohibit us from making payments on the notes.
9
OUR ABILITY TO REPURCHASE NOTES, IF REQUIRED, MAY BE LIMITED.
In certain circumstances involving a Change of Control, the holders of the
notes may require us to repurchase some or all of the holder's notes. We cannot
assure you that we will have sufficient financial resources at such time or
would be able to arrange financing to pay the repurchase price of the notes. Our
ability to repurchase the notes in such event may be limited by law, the
indenture, by the terms of other agreements relating to our Senior Debt and as
such indebtedness and agreements may be entered into, replaced, supplemented or
amended from time to time. We may be required to refinance our Senior Debt in
order to make such payments. We may not have the financial ability to repurchase
the notes if payment for our Senior Debt is accelerated.
AN ACTIVE TRADING MARKET FOR THE NOTES MAY NOT DEVELOP.
There is currently a limited trading market for the notes. Although the
notes are eligible for trading in the PORTAL market, we cannot predict whether
an active trading market for the notes will develop or be sustained. If an
active market for the notes fails to develop or be sustained, the trading price
of the notes could fall. If an active trading market were to develop, the notes
could trade at prices that may be lower than the initial offering price of the
notes. Whether or not the notes will trade at lower prices depends on many
factors, including:
- prevailing interest rates and the markets for similar securities;
- general economic conditions; and
- our financial condition, historic financial performance and future
prospects.
10
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 to register
the notes and common stock offered by this prospectus. However, this prospectus
does not contain all of the information contained in the registration statement
and the exhibits and schedules to the registration statement. We strongly
encourage you to carefully read the registration statement and the exhibits and
schedules to the registration statement. We also file annual, quarterly and
special reports, proxy statements and other information with the SEC.
You may inspect and copy such material at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the SEC's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. You may also obtain copies of such material from the SEC
at prescribed rates by writing to the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the SEC's
Website at www.sec.gov.
If at any time during the two-year period following February 8, 2000, we are
not subject to the information requirements of Section 13 or 15(d) of the
Exchange Act, we will furnish to holders of the notes, to holders of common
stock issued upon conversion thereof and to prospective purchasers thereof the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act in order to permit compliance with Rule 144A in connection with
resales of such notes and common stock issued upon conversion thereof.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information contained in
documents that 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 is considered to be part of this prospectus.
Information in this prospectus supersedes information incorporated by reference
that we filed with the SEC prior to the date of this prospectus, while
information that we file later with the SEC will automatically update and
supersede this information. We incorporate 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:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed on March 10, 2000, including all material incorporated by
reference therein;
2. Our Amendment to Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999, filed on March 14, 2000, including all material
incorporated by reference therein;
3. Our Amendment to Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999, filed on April 28, 2000, including all material
incorporated by reference therein;
4. Our Definitive Proxy on Schedule 14A, filed on May 3, 2000
5. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
filed on May 11, 2000, including all material incorporated by reference
therein;
6. Our amendment to Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 2000, filed on May 15, 2000, including all material
incorporated by reference therein;
7. Our Current Report on Form 8-K, filed on February 1, 2000;
8. Our Current Report on Form 8-K, filed on February 9, 2000;
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9. Our Current Report on Form 8-K, filed on February 24, 2000;
10. All other reports filed by us pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1999, including all materials
incorporated by reference therein; and
11. The description of the common stock contained in our Registration
Statement on Form 8-A.
You may request a copy of these filings, at no cost to you, by writing or
telephoning us at: Inhale Therapeutic Systems, Inc. Attention: Investor
Relations, 150 Industrial Road, San Carlos, CA 94070 Telephone (650) 631-3100.
Our common stock is quoted on the Nasdaq National Market under the symbol
"INHL". The last reported sales price of the common stock on the Nasdaq National
Market ("Nasdaq") on May 23, 2000 was $71.00 per share. You may inspect reports
and other information concerning us at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. This prospectus is an offer to sell or to buy only the
securities referred to herein, and only under circumstances and in jurisdictions
where it is lawful to do so. 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.
12
USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or the shares of
common stock offered hereby. See "Selling Security Holders".
RATIO OF EARNINGS TO FIXED CHARGES
We have not presented a ratio of earnings to fixed charges because we had no
earnings for the relevant periods. Fixed charges were approximately $158,000,
$196,000, $435,000, $1,065,000 and $2,903,000 for the years ended December 31,
1995, 1996, 1997, 1998 and 1999, respectively, and $905,000 for the three months
ended March 31, 2000.
13
DESCRIPTION OF THE NOTES
The notes were issued under an indenture between us and Chase Manhattan Bank
and Trust Company, National Association, as trustee, dated February 8, 2000. The
terms of the notes include those provided in the indenture and those provided in
the registration rights agreement, which we entered into with the initial
purchasers of the notes on February 8, 2000.
The following description of provisions of the notes is not complete and is
subject to, and qualified in its entirety by reference to, the notes, the
indenture and the registration rights agreement.
GENERAL
The notes are general unsecured obligations of Inhale and rank junior in
right of payment to all of our existing and future Senior Debt and are
convertible into our common stock as described under "--Conversion Rights"
below. The notes will mature on February 8, 2007, unless earlier redeemed by us
or repurchased by us at the option of the holder upon the occurrence of a Change
of Control (as defined below).
The notes bear interest from February 8, 2000 at the rate of 5% per year,
subject to adjustment upon the occurrence of a Reset Transaction. See
"--Interest Rate Adjustments" below. Interest is payable semi-annually on
February 8 and August 8 of each year to holders of record at the close of
business on the preceding January 24 and July 24, respectively, beginning
August 8, 2000. We may pay interest on notes represented by certificated notes
by check mailed to such holders. However, a holder of notes with an aggregate
principal amount in excess of $5,000,000 will be paid by wire transfer in
immediately available funds at the election of such holder. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal will be payable, and the notes may be presented for conversion,
registration of transfer and exchange, without service charge, at our office or
agency in New York City, which shall initially be the office or agency of the
trustee in New York, New York. See "--Form, Denomination and Registration"
below.
The indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of our securities or the incurrence
of Senior Debt or any other indebtedness. The indenture also does not contain
any covenants or other provisions that afford protection to holders of notes in
the event of a highly leveraged transaction or a Change in Control of Inhale
except to the extent described under "--Repurchase at Option of Holders Upon a
Change of Control" below.
INTEREST RATE ADJUSTMENTS
If a Reset Transaction occurs, the interest rate will be adjusted to equal
the Adjusted Interest Rate from the effective date of such Reset Transaction to,
but not including, the effective date of any succeeding Reset Transaction.
A "Reset Transaction" means:
- a merger, consolidation or statutory share exchange to which the entity
that is the issuer of the common stock into which the notes are then to be
convertible into is a party;
- a sale of all or substantially all the assets of that entity;
- a recapitalization of that common stock; or
- a distribution described in clause (4) of the fourth paragraph under
"--Conversion Rights" below,
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after the effective date of which transaction or distribution the notes
would be convertible into:
- shares of an entity the common stock of which had a dividend yield for the
four fiscal quarters of such entity immediately preceding the public
announcement of the transaction or distribution that was more than 2.5%
higher than the dividend yield on our common stock (or other common stock
then issuable upon conversion of the notes) for the four fiscal quarters
preceding the public announcement of the transaction or distribution; or
- shares of an entity that announces a dividend policy prior to the
effective date of the transaction or distribution which policy, if
implemented, would result in a dividend yield on that entity's common
stock for the next four fiscal quarters that would result in such a 2.5%
increase.
The "Adjusted Interest Rate" with respect to any Reset Transaction will be
the rate per year that is the arithmetic average of the rates quoted by two
dealers engaged in the trading of convertible securities selected by us or our
successor as the rate at which interest should accrue so that the fair market
value, expressed in dollars, of a note immediately after the later of
- the public announcement of the Reset Transaction or
- the public announcement of a change in dividend policy in connection with
the Reset Transaction
will equal the average Trading Price of a note for the 20 trading days preceding
the date of public announcement of the Reset Transaction However, the Adjusted
Interest Rate will not be less than 5% per year.
For purposes of the definition of Reset Transaction, the dividend yield on
any security for any period means the dividends paid or proposed to be paid
pursuant to an announced dividend policy on the security for that period divided
by, if with respect to dividends paid on that security, the average Closing
Price (as defined in the indenture) of the security during that period and, if
with respect to dividends proposed to be paid on the security, the Closing Price
of such security on the effective date of the related Reset Transaction.
The "Trading Price" of a security on any date of determination means:
- the closing sale price (or, if no closing sale price is reported, the last
reported sale price) of a security (regular way) on the New York Stock
Exchange ("NYSE") on that date;
- if that security is not listed on the NYSE on that date, the closing sale
price as reported in the composite transactions for the principal U.S.
securities exchange on which that security is listed;
- if that security is not so listed on a U.S. national or regional
securities exchange, the closing sale price as reported by the Nasdaq
National Market;
- if that security is not so reported, the last price quoted by Interactive
Data Corporation for that security or, if Interactive Data Corporation is
not quoting such price, a similar quotation service selected by us;
- if that security is not so quoted, the average of the mid-point of the
last bid and ask prices for that security from at least two dealers
recognized as market-makers for that security; or
- if that security is not so quoted, the average of that last bid and ask
prices for that security from a dealer engaged in the trading of
convertible securities.
FORM, DENOMINATION AND REGISTRATION
The notes were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and whole multiples of $1,000.
15
GLOBAL NOTES: BOOK-ENTRY FORM. The notes were offered only to qualified
institutional buyers as defined in Rule 144A under the Securities Act ("QIBs").
Except as provided below, the notes are and will continue to be evidenced by one
or more global notes deposited with the trustee as custodian for The Depository
Trust Company, New York, New York ("DTC"), and registered in the name of Cede &
Co. as DTC's nominee. The global notes and any notes issued in exchange therefor
are subject to certain restrictions on transfer set forth in the global notes
and in the indenture and bear a restrictive legend. Record ownership of the
global notes may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee, except as set forth below.
A QIB may hold its interests in a global note directly through DTC if such
QIB is a participant in DTC, or indirectly through organizations which are
direct DTC participants. Transfers between direct DTC participants will be
effected in the ordinary way in accordance with DTC's rules and will be settled
in same-day funds. QIBs may also beneficially own interests in the global note
held by DTC through certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a direct
DTC participant, either directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of the
global notes, Cede & Co. for all purposes will be considered the sole holder of
the global notes. Except as provided below, owners of beneficial interests in
the global note will not be entitled to have certificates registered in their
names, will not receive or be entitled to receive physical delivery of
certificates in definitive form, and will not be considered holders thereof. The
laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer a
beneficial interest in the global notes to such persons may be limited.
We will wire, through the facilities of the trustee, principal, premium, if
any, and interest payments on the global notes to Cede & Co., the nominee for
DTC, as the registered owner of the global notes. Inhale, the trustee and any
paying agent will have no responsibility or liability for paying amounts due on
the global notes to owners of beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal of
and premium, if any, and interest on the global notes, to credit participants'
accounts on the payment date in amounts proportionate to their respective
beneficial interests in the notes represented by the global notes, as shown on
the records of DTC, unless DTC believes that it will not receive payment on the
payment date. Payments by DTC participants to owners of beneficial interests in
notes represented by the global notes held through DTC participants will be the
responsibility of DTC participants, as is now the case with securities held for
the accounts of customers registered in "street name."
If you would like to convert your notes into common stock pursuant to the
terms of the notes, you should contact your broker or other direct or indirect
DTC participant to obtain information on procedures, including proper forms and
cut-off times, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants and other banks, your ability to pledge your
interest in the notes represented by global notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate.
Neither Inhale nor the trustee (nor any registrar, paying agent or
conversion agent under the indenture) will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of notes,
including, without limitation, the presentation of notes for conversion as
described below, only at the direction of one or more direct DTC participants to
whose account with DTC interests in the global notes are credited and only for
the principal amount of the notes for which directions have been given.
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DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for DTC participants and to facilitate the clearance and
settlement of securities transactions between DTC participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as the initial purchasers of
the notes. Certain DTC participants or their representatives, together with
other entities, own DTC. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through,
or maintain a custodial relationship with, a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global notes among DTC participants, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause notes to be issued in definitive form in
exchange for the global notes. None of Inhale, the trustee or any of their
respective agents will have any responsibility for the performance by DTC,
direct or indirect DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining, supervising or
reviewing the records relating to, or payments made on account of, beneficial
ownership interests in global notes.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
CERTIFICATED NOTES. The notes represented by a global note will be
exchangeable for notes in definitive form of like tenor as that global note in
denominations of $1,000 and in any greater amount that is an integral multiple
of $1,000 if:
- DTC notifies us in writing that it is unwilling or unable to continue as
depositary for that global note or if at any time DTC ceases to be a
clearing agency registered under the Exchange Act and a successor
depositary is not appointed by us within 90 days;
- we, at our option, notify the trustee in writing that we elect to issue
the notes in definitive form in exchange for all or any part of the notes
represented by the global notes; or
- there is, or continues to be, an event of default and the registrar has
received a request from DTC for the issuance of the definitive notes in
exchange for the global notes.
Any note that is exchangeable pursuant to the preceding sentence is
exchangeable for notes registered in the names which DTC will instruct the
Trustee. It is expected that DTC's instructions may be based upon directions
received by DTC from its participants with respect to ownership of beneficial
interests in that global note. Subject to the foregoing, a global note is not
exchangeable except for a global note or global notes of the same aggregate
denominations to be registered in the name of the DTC participant or its
nominee.
RESTRICTIONS ON TRANSFER; LEGENDS. The notes are subject to certain
transfer restrictions and certificates evidencing the notes bear a restrictive
legend to such effect.
CONVERSION RIGHTS
The holders of notes may, at any time prior to the close of business on the
final maturity date of the notes, convert any outstanding notes (or portions
thereof) into our common stock, initially at the
17
conversion price set forth on the cover page of this prospectus, subject to
adjustment as described below. Holders may convert notes only in denominations
of $1,000 and whole multiples of $1,000. Except as described below, no
adjustment will be made on conversion of any notes for interest accrued thereon
or dividends paid on any common stock.
If notes are converted after a record date for an interest payment but prior
to the next interest payment date, those notes, other than notes called for
redemption, must be accompanied by funds equal to the interest payable on the
next interest payment date on the principal amount so converted. No payment will
be required from a holder if we exercise our right to redeem such notes on a
redemption date that is an interest payment date. We are not required to issue
fractional shares of common stock upon conversion of notes and instead will pay
a cash adjustment based upon the market price of our common stock on the last
business day before the date of the conversion. In the case of notes called for
redemption, conversion rights will expire at the close of business on the second
business day preceding the date fixed for redemption, unless we default in
payment of the redemption price.
A holder may exercise the right of conversion by delivering the note to be
converted to the specified office of a conversion agent, with a completed notice
of conversion, together with any funds that may be required as described in the
preceding paragraph. The conversion date will be the date on which the notes,
the notice of conversion and any required funds have been so delivered. A holder
delivering a note for conversion will not be required to pay any taxes or duties
relating to the issuance or delivery of the common stock for such conversion,
but will be required to pay any tax or duty which may be payable relating to any
transfer involved in the issuance or delivery of the common stock in a name
other than the holder of the note. Certificates representing shares of common
stock will be issued or delivered only after all applicable taxes and duties, if
any, payable by the holder have been paid. If any note is converted within two
years after its original issuance, the common stock issuable upon conversion
will not be issued or delivered in a name other than that of the holder of the
note unless the applicable restrictions on transfer have been satisfied.
The initial conversion price will be adjusted for certain events, including:
1) the issuance of our common stock as a dividend or distribution on our
common stock;
2) certain subdivisions and combinations of our common stock;
3) the issuance to all holders of our common stock of certain rights or
warrants to purchase our common stock (or securities convertible into our
common stock) at less than (or having a conversion price per share less
than) the current market price of our common stock;
4) the dividend or other distribution to all holders of our common stock or
shares of our capital stock (other than common stock) or evidences of our
indebtedness or our assets (including securities, but excluding those
rights and warrants referred to above and dividends and distributions in
connection with a reclassification, change, consolidation, merger,
combination, sale or conveyance resulting in a change in the conversion
consideration pursuant to the second succeeding paragraph or dividends or
distributions paid exclusively in cash);
5) dividends or other distributions consisting exclusively of cash to all
holders of our common stock to the extent that such distributions,
combined together with (A) all other such all-cash distributions made
within the preceding 12 months for which no adjustment has been made plus
(B) any cash and the fair market value of other consideration paid for
any tender offers by us or any of our subsidiaries for our common stock
concluded within the preceding 12 months for which no adjustment has been
made, exceeds 10% of our market capitalization on the record date for
such distribution; market capitalization is the product of the then
current market price of our common stock times the number of shares of
our common stock then outstanding; and
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6) the purchase of our common stock pursuant to a tender offer made by us
or any of our subsidiaries to the extent that the same involves an
aggregate consideration that, together with (A) any cash and the fair
market value of any other consideration paid in any other tender offer by
us or any of our subsidiaries for our common stock expiring within the
12 months preceding such tender offer for which no adjustment has been
made plus (B) the aggregate amount of any all-cash distributions referred
to in clause (5) above to all holders of our common stock within
12 months preceding the expiration of tender offer for which no
adjustments have been made, exceeds 10% of our market capitalization on
the expiration of such tender offer.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect at such time. Any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of our common stock or any securities convertible into or exchangeable
for our common stock or carrying the right to purchase any of the foregoing.
In the case of
- any reclassification or change of our common stock (other than changes
resulting from a subdivision or combination) or
- a consolidation, merger or combination involving us or a sale or
conveyance to another corporation of all or substantially all of our
property and assets,
in each case as a result of which holders of our common stock are entitled to
receive stock, other securities, other property or assets (including cash or any
combination thereof) with respect to or in exchange for our common stock, the
holders of the notes then outstanding will be entitled thereafter to convert
those notes into the kind and amount of shares of stock, other securities or
other property or assets (including cash or any combination thereof) which they
would have owned or been entitled to receive upon such reclassification, change,
consolidation, merger, combination, sale or conveyance had such notes been
converted into our common stock immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance. We may not
become a party to any such transaction unless its terms are consistent with the
foregoing.
If a taxable distribution to holders of our common stock or other
transaction occurs which results in any adjustment of the conversion price, the
holders of notes may, in certain circumstances, be deemed to have received a
distribution subject to U.S. income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a taxable dividend to
the holders of common stock. See "Certain United States Federal Income Tax
Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the notes by any amount for any period of at least 20 days.
In that case we will give at least 15 days' notice of such decrease. We may make
such reductions in the conversion price, in addition to those set forth above,
as our board of directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for income tax
purposes.
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PROVISIONAL REDEMPTION
We may redeem the notes, in whole or in part, at any time prior to
February 8, 2003, at a redemption price equal to $1,000 per $1,000 principal
amount of notes to be redeemed plus accrued and unpaid interest, if any, to the
provisional redemption date if:
- the closing price of our common stock has exceeded 150% of the conversion
price then in effect (as determined based on the then effective Conversion
Rate) for at least 20 trading days within a period of 30 consecutive
trading days ending on the trading day prior to the date of mailing of the
provisional redemption notice (which date shall be not less than 20 nor
more then 60 trading days prior to the provisional redemption date); and
- the shelf registration statement covering the resales of the notes and the
common stock issuable upon conversion of the notes is effective and
available for use and is expected to remain effective for the 30 days
following the provisional redemption date.
Upon any provisional redemption, we will make an additional payment in cash
with respect to the notes called for redemption to holders on the notice date in
an amount equal to $137.93 per $1,000 principal amount of notes, less the amount
of any interest actually paid on the notes prior to the Notice Date. We will be
obligated to make this additional payment on all notes called for provisional
redemption, including any notes converted after the notice date and before the
provisional redemption date.
OPTIONAL REDEMPTION BY INHALE
Except as set forth above under the "Provisional Redemption", the notes are
not redeemable prior to February 8, 2003. At any time on or after that date, we
may redeem some or all of the notes on at least 20 but not more than 60 days'
notice, at the following prices (expressed in percentages of the principal
amount), together with accrued and unpaid interest to, but excluding, the date
fixed for redemption. However, if a redemption date is an interest payment date,
the semi-annual payment of interest becoming due on such date shall be payable
to the holder of record as of the relevant record date and the redemption price
shall not include such interest payment.
DURING THE TWELVE MONTHS COMMENCING REDEMPTION PRICE
- ----------------------------------- ----------------
February 8, 2003............................................ 102.90%
February 8, 2004............................................ 102.10%
February 8, 2005............................................ 101.40%
February 8, 2006............................................ 100.70%
If we do not redeem all of the notes, the trustee will select the notes to
be redeemed in principal amounts of $1,000 or whole multiples of $1,000 by lot
or on a pro rata basis. If any notes are to be redeemed in part only, new notes
in principal amount equal to the unredeemed principal portion thereof will be
issued. If a portion of a holder's notes is selected for partial redemption and
the holder converts a portion of its notes, the converted portion will be deemed
to be taken from the portion selected for redemption.
No sinking fund is provided for the notes.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes will have the right to
require us to repurchase all of that holder's notes not previously called for
redemption, or any portion of those notes that is equal to $1,000 or a whole
multiple of $1,000, on the date that is 45 days after the date we give notice
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at a repurchase price equal to 100% of the principal amount of the notes to be
repurchased, together with interest accrued and unpaid to, but excluding, the
repurchase date.
Instead of paying the repurchase price in cash, we may pay the repurchase
price in common stock. The number of shares of common stock a holder will
receive will equal the repurchase price divided by 95% of the average of the
closing sales prices of our common stock for the five trading days immediately
preceding and including the third day prior to the repurchase date. However, we
may not pay in common stock unless we satisfy certain conditions prior to the
repurchase date as provided in the indenture.
Within 30 days after the occurrence of a Change of Control, we are required
to give notice to all holders of notes, as provided in the indenture, of the
occurrence of the Change of Control and of their resulting repurchase right. We
must also deliver a copy of our notice to the trustee. To exercise the
repurchase right, a holder of notes must deliver prior to or on the 30th day
after the date of our notice irrevocable written notice to the trustee of the
holder's exercise of its repurchase right, together with the notes with respect
to which the right is being exercised.
A "Change of Control" will be deemed to have occurred at such time after the
original issuance of the notes when the following has occurred:
- the acquisition by any person, including any syndicate or group deemed to
be a "person" under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), of beneficial ownership, directly
or indirectly, through a purchase, merger or other acquisition transaction
or series of transactions of shares of our capital stock entitling that
person to exercise 50% or more of the total voting power of all shares of
our capital stock entitled to vote generally in elections of directors,
other than any acquisition by us, any of our subsidiaries or any of our
employee benefit plans; or
- our consolidation or merger with or into any other person, any merger of
another person into us, or any conveyance, transfer, sale, lease or other
disposition of all or substantially all of our properties and assets to
another person, other than:
1) any transaction (A) that does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of our
capital stock and (B) pursuant to which holders of our capital stock
immediately prior to the transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total voting
power of all shares of our capital stock entitled to vote generally
in the election of directors of the continuing or surviving person
immediately after the transaction; and
2) any merger solely for the purpose of changing our jurisdiction of
incorporation and resulting in a reclassification, conversion or
exchange of outstanding shares of common stock solely into shares of
common stock of the surviving entity.
However, a Change of Control will not be deemed to have occurred if the
closing sales price per share of our common stock for any five trading days
within the period of 10 consecutive trading days ending immediately after the
later of the Change of Control or the public announcement of the Change of
Control, in the case of a Change of Control under the first clause above, or the
period of 10 consecutive trading days ending immediately before the Change of
Control, in the case of a Change of Control under the second clause above,
equals or exceeds 110% of the conversion price of the notes in effect on each
such trading day. The beneficial owner shall be determined in accordance with
Rule 13d-3 promulgated by the SEC under the Exchange Act. The term "person"
includes any syndicate or group which would be deemed to be a "person" under
Section 13(d)(3) of the Exchange Act.
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Rule 13e-4 under the Exchange Act, as amended, requires the dissemination of
certain information to security holders if an issuer tender offer occurs and may
apply if the repurchase option becomes available to holders of the notes. We
will comply with this rule to the extent applicable at that time.
We may, to the extent permitted by applicable law, at any time purchase the
notes in the open market or by tender at any price or by private agreement. Any
note so purchased by us may, to the extent permitted by applicable law, be
reissued or resold or may be surrendered to the trustee for cancellation. Any
notes surrendered to the trustee may not be reissued or resold and will be
canceled promptly.
The foregoing provisions would not necessarily protect holders of the notes
if highly leveraged or other transactions involving us occur that may adversely
affect holders.
Our ability to repurchase notes upon the occurrence of a Change in Control
is subject to important limitations. The occurrence of a Change in Control could
cause an event of default under, or be prohibited or limited by, the terms of
Senior Debt that we may incur in the future. As a result, any repurchase of the
notes would, absent a waiver, be prohibited under the subordination provisions
of the indenture until the Senior Debt is paid in full. Further, we cannot
assure you that we would have the financial resources, or would be able to
arrange financing, to pay the repurchase price for all the notes that might be
delivered by holders of notes seeking to exercise the repurchase right. Any
failure by us to repurchase the notes when required following a Change in
Control would result in an event of default under the indenture, whether or not
such repurchase is permitted by the subordination provisions of the indenture.
Any such default may, in turn, cause a default under Senior Debt that we may
incur in the future. See "--Subordination" below.
SUBORDINATION
The notes are subordinated in right of payment to the prior payment in full
of all our existing and future Senior Debt. The indenture provides that in the
event of any distribution of our assets upon our dissolution, winding up,
liquidation or reorganization, the holders of our Senior Debt shall first be
paid in respect of all Senior Debt in full in cash or other payment satisfactory
to the holders of Senior Debt before we make any payments of principal of, or
premium, if any, and interest (including liquidated damages, if any) on the
notes. In addition, if the notes are accelerated because of an event of default,
the holders of any Senior Debt would be entitled to payment in full in cash or
other payment satisfactory to the holders of Senior Debt of all obligations in
respect of Senior Debt before the holders of the notes are entitled to receive
any payment or distribution. Under the indenture, we must promptly notify
holders of Senior Debt if payment of the notes is accelerated because of an
event of default.
The indenture further provides if any default by us has occurred and is
continuing in the payment of principal of or premium, if any, or interest on,
rent or other payment obligations in respect of, any Senior Debt, then no
payment shall be made on account of principal of, premium, if any, or interest
on the notes (including any liquidated damages), until all such payments due in
respect of that Senior Debt have been paid in full in cash or other payment
satisfactory to the holders of that Senior Debt. During the continuance of any
event of default with respect to any Designated Senior Debt (other than a
default in payment of the principal of or premium, if any, or interest on, rent
or other payment obligations in respect of any Designated Senior Debt),
permitting the holders thereof to accelerate the maturity thereof (or, in the
case of any lease, permitting the landlord either to terminate the lease or to
require us to make an irrevocable offer to terminate the lease following an
event of default thereunder), no payment may be made by us, directly or
indirectly, with respect to principal of or premium, if any, or interest on the
notes (including any liquidated damages, if any) for 179 days following written
notice to us, from any holder, representative or trustee under any agreement
pursuant to which that Designated Senior Debt may have been issued, that such an
event of default has occurred
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and is continuing, unless such event of default has been cured or waived or that
Designated Senior Debt has been paid in full in cash or other payment
satisfactory to the holders of that Designated Senior Debt. However, if the
maturity of that Designated Senior Debt is accelerated (or, in the case of a
lease, as a result of such events of default, the landlord under the lease has
given us notice of its intention to terminate the lease or to require us to make
an irrevocable offer to terminate the lease following an event of default
thereunder), no payment may be made on the notes until that Designated Senior
Debt has been paid in full in cash or other payment satisfactory to the holders
of that Designated Senior Debt or such acceleration (or termination, in the case
of the lease) has been cured or waived.
By reason of such subordination provisions, in the event of insolvency,
funds which we would otherwise use to pay the holders of notes will be used to
pay the holders of Senior Debt to the extent necessary to pay Senior Debt in
full in cash or other payment satisfactory to the holders of Senior Debt. As a
result of these payments, our general creditors may recover less, ratably, than
holders of Senior Debt and such general creditors may recover more, ratably,
than holders of notes.
"Senior Debt" means the principal of, premium, if any, interest (including
all interest accruing subsequent to the commencement of any bankruptcy or
similar proceeding, whether or not a claim for post-petition interest is
allowable as a claim in any such proceeding) and rent payable on or termination
payment with respect to or in connection with, and all fees, costs, expenses and
other amounts accrued or due on or in connection with, our Indebtedness, whether
outstanding on the date of the indenture or subsequently created, incurred,
assumed, guaranteed or in effect guaranteed by us (including all deferrals,
renewals, extensions or refunding of, or amendments, modifications or
supplements to, the foregoing), unless in the case of any particular
Indebtedness, the instrument creating or evidencing such Indebtedness or the
assumption or guarantee thereof expressly provides that that Indebtedness shall
not be senior in right of payment to the notes or expressly provides that such
Indebtedness is equal with or junior to the notes. The notes shall not be senior
in right of payment to the outstanding 6 3/4% Convertible Subordinated
Debentures and shall be equal with such debentures. The term "Senior Debt" shall
not include our Indebtedness to any of our subsidiaries of which we own,
directly or indirectly, a majority of the voting stock.
"Indebtedness" means, with respect to any person:
1) all indebtedness, obligations and other liabilities (contingent or
otherwise) of that person for borrowed money (including obligations
in respect of overdrafts, foreign exchange contracts, currency
exchange agreements, interest rate protection agreements, and any
loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, debentures, notes or
other instruments for the payment of money, or incurred in connection
with the acquisition of any property, services or assets (whether or
not the recourse of the lender is to the whole of the assets of such
person or to only a portion thereof), other than any account payable
or other accrued current liability or obligation to trade creditors
incurred in the ordinary course of business in connection with the
obtaining of materials or services;
2) all reimbursement obligations and other liabilities (contingent or
otherwise) of that person with respect to letters of credit, bank
guarantees, bankers' acceptances, surety bonds, performance bonds or
other guaranty of contractual performance;
3) all obligations and liabilities (contingent or otherwise) in respect
of (A) leases of such person required, in conformity with generally
accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such person, and (B) any
lease or related documents (including a purchase agreement) in
connection with the lease of real property which provides that such
person is contractually obligated to purchase or cause a third party
to purchase the leased property and thereby guarantee a
23
minimum residual value of the leased property to the landlord and the
obligations of such person under such lease or related document to
purchase or to cause a third party to purchase the leased property;
4) all obligations of such person (contingent or otherwise) with respect
to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange,
purchase or similar instrument or agreement;
5) all direct or indirect guaranties or similar agreements by that
person in respect of, and obligations or liabilities (contingent or
otherwise) of that person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another person of the kind described in
clauses (1) through (4);
6) any indebtedness or other obligations described in clauses
(1) through (4) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such
person, regardless of whether the indebtedness or other obligation
secured thereby shall have been assumed by such person; and
7) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness,
obligation or liability of the kind described in clauses (1) through
(6).
"Designated Senior Debt" means our Senior Debt which, at the date of
determination, has an aggregate amount outstanding of, or under which, at the
date of determination, the holders thereof are committed to lend up to, at least
$25 million and is specifically designated in the instrument evidencing or
governing that Senior Debt as "Designated Senior Debt" for purposes of the
indenture. However, the instrument may place limitations and conditions on the
right of that Senior Debt to exercise the rights of Designated Senior Debt. At
March 31, 2000, we had approximately $4.9 million of Senior Debt and no
Designated Senior Debt. There are no restrictions in the indenture on the
creation of Senior Debt or any other indebtedness in the future.
The notes are our obligations exclusively and will be, in effect,
subordinated to all Indebtedness (including trade payables) of any subsidiaries
that we own in the future. The indenture does not limit the amount of
Indebtedness or other liabilities any future subsidiaries may incur. Our ability
to make required interest, principal, repurchase, cash conversion or redemption
payments on the notes may be impaired as a result of the obligations of any
future subsidiaries. Any future subsidiaries would be separate and distinct
legal entities and would have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the notes or to make any funds available therefor,
whether by dividends, loans or other payments. Any right we have to receive
assets of any of our future subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the holders of the notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors, except to the extent that we are ourselves
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
and any indebtedness of that subsidiary senior to that held by us. There are no
restrictions in the indenture on the ability of any of our future subsidiaries
to incur Indebtedness or other liabilities.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against any losses, liabilities or expenses incurred by it
in connection with its duties relating to the notes. The trustee's claims for
such payments will be senior to those of holders of the notes in respect of all
funds collected or held by the trustee.
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EVENTS OF DEFAULT
Each of the following constitutes an event of default under the indenture:
1) our failure to pay when due the principal of or premium, if any, on any
of the notes at maturity, upon redemption or exercise of a repurchase
right or otherwise, whether or not such payment is prohibited by the
subordination provisions of the indenture;
2) our failure to pay an installment of interest (including liquidated
damages, if any) on any of the notes for 30 days after the date when due,
whether or not such payment is prohibited by the subordination provisions
of the indenture;
3) our failure to perform or observe any other term, covenant or agreement
contained in the notes or the indenture for a period of 60 days after
written notice of such failure, requiring us to remedy the same, shall
have been given to us by the trustee or to us and the trustee by the
holders of at least 25% in aggregate principal amount of the notes then
outstanding;
4) our failure to make any payment by the end of the applicable grace
period, if any, after the maturity of any Indebtedness for borrowed money
in an amount in excess of $5 million (PROVIDED that such failure will not
constitute an event of default if (1) we determine, in good faith, that a
lessor under a lease described in clause (3)(A) of the definition of
Indebtedness set forth under "--Subordination" (that is, a sale/leaseback
transaction) breached a covenant under the lease and we give notice of
the breach to the lessor and the trustee and (2) as a result of the
breach, we withhold payment under the lease) (a "Default Exception"), or
the acceleration of Indebtedness for borrowed money in an amount in
excess of $5 million because of a default with respect to such
Indebtedness (other than a Default Exception) without such Indebtedness
having been discharged or such acceleration having been cured, waived,
rescinded or annulled, in either case, for a period of 30 days after
written notice to us by the trustee or to us and the trustee by holders
of at least 25% in aggregate principal amount of the notes then
outstanding; and
5) certain events of our bankruptcy, insolvency or reorganization.
The indenture provides that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the notes notice of
all uncured defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the notes when due or in the payment of any redemption or
repurchase obligation.
If an event of default specified in clause (5) above occurs and is
continuing, then automatically the principal of all the notes and the interest
thereon shall become immediately due and payable. If an event of default shall
occur and be continuing, other than with respect to clause (5) above (the
default not having been cured or waived as provided under "--Meetings,
Modifications and Waiver" below), the trustee or the holders of at least 25% in
aggregate principal amount of the notes then outstanding may declare the notes
due and payable at their principal amount together with accrued interest, and
thereupon the trustee may, at its discretion, proceed to protect and enforce the
rights of the holders of notes by appropriate judicial proceedings. Such
declaration may be rescinded or annulled either with the written consent of the
holders of a majority in aggregate principal amount of the notes then
outstanding or a majority in aggregate principal amount of the notes represented
at a meeting at which a quorum (as specified under "--Meetings, Modifications
and Waiver" below) is present, in each case upon the conditions provided in the
indenture.
The indenture contains a provision entitling the trustee, subject to the
duty of the trustee during default to act with the required standard of care, to
be indemnified by the holders of notes before
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proceeding to exercise any right or power under the indenture at the request of
such holders. The indenture provides that the holders of a majority in aggregate
principal amount of the notes then outstanding through their written consent, or
the holders of a majority in aggregate principal amount of the notes then
outstanding represented at a meeting at which a quorum is present by a written
resolution, may direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust or power
conferred upon the trustee.
We are required to furnish annually to the trustee a statement as to the
fulfillment of our obligations under the indenture.
CONSOLIDATION, MERGER OR ASSUMPTION
We may, without the consent of the holders of notes, consolidate with, merge
into or transfer all or substantially all of our assets to any other corporation
organized under the laws of the United States or any of its political
subdivisions provided that:
- the surviving corporation assumes all our obligations under the indenture
and the notes;
- at the time of such transaction, no event of default, and no event which,
after notice or lapse of time, would become an event of default, shall
have happened and be continuing; and
- certain other conditions are met.
MEETINGS, MODIFICATIONS AND WAIVER
The indenture contains provisions for convening meetings of the holders of
notes to consider matters affecting their interests.
The indenture (including the terms and conditions of the notes) may be
modified or amended by us and the trustee, without the consent of the holder of
any note, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of notes;
- surrendering any right or power conferred upon us;
- providing for conversion rights of holders of notes if any
reclassification or change of our common stock or any consolidation,
merger or sale of all or substantially all of our assets occurs;
- providing for the assumption of our obligations to the holders of notes in
the case of a merger, consolidation, conveyance, transfer or lease;
- reducing the conversion price, provided that the reduction will not
adversely affect the interests of holders of notes in any material
respect;
- complying with the requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act of 1939,
as amended;
- curing any ambiguity or correcting or supplementing any defective
provision contained in the indenture; provided that such modification or
amendment does not, in the good faith opinion of our board of directors
and the trustee, adversely affect the interests of the holders of the
notes in any material respect; or
- adding or modifying any other provisions which we and the trustee may deem
necessary or desirable and which will not adversely affect the interests
of the holders of notes in any material respect.
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Modifications and amendments to the indenture or to the terms and conditions
of the notes may also be made, and past default by us may be waived, either:
- with the written consent of the holders of at least a majority in
aggregate principal amount of the notes at the time outstanding or
- by the adoption of a resolution at a meeting of holders by at least a
majority in aggregate principal amount of the notes represented at such
meeting.
However, no such modification, amendment or waiver may, without the written
consent or the affirmative vote of the holder of each note so affected:
- change the maturity of the principal of or any installment of interest on
that note (including any payment of liquidated damages);
- reduce the principal amount of, or any premium or interest on (including
any payment of liquidated damages), any note;
- change the currency of payment of such note or interest thereon;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any note;
- modify our obligations to maintain an office or agency in New York City;
- except as otherwise permitted or contemplated by provisions concerning
corporate reorganizations, adversely affect the repurchase option of
holders upon a Change of Control or the conversion rights of holders of
the notes;
- modify the subordination provisions of the notes in a manner adverse to
the holders of notes;
- reduce the percentage in aggregate principal amount of notes outstanding
necessary to modify or amend the indenture or to waive any past default;
or
- reduce the percentage in aggregate principal amount of notes outstanding
required for the adoption of a resolution or the quorum required at any
meeting of holders of notes at which a resolution is adopted.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes at
the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of that aggregate principal amount.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding, subject to certain conditions, if
- all outstanding notes will become due and payable at their scheduled
maturity, within one year; or
- all outstanding notes are scheduled for redemption within one year,
and, in either case, we have deposited with the trustee an amount sufficient to
pay and discharge all outstanding notes on the date of their scheduled maturity
or the scheduled date of redemption.
GOVERNING LAW
The indenture and the notes are governed by, and construed in accordance
with, the law of the State of New York.
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INFORMATION CONCERNING THE TRUSTEE
Chase Manhattan Bank and Trust Company, National Association, as trustee
under the indenture, has been appointed by us as paying agent, conversion agent,
registrar and custodian with regard to the notes. ChaseMellon Shareholder
Services LLC is the transfer agent and registrar for our common stock. The
trustee or its affiliates may from time to time in the future provide banking
and other services to us in the ordinary course of their business.
REGISTRATION RIGHTS
We have, at our expense, filed with the SEC a shelf registration statement
on Form S-3 covering resales by holders of the notes and the common stock
issuable upon conversion of the notes. Under the terms of the registration
rights agreement we have agreed to use our best efforts to:
- cause the registration statement to become effective as promptly as is
practicable, but in no event later than 180 days after the earliest date
of original issuance of any of the notes; and
- keep the registration statement effective until such date that is two
years after the last date of original issuance of any of the notes (or
such earlier date when the holders of the notes and the common stock
issuable upon conversion of the notes are able to sell all such securities
immediately without restriction pursuant to the volume limitation
provisions of Rule 144 under the Securities Act or any successor
rule thereto or otherwise).
We have also agreed to provide to each registered holder copies of the
prospectus, notify each registered holder when the shelf registration statement
has become effective and take certain other actions as are required to permit
unrestricted resales of the notes and the common stock issuable upon conversion
of the notes. A holder who sells those securities pursuant to the shelf
registration statement generally will be required to be named as a selling
stockholder in the related prospectus and to deliver a prospectus to purchasers
and will be bound by the provisions of the registration rights agreement, which
are applicable to that holder (including certain indemnification provisions). If
a shelf registration statement covering those securities is not effective, they
may not be sold or otherwise transferred except pursuant to an exemption from
registration under the Securities Act and any other applicable securities laws
or in a transaction not subject to those laws.
Each holder must notify us not later than three business days prior to any
proposed sale by that holder pursuant to the shelf registration statement. This
notice will be effective for five business days. We may suspend the holder's use
of the prospectus for a reasonable period not to exceed 45 days (60 days under
certain circumstances relating to a proposed or pending material business
transaction, the disclosure of which would impede our ability to consummate such
transaction) in any 90-day period, and not to exceed an aggregate of 90 days in
any 12-month period, if we, in our reasonable judgment, believe we may possess
material non-public information the disclosure of which would have a material
adverse effect on us and our subsidiaries taken as a whole. Each holder, by its
acceptance of a note, agrees to hold any communication by us in response to a
notice of a proposed sale in confidence.
If,
- on the 180th day following the earliest date of original issuance of any
of the notes, the shelf registration statement is not declared effective;
or
- the registration statement shall cease to be effective or fail to be
usable without being succeeded within five business days by a
post-effective amendment or a report filed with the SEC pursuant to the
Exchange Act that cures the failure of the registration statement to be
effective or usable; or
- on the 45th or 60th day, as the case may be, of any period that the
prospectus has been suspended as described in the preceding paragraph,
such suspension has not been terminated (each, a "registration default"),
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additional interest as liquidated damages will accrue on the notes, from and
including the day following the registration default to but excluding the day on
which the registration default has been cured. Liquidated damages will be paid
semi-annually in arrears, with the first semi-annual payment due on the first
interest payment date, as applicable, following the date on which such
liquidated damages begin to accrue, and will accrue at a rate per year equal to:
- an additional 0.25% of the principal amount to and including the 90th day
following such registration default; and
- an additional 0.5% of the principal amount from and after the 91st day
following such registration default.
In no event will liquidated damages accrue at a rate per year exceeding
0.5%. If a holder has converted some or all of its notes into common stock, the
holder will be entitled to receive equivalent amounts based on the principal
amount of the notes converted.
We agreed to distribute a questionnaire to each holder to obtain certain
information regarding the holder for inclusion in the prospectus. Holders were
required to complete and deliver the questionnaire within 20 business days after
receipt of the questionnaire to be named as selling stockholders in the related
prospectus at the time of effectiveness. A holder will not be entitled to
liquidated damages unless it has provided all information requested by the
questionnaire prior to the deadline.
The specific provisions relating to the registration described above are
contained in the registration rights agreement which was entered into on the
closing of the initial offering of the notes.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and certain provisions of our
certificate of incorporation and bylaws is a summary and is qualified in its
entirety by the provisions of our certificate of incorporation and bylaws.
Our authorized capital stock consists of 50,000,000 shares of common stock,
and 10,000,000 shares of preferred stock.
COMMON STOCK
As of April 28, 2000, there were 20,925,381 shares of our common stock
outstanding. The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. The
holders of common stock are not entitled to cumulative voting rights with
respect to the election of directors, and as a consequence, minority
stockholders are not able to elect directors on the basis of their votes alone.
Subject to preferences that may be applicable to any shares of preferred stock
issued in the future, holders of common stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
Inhale, holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding preferred stock. Holders of common stock have no preemptive
rights and no right to convert their common stock into any other securities.
There are no redemption or sinking fund provisions applicable to the common
stock.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control. We
have no present plan to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to a restated investor rights agreement, as amended, the holders of
approximately 250,044 shares of common stock are entitled to require us in any
twelve-month period, to register their shares on Form S-3, subject to certain
conditions and limitations. Subject to certain limitations, we are required to
bear all registration and selling expenses in connection with such requested
registrations. These registration rights expire in 2004, or with respect to any
individual holder, at such time as that holder owns less than one percent of our
outstanding common stock and is able to dispose of all of that holder's
registrable securities in any 90 day period pursuant to Rule 144 under the
Securities Act.
Pfizer has the right to include shares of our common stock purchased
pursuant to the purchase agreement relating to its equity investment in the
first firmly underwritten public offering of our common stock effected after
January 18, 2000. We are required to pay all expenses in connection with such
registration, excluding the fees of counsel for Pfizer.
Baxter International, Inc. has the right to include shares of our common
stock purchased pursuant to a purchase agreement relating to its equity
investment in the first firmly underwritten public offering
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of our common stock effected after March 1, 1999. We are required to pay all
expenses in connection with such registration, excluding fees of counsel for
Baxter.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CHARTER AND BYLAWS
Our certificate of incorporation provides for the Board of Directors to be
divided into three classes, with staggered three-year terms. As a result, only
one class of directors will be elected at each annual meeting of stockholders,
with the other classes continuing for the remainder of their respective
three-year terms. Stockholders have no cumulative voting rights, and the
stockholders representing a majority of the shares of common stock outstanding
are able to elect all of the directors.
Our certificate of incorporation also requires that any action required or
permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing and that the stockholders may amend our bylaws or adopt new
bylaws, only by the affirmative vote of 66 2/3% of the outstanding voting
securities. A special meeting of the stockholders may be called by the Chairman,
either Chief Executive Officer, or by a resolution adopted by a majority of the
total number of authorized directors or stockholders owning 10% or more of the
outstanding voting capital stock. These provisions may have the effect of
delaying, deferring or preventing a change in control.
The classification of the Board of Directors and lack of cumulative voting
will make it more difficult for our existing stockholders to replace the Board
of Directors as well as for another party to obtain control of Inhale by
replacing the Board of Directors. Since the Board of Directors has the power to
retain and discharge our officers, these provisions could also make it more
difficult for existing stockholders or another party to effect a change in
management.
These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management. These provisions are
intended to enhance the likelihood of continued stability in the composition of
the Board of Directors and in the policies of the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change in control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy rights.
However, such provisions could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of the our shares that could result from actual
or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in our management.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested holder;
- Upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
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- at or subsequent to such time, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
In general, Section 203 defines "business combination" to include the
following:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the aggregate market value of the corporation involving the
interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines "interested stockholder" as an entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
CERTAIN TRANSACTIONS
Our bylaws provide that we will indemnify our directors and officers,
employees and other agents to the fullest extent permitted by Delaware law. We
are also empowered under our bylaws to enter into indemnification contracts with
our directors and officers and to purchase insurance on behalf of any person
whom we are required or permitted to indemnify.
In addition, our certificate of incorporation provides that the liability of
the directors for monetary damages shall be eliminated to the fullest extent
permissible under Delaware law. Pursuant to Delaware law, our directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to us and our stockholders. However, this provision does not eliminate
the duty of care, and in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief that will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for (i) breach of the directors duty of loyalty to the corporation or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) violating
Section 174 of the Delaware General Corporation Law, or (iv) any transaction
from which the director derived an improper personal benefit. The provision also
does not affect a director's responsibilities under any other law, such as the
federal securities laws or state of federal environmental laws.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services LLC is the transfer agent and registrar for
our common stock.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain anticipated U.S. federal
income tax consequences to a holder with respect to the purchase, ownership and
disposition of the notes or our common stock acquired upon conversion of a note
as of the date hereof. This summary is generally limited to holders who will
hold the notes and the shares of common stock into which the notes are
convertible as "capital assets" within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code") and who acquired the
notes in the initial offering at the initial offering price, and does not deal
with special situations including those that may apply to particular holders
such as exempt organizations, holders subject to the U.S. federal alternative
minimum tax, dealers in securities, commodities or foreign currencies, financial
institutions, insurance companies, regulated investment companies, holders whose
"functional currency" is not the U.S. dollar and persons who hold the notes or
shares of common stock in connection with a "straddle," "hedging," "conversion"
or other risk reduction transaction. This discussion does not address the tax
consequences arising under any state, local or foreign law.
The federal income tax considerations set forth below are based upon the
Internal Revenue Code of 1986, as amended, existing and proposed Treasury
Regulations, court decisions, and Internal Revenue Service rulings now in
effect, all of which are subject to change. We have not sought any ruling from
the IRS with respect to statements made and conclusions reached in this
discussion and there can be no assurance that the IRS will agree with such
statements and conclusions. Prospective investors should particularly note that
any such change could have retroactive application so as to result in federal
income tax consequences different from those discussed below.
As used herein, the term "U.S. holder" means a beneficial owner of a note
(or our common stock acquired upon conversion of a note) that is for U.S.
federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision thereof (other than a
partnership that is not treated as a U.S. person under any applicable
Treasury Regulations);
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source;
- a trust, if a court within the U.S. is able to exercise primary
jurisdiction over its administration and one or more U.S. persons within
the meaning of Section 7701(a)(30) of the Code have authority to control
all of its substantial decisions, or if the trust has a valid election in
effect under applicable U.S. Treasury regulations to be treated as a U.S.
person; or
- certain trusts in existence on August 20, 1996 and treated as U.S. persons
under the Code and applicable Treasury Regulations that elect to continue
to be treated as U.S. persons.
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As used herein, a "non-U.S. holder" means a holder that is not a U.S.
holder. Prospective investors are urged to consult their tax advisors regarding
the tax consequences, in their particular circumstances, of purchasing, holding
and disposing of the notes or our common stock, including the tax consequences
arising under any state, local or foreign laws. While the following does not
purport to discuss all tax matters relating to the notes or the common stock
acquired upon conversion of a note, the following are the material tax
consequences of the notes and common stock acquired upon conversion of a note,
subject to the qualifications set forth below.
Based on currently applicable authorities, we are treating the notes as
indebtedness for U.S. federal income tax purposes. However, since the notes have
certain equity characteristics, it is possible that the IRS will contend that
the notes should be treated as an equity interest in, rather than indebtedness
of Inhale. Except as otherwise noted, the remainder of this discussion assumes
that the notes constitute indebtedness for U.S. tax purposes.
U.S. HOLDERS
STATED INTEREST
The notes were not issued with more than a de minimis amount of original
issue discount within the meaning of Section 1273(a) of the Code. As a result,
interest paid on a note will be includable in the income of a U.S. holder as
ordinary income at the time it accrues or is actually or constructively received
in accordance with the holder's method of accounting for U.S. federal income tax
purposes. The interest rate on the notes is subject to increase by the payment
of liquidated damages if the notes are not registered with the Commission within
prescribed time periods. We are treating the possibility that we will pay such
additional interest as subject to a remote and incidental contingency, within
the meaning of applicable Treasury Regulations and, therefore, we believe that
any such additional interest will not affect the yield to maturity on the notes
and therefore will be taxable to U.S. holders at the time it accrues or is
received in accordance with each such holder's method of accounting. Our
determination that there is a remote likelihood of paying additional interest on
the notes is binding on each U.S. holder unless the holder explicitly discloses
in the manner required by applicable Treasury Regulations that its determination
is different from ours. Our determination is not, however, binding on the IRS.
CONVERSION OR REPURCHASE FOR COMMON STOCK
A U.S. holder will not recognize income, gain or loss upon conversion of the
notes solely into our common stock or a repurchase for common stock of a note
pursuant to exercise of the repurchase right (except with respect to any amounts
attributable to accrued interest on the notes, which will be treated as interest
for federal income tax purposes), and except with respect to cash received in
lieu of fractional shares, and with respect to market discount, as described
below under "--Market Discount." The U.S. holder's basis in the common stock
received on conversion or repurchase of a note for common stock pursuant to the
repurchase right will be the same as the U.S. holder's adjusted tax basis in the
notes at the time of conversion or repurchase (reduced by any basis allocable to
a fractional share), and the holding period for the common stock received on
conversion or repurchase will include the holding period of the notes that were
converted or repurchased.
Cash received in lieu of a fractional share of common stock upon conversion
of the notes into common stock or upon a repurchase for common stock of a note
pursuant to exercise of the repurchase right will be treated as a payment in
exchange for the fractional share of common stock. Accordingly, the receipt of
cash in lieu of a fractional share of common stock generally will result in
capital gain or loss measured by the difference between the cash received for
the fractional share and the U.S. holder's adjusted tax basis in the fractional
share.
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DIVIDENDS ON COMMON STOCK
Generally, distributions will be treated as a dividend, subject to tax as
ordinary income, to the extent of our current or accumulated earnings or
profits, then as a tax-free return of capital to the extent of such U.S.
holder's adjusted tax basis in the common stock and thereafter as gain from the
sale or exchange of such common stock. Additionally, a dividend distribution to
a corporate U.S. holder may qualify for a dividends received deduction.
DISPOSITION, REDEMPTION OR REPURCHASE FOR CASH
Except as set forth above under "--Conversion or Repurchase for Common
Stock," and below under "--Market Discount," U.S. holders generally will
recognize capital gain or loss upon the sale, redemption, including a repurchase
for cash pursuant to the repurchase right, or other taxable disposition of the
notes or common stock in an amount equal to the difference between:
- the U.S. holder's adjusted tax basis in the notes or common stock (as the
case may be); and
- the amount of cash and fair market value of any property received from
such disposition (other than amounts attributable to accrued interest on
the notes, which will be treated as interest for federal income tax
purposes).
A U.S. holder's adjusted tax basis in a note generally will equal the cost
of the note to such U.S. holder, increased by market discount previously
included in income by the U.S. holder and reduced by any amortized premium.
Such gain or loss from the taxable disposition of the notes or common stock
generally will be long-term capital gain or loss if the notes were held for more
than one year at the time of the disposition and, in the case of an individual
holder, will be taxed at a maximum rate of 20%. Short term capital gains
realized by individual U.S. holders are taxed at a maximum rate of 39.6%.
Corporate U.S. holders are subject to a maximum regular income tax rate of 35%
on all capital gains and ordinary income. The deductibility of capital losses is
subject to limitations.
MARKET DISCOUNT
The resale of notes may be affected by the impact on a purchaser of the
"market discount" provisions of the Code. For this purpose, the market discount
on a note generally will be equal to the amount, if any, by which the stated
redemption price at maturity of the note immediately after its acquisition
exceeds the U.S. holder's adjusted tax basis in the note. Subject to a de
minimis exception, these provisions generally require a U.S. holder who acquires
a note at a market discount to treat as ordinary income any gain recognized on
the disposition of the note to the extent of the "accrued market discount" on
the note at the time of disposition, unless the U.S. holder elects to include
accrued market discount in income currently. This election to include market
discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the election
applies and may not be revoked without the consent of the IRS. In general,
market discount will be treated as accruing on a straight-line basis over the
remaining term of the note at the time of acquisition, or, at the election of
the U.S. holder, under a constant yield method. A U.S. holder who acquires a
note at a market discount and who does not elect to include accrued market
discount in income currently may be required to defer the deduction of a portion
of the interest on any indebtedness incurred or maintained to purchase or carry
the note until the note is disposed of in a taxable transaction. If a U.S.
holder acquires a note with market discount and receives common stock upon
conversion of the note, the amount of accrued market discount not previously
included in income with respect to the converted note through the date of
conversion will be treated as ordinary income and will increase the U.S.
holder's basis in the note.
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AMORTIZABLE PREMIUM
A U.S. holder who purchases a note at a premium over its stated principal
amount, plus accrued interest, generally may elect to amortize such premium
("Section 171 premium") from the purchase date to the note's maturity date under
a constant-yield method that reflects semiannual compounding based on the note's
payment period. Amortizable premium, however, will not include any premium
attributable to a note's conversion feature. The premium attributable to the
conversion feature is the excess, if any, of the note's purchase price over what
the note's fair market value would be if there were no conversion feature.
Amortized Section 171 premium is treated as an offset to interest income on a
note and not as a separate deduction. Bond premium on a note held by a U.S.
holder that does not make the election to amortize will decrease the gain or
increase the loss otherwise recognized upon disposition of the note. The
election to amortize premium on a constant yield method, once made, applies to
all debt obligations held or subsequently acquired by the electing U.S. holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment under certain
circumstances. Under Section 305 of the Code and the Treasury Regulations issued
thereunder, adjustments or the failure to make such adjustments to the
conversion price of the notes may result in a taxable constructive distribution
to the U.S. holders of notes if, and to the extent that, certain adjustments or
failure to make adjustments in the conversion price that may occur in limited
circumstances (for example, an adjustment to reflect a taxable dividend to
holders of our common stock) increase the proportionate interest of a U.S.
holder in our assets or earnings and profits whether or not the U.S. holders
ever convert the notes. Such constructive distribution will be treated as a
dividend, resulting in ordinary income (and a possible dividends received
deduction in the case of corporate holders) to the extent of our current and
accumulated earnings and profits, with any excess treated first as a tax-free
return of capital which reduces the U.S. holder's tax basis in the notes to the
extent thereof and thereafter as gain from the sale or exchange of the notes.
Generally, a U.S. holder's tax basis in a note will be increased to the extent
any such constructive distribution is treated as dividend. Moreover, if there is
an adjustment (or a failure to make an adjustment) to the conversion price of
the notes that increases the proportionate interest of the holders of
outstanding common stock in our assets or earnings and profits, then such
increase in the proportionate interest of the holders of the common stock
generally will be treated as a constructive distribution to such holders,
taxable as described above. As a result, U.S. holders of notes could have
taxable income as a result of an event pursuant to which they receive no cash or
property.
DEDUCTIBILITY OF INTEREST
Generally, under Section 279 of the Code, an interest deduction in excess of
$5.0 million is not permitted with respect to certain "corporate acquisition
indebtedness." Corporate acquisition indebtedness includes any indebtedness that
is:
- issued to provide consideration for the direct or indirect acquisition of
stock or assets of another corporation;
- subordinated;
- convertible directly or indirectly into the stock of the issuing
corporation; and
- issued by a corporation that has a debt to equity ratio that exceeds 2 to
1.
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Our ability to deduct all of the interest payable on the notes will depend
on the application of the foregoing tests to us. The availability of an interest
deduction with respect to the notes was not determinative in our issuance of the
notes pursuant to this offering.
Under Section 163(l) of the Code, no deduction is permitted for interest
paid or accrued on any indebtedness of a corporation that is "payable in equity"
of the issuer or a related party. Debt is treated as debt payable in equity of
the issuer if the debt is part of an arrangement designed to result in payment
of the instrument with or by reference to the equity. Such arrangements could
include debt instruments that are convertible at the holder's option if it is
substantially certain that the option will be exercised. The legislative history
indicates that it is not expected the provision will affect debt with a
conversion feature where the conversion price is significantly higher than the
market price of the stock on the date of the debt issuance. Accordingly, we do
not believe that our interest deduction with respect to interest payments on the
notes will be adversely affected by these rules.
BACKUP WITHHOLDING AND INFORMATION REPORTING
We or our designated paying agent will, where required, report to U.S.
holders of notes or common stock and the IRS the amount of any interest paid on
the notes (or dividends paid with respect to the common stock or other
reportable payments) in each calendar year and the amount of tax, if any,
withheld with respect to such payments.
Under the backup withholding provisions of the Code and the applicable
Treasury Regulations, a U.S. holder of notes or our common stock acquired upon
the conversion of a note may be subject to backup withholding at the rate of 31%
with respect to dividends or interest paid on, or the proceeds of a sale,
exchange or redemption of, notes or common stock, unless:
- such holder is a corporation or comes within certain other exempt
categories and when required demonstrates this fact; or
- provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
The amount of any backup withholding from a payment to a U.S. holder will be
allowed as a credit against the U.S. holder's federal income tax liability and
may entitle such holder to a refund, provided that the required information is
furnished to the IRS.
Treasury Regulations, generally effective January 1, 2001, subject to
certain transition rules, modify the currently effective information withholding
and backup withholding procedures and requirements. Prospective investors should
consult their own tax advisors concerning the application of the new withholding
regulations.
NON-U.S. HOLDERS
PAYMENTS OF INTEREST
Generally, payments of interest on the notes to, or on behalf of, a non-U.S.
holder will not be subject to U.S. federal withholding tax where such interest
is not effectively connected with the conduct of a trade or business within the
U.S. by such non-U.S. holder if:
- such non-U.S. holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock within the
meaning of Code Section 871(h)(3);
- such non-U.S. holder is not (a) a controlled foreign corporation for U.S.
federal income tax purposes that is related to us through stock ownership
or (b) a bank that received the note on
37
an extension of credit made pursuant to a loan agreement entered into in
the ordinary course of its trade or business as described in Code
Section 881(c)(3)(A); and
- the non-U.S. holder provides a statement signed under penalties of perjury
that includes its name and address and certifies that it is not a U.S.
person in compliance with applicable requirements of the Treasury
Regulations or an exemption is otherwise established.
If certain requirements are satisfied, the certification described above may
be provided by a securities clearing organization, a bank, or other financial
institution that holds customer's securities in the ordinary course of its trade
or business. For purposes of this exception, the non-U.S. holder of notes would
be deemed to own constructively the common stock into which it could be
converted. If these requirements cannot be satisfied, a non-U.S. holder will be
subject to U.S. federal withholding tax at a rate of 30% (or lower treaty rate,
if applicable) on interest payments on the notes unless:
- the interest is effectively connected with the conduct of a U.S. trade or
business, in which case the interest will be subject to U.S. federal
income tax on net income that applies to U.S. persons generally; or
- an applicable income tax treaty provides for a lower rate of, or exemption
from, withholding tax.
It is not clear whether the above discussion would be applicable to
liquidated damages, if any, received by non-U.S. holders.
CONVERSION OF NOTES
A non-U.S. holder generally will not be subject to U.S. federal withholding
tax on the conversion of a note into common stock. To the extent a non-U.S.
holder receives cash in lieu of a fractional share of common stock upon
conversion, such cash may give rise to gain that would be subject to the
rules described below with respect to the sale or exchange of a note or common
stock. See "Sale or Exchange of Notes or Common Stock" below.
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment in certain
circumstances. Any such adjustment could, in certain circumstances, give rise to
a deemed distribution to non-U.S. holders of the notes. See "U.S.
Holders--Adjustment of Conversion Price" above. In such case, the deemed
distribution would be subject to the rules below regarding withholding of U.S.
federal tax on dividends in respect of common stock.
DISTRIBUTIONS ON COMMON STOCK
Distributions on common stock will constitute a dividend for U.S. federal
income tax purposes to the extent of our current or accumulated earnings and
profits as determined under U.S. federal income tax principles. Dividends paid
on common stock held by a non-U.S. holder will be subject to U.S. federal
withholding tax at a rate of 30% (or lower treaty rate, if applicable), unless
the dividend is effectively connected with the conduct of a U.S. trade or
business by the non-U.S. holder and, if required by a tax treaty, is
attributable to a permanent establishment maintained in the United States, in
which case the dividend will be subject to U.S. federal income tax on net income
that applies to U.S. persons generally (and, with respect to corporate holders
under certain circumstances, the branch profits tax). A non-U.S. holder may be
required to satisfy certain certification requirements in order to claim a
reduction of or exemption from withholding under the foregoing rules. However,
prior to January 1, 2001, for purposes of an applicable tax treaty, if a
stockholder's address is outside the United States it will be assumed that such
stockholder is a citizen or resident of that country absent the payor's
knowledge to the contrary.
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SALE OR EXCHANGE OF NOTES OR COMMON STOCK
In general, a non-U.S. holder will not be subject to a U.S. federal
withholding tax on gain recognized upon the sale or other disposition (including
a redemption) of a note or common stock received upon conversion thereof unless
the gain is effectively connected with the conduct of a U.S. trade or business
by the non-U.S. holder and, if required by a tax treaty, is attributable to a
permanent establishment maintained in the United States, or unless the non-U.S.
holder:
- is a nonresident alien individual who is present in the United States for
183 or more days in the taxable year in which the gain is realized and
certain other conditions are satisfied; or
- is subject to tax pursuant to the provisions of U.S. tax law applicable to
certain U.S. expatriates.
However, if the Company were to become a United States real property holding
corporation (a "USRPHC"), a non-U.S. holder might be subject to federal income
tax withholding with respect to gain realized on the disposition of notes or
shares of common stock. In that case, any withholding tax withheld pursuant to
the rules applicable to dispositions of a "United States real property interest"
would be creditable against such non-U.S. holder's U.S. federal income tax
liability and might entitle such non-U.S. holder to a refund upon furnishing
required information to the IRS. We do not believe that we are a USRPHC or will
become a USRPHC in the future.
U.S. ESTATE TAX
Notes owned or treated as owned by an individual who is not a citizen or
resident (as specifically defined for U.S. federal estate tax purposes) of the
United States at the time of death (a "nonresident decedent") will not be
includable in the nonresident decedent's gross estate for U.S. federal estate
tax purposes as a result of such nonresident decedent's death, provided that, at
the time of death, the nonresident decedent does not own, actually or
constructively, 10% or more of the total combined voting power of all classes of
our stock and payments with respect to such notes would not have been
effectively connected with the conduct of a U.S. trade or business by the
nonresident decedent. Common stock owned or treated as owned by a nonresident
decedent will be includable in the nonresident decedent's gross estate for U.S.
federal estate tax purposes as a result of the nonresident decedent's death.
Subject to applicable treaty limitations, if any, a nonresident decedent's
estate may be subject to U.S. federal estate tax on property includable in the
estate for U.S. federal estate tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A non-U.S. holder will generally not be subject to IRS reporting or backup
withholding if the payor has received appropriate certification statements from
or on behalf of the non-U.S. holder and provided that the payor does not have
actual knowledge that the non-U.S. holder is a U.S. person. However, with
respect to distributions on common stock, prior to January 1, 2001, if a
stockholder's address is outside of the United States it will be assumed that
such stockholder is a citizen or resident of that country absent the payor's
knowledge to the contrary. The payment of the proceeds from the disposition of
the notes or common stock to or through the U.S. office of any U.S. or foreign
broker will be subject to IRS reporting and possibly backup withholding unless
the owner certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the disposition of a note or common stock to or through a non-U.S. office of a
non-U.S. broker that is not a U.S. related person will not be subject to IRS or
backup withholding. For this purpose, a "U.S. related person" is:
- a "controlled foreign corporation" for U.S. federal income tax purposes;
or
- a non-U.S. person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment (or for such part of the period that the broker has been in
existence) is derived from activities that are effectively connected with
the conduct of a U.S. trade or business.
39
In the case of the payment of proceeds from the disposition of notes or
common stock to or through a non-U.S. office of a broker that is a U.S. related
person, the applicable Treasury Regulations require IRS reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
non-U.S. holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. person).
Any amounts withheld under the backup withholding rates from a payment to a
non-U.S. holder will be allowed as a credit against such holder's U.S. federal
income tax liability, if any, or will otherwise be refundable, provided that the
requisite procedures are followed. Non-U.S. holders of the notes or common stock
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption, if applicable.
The IRS has issued new withholding regulations generally effective
January 1, 2001. The proposed regulations provide that information reporting,
but not backup withholding, may apply to a payment made outside the United
States of the proceeds of a sale of a note through an office outside the United
States of a broker that is a foreign partnership if one or more of its partners
are "U.S. persons," as defined in the Treasury Regulations, who in the aggregate
hold more than 50% of the income or capital interest in the partnership or such
foreign partnership is engaged in a U.S. trade or business, unless the broker
has documentary evidence in its records that the holder is a non-U.S. person and
does not have actual knowledge that the holder is a U.S. person, or the holder
otherwise establishes an exemption. Non-U.S. holders should consult their own
tax advisors with respect to the future impact of these new withholding
regulations.
The preceding discussion of certain U.S. federal income tax consequences is
for general information only and is not tax advice. Accordingly, you should
consult your own tax adviser as to particular tax consequences to you of
purchasing, holding and disposing of the notes and our common stock, including
the applicability and effect of any state, local or foreign tax laws, and of any
proposed changes in applicable laws.
40
SELLING SECURITY HOLDERS
The notes were originally issued by us and sold by the initial purchasers in
a transaction exempt from the registration requirements of the Securities Act to
persons reasonably believed by the initial purchasers to be qualified
institutional buyers. Selling holders, including their transferees, pledgees or
donees or their successors, may from time to time offer and sell pursuant to
this prospectus any or all of the notes and common stock into which the notes
are convertible.
The following table sets forth information, as of May 22, 2000, with respect
to the selling holders and the principal amounts of notes beneficially owned by
each selling holder that may be offered under this prospectus. The information
is based on information provided by or on behalf of the selling holders. The
selling holders may offer all, some or none of the notes or common stock into
which the notes are convertible. Because the selling holders may offer all or
some portion of the notes or the common stock, no estimate can be given as to
the amount of the notes or the common stock that will be held by the selling
holders upon termination of any sales. In addition, the selling holders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their notes since the date on which they provided the information
regarding their notes in transactions exempt from the registration requirements
of the Securities Act.
PRINCIPAL COMMON COMMON
AMOUNT OF NOTES STOCK STOCK OWNED
BENEFICIALLY ISSUABLE UPON COMMON AFTER
OWNED AND CONVERSION OF STOCK COMPLETION OF
NAME OFFERED(1) THE NOTES OFFERED THE OFFERING
- ---- --------------- --------------------------- --------------------------- -------------
AAM/Zazove Institutional Income
Fund, L.P......................... $ 950,000 12,384 12,384 --
AIG/National Union Fire Insurance... 910,000 11,862 11,862 --
AIG SoundShore Holdings, Ltd........ 21,732,000 283,300 283,300 --
AIG SoundShore Opportunity Holding
Fund Ltd.......................... 6,535,000 85,190 85,190 --
AIG SoundShore Strategic Holding
Fund Ltd.......................... 2,233,000 29,109 29,109 --
Allstate Insurance Company.......... 1,500,000 19,554 19,554 --
American Masters Fund "AG Absolute
Return Series" Limited............ 500,000 6,518 6,518 --
Angelo, Gordon & Co., L.P........... 550,000 7,169 7,169 --
Argent Classic Convertible Arbitrage
Fund (Bermuda) L.P................ 5,500,000 71,698 71,698 --
Aristea International, Ltd.......... 4,410,000 57,489 57,489 --
Aristea Trading, LLC................ 2,590,000 33,763 33,763 --
Ashford Capital Management f/b/o The
Harkness Trust.................... 25,000 325 325 --
Ashford Capital Management f/b/o Mt.
Cuba Astronomical Observatory..... 150,000 1,955 1,955 --
Ashford Capital Management f/b/o
Brandy Trust Small Cap Partners,
LP................................ 50,000 651 651 --
Ashford Capital Management f/b/o
Katherine May..................... 25,000 325 325 --
Ashford Capital Management f/b/o
Benjamin Spencer Fund............. 50,000 651 651 --
Ashford Capital Management f/b/o
David G. Burton, Trustee.......... 50,000 651 651 --
Ashford Capital Management f/b/o
Dorothy Lovett Trust.............. 10,000 130 130 --
41
PRINCIPAL COMMON COMMON
AMOUNT OF NOTES STOCK STOCK OWNED
BENEFICIALLY ISSUABLE UPON COMMON AFTER
OWNED AND CONVERSION OF STOCK COMPLETION OF
NAME OFFERED(1) THE NOTES OFFERED THE OFFERING
- ---- --------------- --------------------------- --------------------------- -------------
Ashford Capital Management f/b/o
Jeanne Shields Trust.............. 10,000 130 130 --
Ashford Capital Management f/b/o
Katherine May Trust............... 70,000 912 912 --
Ashford Capital Management f/b/o
Clover
Nicholas.......................... 10,000 130 130 --
Ashford Capital Management f/b/o
Minor Barringer................... 75,000 977 977 --
Ashford Capital Management f/b/o
Joseph Engel...................... 50,000 651 651 --
Ashford Capital Management f/b/o
David L. Kasdon Fund.............. 10,000 130 130 --
Ashford Capital Management f/b/o
Amelia Jordan..................... 50,000 651 651 --
Ashford Capital Management f/b/o DT
Cust. For Mt. Cuba Astronomical
Observatory....................... 20,000 260 260 --
Ashford Capital Management f/b/o
WARF.............................. 800,000 10,428 10,428 --
Ashford Capital Management f/b/o
AFD............................... 15,000 195 195 --
Ashford Capital Management f/b/o
Dorothy
Lovett............................ 30,000 391 391 --
Ashford Capital Management f/b/o
William Miller.................... 30,000 391 391 --
Ashford Capital Management f/b/o
Trustees of Darthmouth............ 230,000 2,998 2,998 --
Ashford Capital Management f/b/o
Thomas and Judith Pyle Trust...... 100,000 1,303 1,303 --
Ashford Capital Management f/b/o
Thomas and Judith Pyle............ 100,000 1,303 1,303 --
Ashford Capital Management f/b/o
J.J. Kirkland Trust............... 20,000 260 260 --
Ashford Capital Management f/b/o K.
Wattman IRA....................... 10,000 130 130 --
Ashford Capital Management f/b/o K.
Wattman IRA....................... 10,000 130 130 --
AXP Bond Fund, Inc.................. 1,640,000 21,379 21,379 --
AXP Variable Portfolio--Bond fund... 710,000 9,255 9,255 --
AXP Variable Portfolio--Managed
Fund.............................. 1,350,000 17,598 17,598 --
Bank of Austria Cayman Island,
Ltd............................... 2,400,000 31,286 31,286 --
Bankers Trust Trustee for Daimler
Chrysler Corp. Emp.#1 Pension Plan
Dtd. 4/1/89....................... 2,560,000 33,372 33,372 --
Bear Stearns & Co., Inc............. 750,000 9,777 9,777 --
BNP Arbitrage SNC................... 11,000,000 143,397 143,397 --
British Virgin Islands Social
Security Board.................... 27,000 351 351 --
California Public Employees'
Retirement System................. 4,000,000 52,144 52,144 --
Clinton Riverside Convertible
Portfolio Limited................. 3,000,000 39,108 39,108 --
Credit Suisse First Boston
Corporation....................... 8,500,000 110,806 110,806 --
Deephaven Domestic Convertible
Trading Ltd....................... 2,650,000 34,545 34,545 --
Delaware PERS....................... 1,940,000 25,290 25,290 --
42
PRINCIPAL COMMON COMMON
AMOUNT OF NOTES STOCK STOCK OWNED
BENEFICIALLY ISSUABLE UPON COMMON AFTER
OWNED AND CONVERSION OF STOCK COMPLETION OF
NAME OFFERED(1) THE NOTES OFFERED THE OFFERING
- ---- --------------- --------------------------- --------------------------- -------------
Deutsche Bank Securities Inc........ 17,500,000 228,131 228,131 --
First Republic Bank................. 100,000 1,303 1,303 --
Forum Capital Markets LLC........... 350,000 4,561 4,561 --
Franklin & Marshall College......... 170,000 2,216 2,216 --
Goldman Sachs and Company........... 5,000,000 65,180 65,180 --
ICI American Holdings Trust......... 1,035,000 13,492 13,492 --
IDS Life Series Fund, Inc.--Income
Portfolio......................... 60,000 782 782 --
Island Holdings..................... 55,000 716 716 --
JMG Capital Partners, L.P........... 10,750,000 140,138 140,138 --
JMG Triton Offshore Fund, Ltd....... 11,950,000 155,781 155,781 --
J.P. Morgan Securities Inc.......... 5,000,000 65,180 65,180 --
Lemanik SA, Lugar................... 300,000 3,910 3,910 --
Lyxor Master Fund................... 3,250,000 42,367 42,367 --
Maril & Co.......................... 800,000 10,428 10,428 --
McMahan Securities Company, L.P..... 606,000 7,899 7,899 --
Merrill Lynch Insurance Group....... 244,000 3,180 3,180 --
Merrill Lynch Pierce Fenner & Smith
Inc............................... 7,230,000 94,251 94,251 --
Michael Angelo, L.P................. 5,050,000 65,832 65,832 --
Morgan Stanley & Co................. 6,275,000 81,801 81,801 --
Museum of Fine Arts, Boston......... 18,000 234 234 --
Nalco Chemical Company.............. 375,000 4,888 4,888 --
New Hampshire Retirement System..... 106,000 1,381 1,381 --
New York Life Insurance Company..... 9,900,000 129,057 129,057 --
New York Life Insurance and Annuity
Corporation....................... 1,100,000 14,339 14,339 --
Parker-Hannifin Corporation......... 31,000 404 404 --
Penn Treaty Network America
Insurance Co...................... 155,000 2,020 2,020 --
ProMutual........................... 65,000 847 847 --
Putnam Asset Allocation
Funds--Balanced Portfolio......... 116,000 1,512 1,512 --
Putnam Asset Allocation
Funds--Conservative Portfolio..... 77,000 1,003 1,003 --
Putnam Balanced Retirement Fund..... 35,000 456 456 --
Putnam Convertible Income--Growth
Trust............................. 772,000 10,063 10,063 --
Putnam Convertible Opportunities and
Income Trust...................... 47,000 612 612 --
Ramius, L.P......................... 1,200,000 15,643 15,643 --
Ramius Capital Group Holdings,
Ltd............................... 750,000 9,777 9,777 --
Raphael II, Ltd..................... 1,000,000 13,036 13,036 --
RCG Baldwin, L.P.................... 600,000 7,821 7,821 --
RCG Latitude Master Fund............ 100,000 1,303 1,303 --
RCG Multi-Strategy Account, L.P..... 1,100,000 14,339 14,339 --
San Diego County Employees
Retirement Assoc.................. 1,950,000 25,420 25,420 --
St. Clare International, Ltd........ 1,500,000 19,554 19,554 --
Starvest Combined Portfolio......... 1,180,000 15,382 15,382 --
State Of Oregon Equity.............. 6,325,000 82,453 82,453 --
43
PRINCIPAL COMMON COMMON
AMOUNT OF NOTES STOCK STOCK OWNED
BENEFICIALLY ISSUABLE UPON COMMON AFTER
OWNED AND CONVERSION OF STOCK COMPLETION OF
NAME OFFERED(1) THE NOTES OFFERED THE OFFERING
- ---- --------------- --------------------------- --------------------------- -------------
State Street Bank Custodian for GE
Pension Trust..................... 1,215,000 15,838 15,838 --
Transamerica Life Insurance &
Annuity Company................... 7,000,000 91,252 91,252 --
The Travelers Indemnity Company..... 2,916,000 38,013 38,013 --
The Travelers Insurance Company..... 1,865,000 24,312 24,312 --
The Travelers Insurance Company
Separate Account TLAC............. 219,000 2,854 2,854 --
Tennessee Consolidated Retirement
System............................ 6,000,000 78,216 78,216 --
The Grable Foundation............... 100,000 1,303 1,303 --
Total Return Portfolio.............. 1,240,000 16,164 16,164 --
TQA Master Plus Fund................ 750,000 9,777 9,777 --
Triarc Companies, Inc............... 500,000 6,518 6,518 --
Tribeca Investments LLC............. 22,450,000 292,660 292,660 --
University of Rochester............. 17,000 221 221 --
Van Kampen Convertible Securities
Fund.............................. 622,000 8,108 8,108 --
Van Kampen Harbor Fund.............. 3,378,000 44,035 44,035 --
Zeneca Holdings Trust............... 800,000 10,428 10,428 --
Zurich HFR Master Hedge Fund Index
LTD............................... 50,000 651 651 --
(1) Amounts indicated may be in excess of the total amount registered due to
sales or transfers exempt from the registration requirements of the
Securities Act since the date upon which the selling holders provided to us
the information regarding their notes.
None of the selling holders nor any of their affiliates, officers, directors
or principal equity holders has held any position or office or has had any
material relationship with us within the past three years, although the selling
holders may hold additional securities of Inhale. The selling holders purchased
the notes in private transactions on or after February 11, 2000. All of the
notes were "restricted securities" under the Securities Act prior to this
registration.
Information concerning the selling holders may change from time to time and
any changed information will be set forth in supplements to this prospectus if
and when necessary. In addition, the conversion rate and therefore, the number
of shares of common stock issuable upon conversion of the notes, is subject to
adjustment under certain circumstances. Accordingly, the aggregate principal
amount of notes and the number of shares of common stock into which the notes
are convertible may increase or decrease.
44
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the notes and the common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of sale, at prices related to the prevailing market prices, at varying
prices determined at the time of sale, or at negotiated prices. These sales may
be effected in transactions, which may involve crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or the
common stock may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
- through the writing of options, whether the options are listed on an
options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the notes and the common stock into which the
notes are convertible or otherwise, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or the common stock into which the notes
are convertible in the course of hedging the positions they assume. The selling
holders may also sell the notes or the common stock into which the notes are
convertible short and deliver these securities to close out their short
positions, or loan or pledge the notes or the common stock into which the notes
are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock into which the notes are convertible offered by them will be the
purchase price of the notes or common stock less discounts and commissions, if
any. Each of the selling holders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part, any proposed
purchase of notes or common stock to be made directly or through agents. We will
not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on the Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the notes. The notes are
currently eligible for trading on the PORTAL market of the Nasdaq Stock Market.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock into which the notes are convertible may be sold in
these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the notes and common stock into which the notes are
convertible may not be sold unless they have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act. Selling holders who are "underwriters" within the meaning of
Section 2(11) of the Securities Act
45
will be subject to the prospectus delivery requirements of the Securities Act.
The selling holders have acknowledged that they understand their obligations to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus that qualify for sale
pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling holder
may not sell any notes or common stock described in this prospectus and may not
transfer, devise or gift these securities by other means not described in this
prospectus.
To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws under specific circumstances and at specific times.
The registration rights agreement provides for cross-indemnification of the
selling holders and us and their and our respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and the common stock, including liabilities under the
Securities Act. We will pay substantially all of the expenses incurred by the
selling holders incident to the offering and sale of the notes and the common
stock.
LEGAL MATTERS
The validity of the notes and common stock offered hereby is being passed
upon for us by Cooley Godward LLP, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K and Amendment No. 1 to our
Annual Report on Form 10-K/A for the year ended December 31, 1999, as set forth
in their reports, which are incorporated by reference in this prospectus. Our
financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
46
WE HAVE AUTHORIZED NO ONE TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS THAT ARE NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD RELY ONLY
ON THE INFORMATION PROVIDED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE
THEREIN. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY NOTES OR SHARES OF COMMON
STOCK IN ANY JURISDICTION WHERE IT IS UNLAWFUL. 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.
TABLE OF CONTENTS
PAGE
--------
About our Business.......................................... 1
Risk Factors................................................ 3
Where You Can Find More Information......................... 11
Incorporation by Reference.................................. 11
Use of Proceeds............................................. 13
Ratio of Earnings to Fixed Charges.......................... 13
Description of Notes........................................ 14
Description of Capital Stock................................ 30
Certain United States Federal Income Tax Considerations..... 33
Selling Security Holders.................................... 41
Plan of Distribution........................................ 45
Legal Matters............................................... 46
Experts..................................................... 46
[LOGO]
$230,000,000
5% CONVERTIBLE SUBORDINATED NOTES
DUE FEBRUARY 8, 2007
AND
2,998,305 SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THE NOTES
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the notes and common stock being registered. All the amounts shown are
estimates except for the registration fee and the filing fee.
Registration fee............................................ $ 60,720
Legal fees and expenses..................................... 10,000
Accounting fees and expenses................................ 6,390
Printing and engraving...................................... 10,000
Nasdaq National Market filing fee........................... 17,500
Miscellaneous............................................... 5,390
--------
TOTAL..................................................... $110,000
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify our directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation, as amended provides for the
elimination of liability for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its stockholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such an injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, for any transaction from which the
director derived an improper personal benefit and for violating Section 174 of
the Delaware General Corporation Law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
ITEM 16. EXHIBITS
2.1 (1) Agreement and Plan of Merger between Inhale Therapeutic
Systems, a California corporation, and Inhale Therapeutic
Systems (Delaware), Inc., a Delaware corporation.
3.1 (1) Certificate of Incorporation of Registrant.
3.2 (1) Bylaws of the Registrant.
II-1
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 (2) Restated Investor Rights Agreement among the Registrant and
certain other persons named therein, dated April 29, 1993,
as amended October 29, 1993.
4.3 (2) Specimen stock certificate.
4.4 (3) Stock Purchase Agreement between the Registrant and Pfizer
Inc., dated January 18, 1995.
4.5 (9) Form of Purchase Agreement between the Registrant and the
individual Purchasers, dated January 28, 1997.
4.6 (10) Stock Purchase Agreement between the Registrant and Capital
Research and Management Company, dated December 8, 1998.
4.7 (12) Purchase Agreement among the Registrant and Lehman Brothers
Inc., Deutsche Bank Securities Inc. and U.S. Bancorp Piper
Jaffray Inc. dated October 6, 1999.
4.8 (12) Registration Rights Agreement among the Registrant and
Lehman Brothers Inc., Deutsche Bank Securities Inc. and U.S.
Bancorp Piper Jaffray Inc., dated October 13, 1999.
4.9 (12) Indenture between the Registrant as Issuer and Chase
Manhattan Bank and Trust Company, National Association, as
Trustee, dated October 13, 1999.
4.10 (12) Form of Inhale Registration Rights Agreement, between Inhale
and Selling Shareholder, dated January 25, 2000.
4.11 (13) Purchase Agreement among the Registrant and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Deutsche Bank
Securities Inc., Lehman Brothers Inc., and U.S. Bancorp
Piper Jaffray Inc., dated February 2, 2000.
4.12 (13) Resale Registration Rights Agreement among Registrant and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche
Bank Securities Inc., Lehman Brothers Inc., and U.S. Bancorp
Piper Jaffray Inc., dated February 8, 2000.
4.13 (13) Indenture between Registrant as Issuer and Chase Manhattan
Bank and Trust Company, National Association, as Trustee,
dated February 8, 2000.
5.1 (14) Opinion of Cooley Godward LLP.
10.1 (4) Registrant's 1994 Equity Incentive Plan, as amended.
10.2 (7) Registrant's 1994 Non-Employee Directors' Stock Option Plan,
as amended.
10.3 (2) Registrant's 1994 Employee Stock Purchase Plan, as amended.
10.4 (2) Standard Industrial Lease between the Registrant and W.F.
Batton & Co., Inc., dated September 17, 1992, as amended
September 18, 1992.
10.5 (2) Addendum IV dated April 1, 1994 to Lease dated
September 17, 1992, between the Registrant and W.F. Batton
and Marie A. Batton, dated September 17, 1992.
10.6 (6) Amendment Agreement Number One, dated October 20, 1995, to
Lease dated September 17, 1992, between the Registrant and
W.F. Batton & Co., Inc.
10.7 (6) Amendment Agreement Number Two, dated November 15, 1995, to
Lease, dated September 17, 1992, between Registrant and W.F.
Batton and Marie A. Batton, Trustees of the W.F. Batton and
Marie A. Batton Trust UTA dated January 12, 1998 ("Batton
Trust").
10.8 (11) Amendment Agreement Number Three, dated February 14, 1996,
to Lease, dated September 17, 1992, between Registrant and
Batton Trust.
10.9 (11) Amendment Agreement Number Four, dated September 15, 1996,
to Lease, dated September 17, 1992, between Registrant and
Batton Trust.
II-2
10.10 (2) Senior Loan and Security Agreement between the Registrant
and Phoenix Leasing Incorporated, dated September 15, 1993.
10.11 (2) Sublicense Agreement between the Registrant and John S.
Patton, dated September 13, 1991.
10.12 (5) Stock Purchase Agreement between the Registrant and Baxter
World Trade Corporation, dated March 1, 1996.
10.13 (8) Sublease and Lease Agreement, dated October 2, 1996, between
the Registrant and T.M.T. Associates L.L.C. ("Landlord").
10.14 (11) First Amendment, dated October 30, 1996, to Sublease and
Lease Agreement, dated October 2, 1996, between Registrant
and Landlord.
10.15 (11) Letter Agreement, dated April 9, 1997, amending Sublease and
Lease Agreement, dated October 2, 1996, between the
Registrant and Landlord.
10.16 (11) Third Amendment, dated April 16, 1997, to Sublease and Lease
Agreement, dated October 2, 1996, between Registrant and
Landlord.
10.17 (11) Fourth Amendment, dated November 5, 1997, to Sublease and
Lease Agreement, dated October 2, 1996, between Registrant
and Landlord.
10.18 (13) Sublease by and between Webvan Group, Inc., as sublessor and
Registrant, as sublessee, dated November 3, 1999.
23.1 (14) Consent of Ernst & Young LLP, independent auditors.
23.2 (14) Consent of Cooley Godward LLP. (included in Exhibit 5.1)
24.1 (15) Power of Attorney (included in signature page).
25.1 (15) Form T-1 Statement of Eligibility and Qualification of
Trustee.
- ------------------------
(1) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(2) Incorporated by reference to the indicated exhibit in Inhale's Registration
Statement on Form S-1 (No. 33-75942), as amended.
(3) Incorporated by reference to the indicated exhibit in Inhale's Registration
Statement on Form S-1 (No. 33-89502), as amended.
(4) Incorporated by reference to Inhale's Registration Statement on Form S-8
(No. 333-59735).
(5) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(6) Incorporated by reference to the indicated exhibit in Inhale's Annual
Report on Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
(8) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(9) Incorporated by reference to Inhale's Registration Statement on Form S-3
(No. 333-20787).
(10) Incorporated by reference to the indicated exhibit in Inhale's
Registration Statement on Form S-3 (No. 333-68897), as amended.
II-3
(11) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(12) Incorporated by reference to the indicated exhibit in Inhale's
Registration Statement on Form S-3 (No. 333-94161), as amended.
(13) Incorporated by reference to the indicated exhibit in Inhale's Annual
Report on Form 10-K for the year ended December 31, 1999.
(14) Filed herewith.
(15) Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of The Securities
Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose 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.
(3) 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.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 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 Exchange Act) 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.
II-4
(5) 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 provisions described in Item 15, 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-5
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 amendment number
one to its registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Carlos, County of San Mateo, State
of California on May 22, 2000.
By: /s/ AJIT S. GILL
-----------------------------------------
Ajit S. Gill
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this amendment
number one to the registration statement has been signed by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ AJIT S. GILL
--------------------------------- Chief Executive Officer, President and May 22, 2000
Ajit S. Gill Director (Principal Executive Officer)
*
--------------------------------- Chairman of the Board May 22, 2000
Robert B. Chess
*
--------------------------------- Chief Financial Officer (Principal May 22, 2000
Brigid A. Makes Financial and Accounting Officer)
*
--------------------------------- Director May 22, 2000
Mark J. Gabrielson
*
--------------------------------- Director May 22, 2000
James B. Glavin
*
--------------------------------- Vice President and Director May 22, 2000
John S. Patton
--------------------------------- Director May , 2000
Melvin Perelman
II-6
SIGNATURE TITLE DATE
--------- ----- ----
*
--------------------------------- Director May 22, 2000
Irwin Lerner
*/s/ AJIT S. GILL
---------------------------------
Ajit S. Gill
Attorney In Fact
II-7
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT INDEX
-------------- -------------
2.1(1) Agreement and Plan of Merger between Inhale Therapeutic
Systems, a California corporation, and Inhale Therapeutic
Systems (Delaware), Inc., a Delaware corporation.
3.1(1) Certificate of Incorporation of Registrant.
3.2(1) Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2(2) Restated Investor Rights Agreement among the Registrant and
certain other persons named therein, dated April 29, 1993,
as amended October 29, 1993.
4.3(2) Specimen stock certificate.
4.4(3) Stock Purchase Agreement between the Registrant and Pfizer
Inc., dated January 18, 1995.
4.5(9) Form of Purchase Agreement between the Registrant and the
individual Purchasers, dated January 28, 1997.
4.6(10) Stock Purchase Agreement between the Registrant and Capital
Research and Management Company, dated December 8, 1998.
4.7(12) Purchase Agreement among the Registrant and Lehman Brothers
Inc., Deutsche Bank Securities Inc. and U.S. Bancorp Piper
Jaffray Inc. dated October 6, 1999.
4.8(12) Registration Rights Agreement among the Registrant and
Lehman Brothers Inc., Deutsche Bank Securities Inc. and U.S.
Bancorp Piper Jaffray Inc., dated October 13, 1999.
4.9(12) Indenture between the Registrant as Issuer and Chase
Manhattan Bank and Trust Company, National Association, as
Trustee, dated October 13, 1999.
4.10(12) Form of Inhale Registration Rights Agreement, between Inhale
and Selling Shareholder, dated January 25, 2000.
4.11(13) Purchase Agreement among the Registrant and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Deutsche Bank
Securities Inc., Lehman Brothers Inc., and U.S. Bancorp
Piper Jaffray Inc., dated February 2, 2000.
4.12(13) Resale Registration Rights Agreement among Registrant and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche
Bank Securities Inc., Lehman Brothers Inc., and U.S. Bancorp
Piper Jaffray Inc., dated February 8, 2000.
4.13(13) Indenture between Registrant as Issuer and Chase Manhattan
Bank and Trust Company, National Association, as Trustee,
dated February 8, 2000.
5.1(14) Opinion of Cooley Godward LLP.
10.1(4) Registrant's 1994 Equity Incentive Plan, as amended.
10.2(7) Registrant's 1994 Non-Employee Directors' Stock Option Plan,
as amended.
10.3(2) Registrant's 1994 Employee Stock Purchase Plan, as amended.
10.4(2) Standard Industrial Lease between the Registrant and W.F.
Batton & Co., Inc., dated September 17, 1992, as amended
September 18, 1992.
10.5(2) Addendum IV dated April 1, 1994 to Lease dated
September 17, 1992, between the Registrant and W.F. Batton
and Marie A. Batton, dated September 17, 1992.
10.6(6) Amendment Agreement Number One, dated October 20, 1995, to
Lease dated September 17, 1992, between the Registrant and
W.F. Batton & Co., Inc.
EXHIBIT NUMBER EXHIBIT INDEX
-------------- -------------
10.7(6) Amendment Agreement Number Two, dated November 15, 1995, to
Lease, dated September 17, 1992, between Registrant and W.F.
Batton and Marie A. Batton, Trustees of the W.F. Batton and
Marie A. Batton Trust UTA dated January 12, 1998 ("Batton
Trust").
10.8(11) Amendment Agreement Number Three, dated February 14, 1996,
to Lease, dated September 17, 1992, between Registrant and
Batton Trust.
10.9(11) Amendment Agreement Number Four, dated September 15, 1996,
to Lease, dated September 17, 1992, between Registrant and
Batton Trust.
10.10(2) Senior Loan and Security Agreement between the Registrant
and Phoenix Leasing Incorporated, dated September 15, 1993.
10.11(2) Sublicense Agreement between the Registrant and John S.
Patton, dated September 13, 1991.
10.12(5) Stock Purchase Agreement between the Registrant and Baxter
World Trade Corporation, dated March 1, 1996.
10.13(8) Sublease and Lease Agreement, dated October 2, 1996, between
the Registrant and T.M.T. Associates L.L.C. ("Landlord").
10.14(11) First Amendment, dated October 30, 1996, to Sublease and
Lease Agreement, dated October 2, 1996, between Registrant
and Landlord.
10.15(11) Letter Agreement, dated April 9, 1997, amending Sublease and
Lease Agreement, dated October 2, 1996, between the
Registrant and Landlord.
10.16(11) Third Amendment, dated April 16, 1997, to Sublease and Lease
Agreement, dated October 2, 1996, between Registrant and
Landlord.
10.17(11) Fourth Amendment, dated November 5, 1997, to Sublease and
Lease Agreement, dated October 2, 1996, between Registrant
and Landlord.
10.18(13) Sublease by and between Webvan Group, Inc., as sublessor and
Registrant, as sublessee, dated November 3, 1999.
23.1(14) Consent of Ernst & Young LLP, independent auditors.
23.2(14) Consent of Cooley Godward LLP. (included in Exhibit 5.1)
24.1(15) Power of Attorney (included in signature page).
25.1(15) Form T-1 Statement of Eligibility and Qualification of
Trustee
- ------------------------
(1) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(2) Incorporated by reference to the indicated exhibit in Inhale's Registration
Statement on Form S-1 (No. 33-75942), as amended.
(3) Incorporated by reference to the indicated exhibit in Inhale's Registration
Statement on Form S-1 (No. 33-89502), as amended.
(4) Incorporated by reference to Inhale's Registration Statement on Form S-8
(No. 333-59735).
(5) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(6) Incorporated by reference to the indicated exhibit in Inhale's Annual
Report on Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
(8) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(9) Incorporated by reference to Inhale's Registration Statement on Form S-3
(No. 333-20787).
(10) Incorporated by reference to the indicated exhibit in Inhale's
Registration Statement on Form S-3 (No. 333-68897), as amended.
(11) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998.
(12) Incorporated by reference to the indicated exhibit in Inhale's
Registration Statement on Form S-3 (No. 333-94161), as amended.
(13) Incorporated by reference to the indicated exhibit in Inhale's Annual
Report on Form 10-K for the year ended December 31, 1999.
(14) Filed herewith.
(15) Previously Filed.
EXHIBIT 5.1
[Cooley Godward LLP Letterhead]
May 23, 2000
Inhale Therapeutic Systems
150 Industrial Road
San Carlos, CA
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Inhale Therapeutic Systems, Inc. (the "Company") of a
Registration Statement on Form S-3 on or about May 1, 2000 (the "Registration
Statement") with the Securities and Exchange Commission covering the offering of
up to $230,000,000 aggregate principal amount of 5% Convertible Subordinated
Notes due February 8, 2007 (the "Notes") and 2,998,305 shares of the Company's
Common Stock, $.0001 par value issuable upon converstion of the Notes (the
"Shares" and together with the Notes, the "Securities").
In connection with this opinion, we have examined the Registration Statement and
related Prospectus, your Certificate of Incorporation and Bylaws, as amended,
and such other documents, records, certificates, memoranda and other instruments
as we deem necessary as a basis for this opinion. We have assumed the
genuineness and authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies thereof, and
the due execution and delivery of all documents where due execution and delivery
are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Securities, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Cooley Godward LLP
/s/ Mark P. Tanoury
Mark P. Tanoury
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to the Registration Statement (Form S-3, No. 333-36152) and
related Prospectus of Inhale Therapeutic Systems, Inc. for the registration
2,998,305 shares of its common stock and for the registration of $230,000,000 of
5% Convertible Subordinated Notes due February 8, 2007, of our report dated
January 24, 2000, with respect to the financial statements of Inhale Therapeutic
Systems, Inc. included in its Annual Report (Form 10-K) and Amendment No. 1 to
its Annual Report (Form 10-K/A) for the year ended December 31, 1999, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG, LLP
Palo Alto, California
May 22, 2000
