AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2001
REGISTRATION NO. 333
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 (I.R.S.
Jurisdiction of Employer Identification No.)
Incorporation or
Organization)
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
3.5% Convertible Subordinated Notes due
October 17, 2007........................... $230,000,000 100%(1)(2) $230,000,000(1) $57,500
Common Stock, $.0001 par value per share..... 4,558,065(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 3.5% Convertible Subordinated
Notes due October 17, 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 $50.46 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).
------------------------------
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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Subject to Completion
Prospectus dated January 12, 2001
P R O S P E C T U S
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.
$230,000,000
of 3.5% Convertible Subordinated Notes due October 17, 2007 and
4,558,065 Shares of Common Stock Issuable Upon Conversion of the Notes
------------------------
This prospectus relates to 3.5% Convertible Subordinated Notes due
October 17, 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 $50.46 per share of common stock.
After October 17, 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 October 17, 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 January 11, 2001 was $32.9375 per
share.
Our 3.5% 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 5 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 , 2001
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 DECEMBER 31, 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, 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
macromolecule 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 LLC (a division of Aventis S.A.), and Eli
Lilly and Co. We also have early stage feasibility and research collaborations
with several other companies and have tested eight drugs in human clinical
trials.
Currently there are approximately 35 macromolecule drugs marketed in the
United States and about 120 other such drugs in human clinical trials. Sales of
the top 15 genetically engineered protein drugs (a subset of macromolecule
drugs) were estimated at $15.6 billion worldwide in 1999. 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 shown generally to be 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 macromolecule drugs.
We are creating a proprietary technology platform integrating customized
formulation, dry powder processing and packaging with a proprietary inhalation
devices to enable efficient, reproducible delivery of macromolecule 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 blisters. The blisters
are designed to be loaded into our devices, 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 macromolecule drugs, and have scaled-up our powder
processing and packaging for late stage clinical trials and small scale
production for certain drugs.
Our most advanced product is inhaleable insulin for Type 1 and Type 2
diabetes, which is being developed through a collaborative program with Pfizer.
Worldwide insulin and insulin delivery systems sales were estimated to be
$3.2 billion in 1998. Data published by Pfizer and clinical investigators from a
190 person Phase IIb human clinical trial using our drug delivery system showed
that inhaleable insulin provided statistically equivalent control of diabetes
when compared with injectable mealtime insulin for diabetics on insulin, and
improved control of diabetes when compared with injectable mealtime insulin for
diabetics on insulin, and improved control of diabetes for patients poorly
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controlled on oral therapies. The Phase III trials involve approximately 120
clinical sites. In November 1998, Pfizer announced that it entered into a
co-development and co-promotion arrangement with Aventis for inhaleable insulin.
Pfizer and Aventis have reported plans to invest over 300 million DM
(approximately US$134 million) for the construction of a jointly-owned
manufacturing facility in Germany for the supply of insulin for pulmonary
delivery. This state-of-the-art insulin plant is projected to be the largest of
its kind in the world. We will receive royalties on inhaleable insulin products
marketed by Pfizer and Aventis as well as revenues for supplying devices and
powders.
In a typical collaboration, our partner will provide the drug, fund clinical
development and market the resulting commercial product. We will supply the
delivery system and receive revenues from powder manufacturing, device supply
and royalties from sales of any commercial products. Prior to commercialization,
we receive revenues from our partners for research and development funding and
progress payments upon achievement of certain developmental milestones.
In addition to Pfizer's sponsorship of our inhaleable insulin program, we
have active pulmonary delivery development programs with Biogen for
AVONEX-Registered Trademark-, an interferon beta drug used in the treatment of
Multiple Sclerosis; Aventis Behring for an alpha-1 antitrypsin proteinase
inhibitor being used for the treatment of genetic emphysema; and Lilly for
Forteo-TM-, a parathyroid hormone, or PTH 1-34, being developed for the
treatment of osteoporosis. These and other ongoing projects in various stages of
research, formulation and clinical development have been selected as focus
programs by us because we believe our approach may have significant advantages
over current therapies. 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 eight
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 preclinical (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 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.
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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 or commercial 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 laboratory
animal and human testing and an extensive review process mandated by the United
States Food and Drug Administration ("FDA") and equivalent foreign
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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, or
"cGMP", 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
- a deep lung delivery device.
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 our products or business
development activities 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 primarily 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.
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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 DEVICES. We face many technical challenges in further developing
our inhalation devices to work with a broad range of drugs, to produce such
devices in sufficient quantities and to adapt the devices to different powder
formulations. There is a risk that we will not successfully achieve any of these
things. Our failure to overcome any of these things 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 devices.
There is a risk that we will not be able to enter into or maintain arrangements
with potential contract manufacturers or effectively scale-up production of our
drug delivery devices through contract manufacturers that we identify. Our
failure to do so would negatively impact our revenues and results of operations.
WE DEPEND ON SOLE OR EXCLUSIVE SUPPLIERS FOR OUR INHALATION DEVICES AND BULK
DRUGS.
We plan to subcontract the manufacture of our pulmonary delivery devices
before commercial production of our first products. 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. 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 systems 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 results of our clinical trials;
- favorable regulatory approval and product labeling;
- the frequency of product use;
- the availability of third-party reimbursement;
- the availability of alternative technologies; and
8
- 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
WILL 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 September 30, 2000, have incurred
a cumulative deficit of approximately $152.3 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 34 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.
9
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY SUFFER.
Our ability to commercialize our products, achieve our expansion objectives,
manage our growth effectively and satisfy our commitments under our
collaboration agreements depends on a variety of factors. Key factors include
our ability to develop products internally, enter into strategic partnerships
with collaborators, attract and retain skilled employees and effectively expand
our internal organization to accommodate anticipated growth including
integration of any potential businesses that we may acquire. If we are unable to
manage growth effectively, there could be a material adverse effect on our
business, financial condition and results of operations.
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 100 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 any 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, including enhanced injectable and other 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;
10
- handling of hazardous materials;
- hiring and retaining qualified people; and
- insuring against product liability claims.
WE EXPECT OUR STOCK PRICE TO REMAIN VOLATILE.
Our stock price is volatile. In the twelve-month period ending January 11,
2001, based on closing prices on the Nasdaq National Market, our stock price
ranged from $23.156 to $63.313. 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 SUBSTANTIAL INDEBTEDNESS MAY RESULT IN FUTURE LIQUIDITY PROBLEMS.
As of September 30, 2000, we had approximately $242.6 million in long-term
debt, and in October 2000, in connection with our build-to-suit lease
transaction, we incurred an additional incremental lease liability, the present
value of which approximates $46.2 million. Subsequent to Inhale's quarter ending
September 30, 2000, the Company entered into privately negotiated agreements
with certain holders of its outstanding 5.0% convertible subordinated notes due
February 2007 providing for the conversion of their notes into shares of common
stock in exchange for a cash payment. Approximately $168.6 million aggregate
principal amount of such outstanding notes was converted into approximately 4.4
million shares of common stock for cash payments of approximately $25.5 million.
The October 2000 issuance of the 3.5% convertible subordinated notes due 2007
increased our long term debt by approximately $230.0 million. This additional
indebtedness has and will continue to impact us by:
- 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 from operations 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 out 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.
11
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 September 30, 2000, we had approximately $4.9
million of Senior Debt. In addition, in connection with a build-to-suit
transaction completed in October 2000, we will incur incremental lease liability
over a 16-year term, the present value of which approximates $46.2 million. This
liability ranks senior to the notes. The indenture does not limit the creation
of additional Senior Debt (or any other indebtedness). Any significant
additional Senior Debt 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.
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.
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.
12
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 October 17, 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
filed August 14, 2000, including all material incorporated by reference
therein;
8. Our Quarterly Report on Form 10-Q for the quarter ended September 30,
2000, filed November 14, 2000, including all material incorporated
therein;
13
9. Our Current Report on Form 8-K, filed on February 1, 2000;
10. Our Current Report on Form 8-K, filed on February 9, 2000;
11. Our Current Report on Form 8-K, filed on February 24, 2000;
12. Our Current Report on Form 8-K, filed on September 6, 2000;
13. Our Current Report on Form 8-K, filed on October 10, 2000;
14. Our Current Report on Form 8-K, filed on October 10, 2000;
15. Our Current Report on Form 8-K, filed on October 13, 2000;
16. Our Current Report on Form 8-K, filed on October 30, 2000;
17. Our Current Report on Form 8-K, filed on December 21, 2000;
18. Our Current Report on Form 8-K, filed on January 11, 2001;
19. 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
20. 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 January 11, 2001 was $32.9375 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.
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
The following table presents our historical ratios of earnings to fixed
charges for the periods indicated (in thousands):
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED (1) ----------------------------------------------------
SEPTEMBER 30, 2000 1999 1998 1997 1996 1995
--------------------- -------- -------- -------- -------- --------
Ratio............................. * * * * * *
Deficiency........................ 82,535 41,351 19,421 10,418 10,105 7,820
- ------------------------
* Earnings for the period indicated were insufficient to cover fixed charges.
(1) Deficiency includes charges of $17.2 million resulting from conversion of
debt to equity
For purposes of determining the ratio of earnings to fixed charges, earnings are
defined as net loss from continuing operations. Fixed charges consist of
interest expense, debt to equity conversion charges, the estimated interest
portion of rental expense, and capitalized interest.
14
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 October 17, 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 October 17, 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 be limited to $230,000,000 aggregate principal amount and will
mature on October 17, 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 October 17, 2000 at the rate of 3.5% per year,
subject to adjustment upon the occurrence of a Reset Transaction. See "Interest
Rate Adjustments" below. Interest is payable semi-annually on April 17 and
October 17 of each year to holders of record at the close of business on the
preceding April 2 and October 2, respectively, beginning April 17, 2001. 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, 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
15
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.
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
16
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 therefore 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 notes
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 notes 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.
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
17
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 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.
18
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
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
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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.
PROVISIONAL REDEMPTION
We may redeem the notes, in whole or in part, at any time prior to October
17, 2003, at a redemption price equal to $1,000 per $1,000 principal amount of
notes to be redeemed if the closing price of our common stock has exceeded 150%
of the conversion price then in effect 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).
Upon any provisional redemption, we will make an additional payment with
respect to the notes called for redemption to holders on the notice date in an
amount equal to $105.00 per $1,000 principal
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amount of notes, less the amount of any interest actually paid on the notes
prior to the provisional redemption date. We may make this additional payment,
at our option, either in cash or in our common stock or a combination of cash
and common stock, if such common stock has been registered under the Securities
Act and we state in our notice that we expect such registration to remain
effective and available for use for the 30 days following the provisional
redemption date (if registration is required and if we satisfy certain other
conditions specified in the indenture). We will specify the type of
consideration for the additional payment in the redemption notice. Payments made
in our common stock will be valued at 97% of the average of the closing sales
prices of our common stock for the five trading days ending on the day prior to
the provisional redemption 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 October 17, 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, if the closing price of our common stock has exceeded 120%
of the conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day immediately
prior to the date of mailing of the optional redemption notice. 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
- ----------------------------------- ----------------
October 17, 2003............................................ 102.00%
October 17, 2004............................................ 101.50%
October 17, 2005............................................ 101.00%
October 17, 2006............................................ 100.50%
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, a new note
or 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 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
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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.
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.
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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 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.
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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 due October 2006 or 5% convertible subordinated notes due February
2007 and shall be equal with such debentures and notes. The term "Senior Debt"
shall also include all Designated Senior Debt and 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 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;
24
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. We
had approximately $4.9 million of Senior Debt and no Designated Senior Debt at
September 30, 2000. In addition, in connection with our build-to-suit lease
transaction described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources," we will
incur incremental lease liability over a 16 year term, the present value of
which approximates $46.2 million. This liability ranks senior to the notes.
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 therefore,
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.
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;
25
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 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.
26
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;
- making any changes or modification to the indenture necessary in
connection with the registration of the notes under the Securities Act as
contemplated by the registration rights agreement, provided that this
action does not adversely affect the interest of the holders of the notes
in any material respects;
- 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.
27
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 not later than the date 90 days
after the earliest date of original issuance of any of the notes, subject to
certain conditions set forth below, 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 e 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
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- 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"),
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.
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 300,000,000 shares of common stock,
and 10,000,000 shares of preferred stock.
COMMON STOCK
As of January 2, 2001, there were 47,374,459 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 therefore. 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
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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
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.
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,
the 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;
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- 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
- 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 assets 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 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
Code, 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.
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.
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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.
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.
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 federal rate of 20%.
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Short term capital gains realized by individual U.S. holders are taxed at a
maximum federal rate of 39.6%. Corporate U.S. holders are subject to a maximum
federal 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.
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
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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.
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.
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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 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.
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
37
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.
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.
38
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.
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.
39
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 January 11, 2001, 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.
COMMON STOCK COMMON STOCK
PRINCIPAL AMOUNT OF ISSUABLE UPON OWNED AFTER
NOTES BENEFICIALLY CONVERSION OF THE COMMON STOCK COMPLETION OF THE
NAME OWNED AND OFFERED NOTES OFFERED OFFERING
- ---- ------------------- ----------------- ------------ -----------------
Afra Health Fund................ 700,000 13,872 13,872 --
AIG Soundshore Holdings Ltd..... 9,340,000 185,097 185,097 --
AIG Soundshore Opportunity
Holding Fund Ltd.............. 6,150,000 121,878 121,878 --
AIG Soundshore Strategic Holding
Fund Ltd...................... 5,510,000 109,195 109,195 --
Alexandra Global Investment Fund
1............................. 3,500,000 69,361 69,361 --
Allstate Insurance Company...... 1,600,000 31,708 31,708 --
Aloha Airlines Non-Pilots
Pension Trust................. 100,000 1,981 1,981 --
Aloha Pilots Retirement Trust... 60,000 1,189 1,189 --
American Motorist Insurance
Corporation................... 490,000 9,710 9,710 --
Arapahoe County Colorado........ 44,000 871 871 --
Associated Electric & Gas
Insurance Services Limited.... 310,000 6,143 6,143 --
AXP Bond Fund, Inc.............. 2,010,000 39,833 39,833 --
AXP Variable Portfolio Bond
Fund, a series of AXP Variable
Portfolio Income Series,
Inc........................... 880,000 17,439 17,439 --
AXP Variable Portfolio Managed
Fund, a series of AXP Variable
Portfolio Managed Series,
Inc........................... 1,020,000 20,214 20,214 --
Bank Austria Cayman Islands,
Ltd........................... 4,900,000 97,106 97,106 --
British Virgin Islands Social
Security Board................ 32,000 634 634 --
Brown and Williamson Tobacco
Master Retirement Trust....... 150,000 2,972 2,972 --
40
COMMON STOCK COMMON STOCK
PRINCIPAL AMOUNT OF ISSUABLE UPON OWNED AFTER
NOTES BENEFICIALLY CONVERSION OF THE COMMON STOCK COMPLETION OF THE
NAME OWNED AND OFFERED NOTES OFFERED OFFERING
- ---- ------------------- ----------------- ------------ -----------------
CALAMOS-C- Market Neutral Fund-
CALAMOS-C- Investment Trust... 510,000 10,107 10,107 --
California Public Employees'
Retirement System............. 3,500,000 69,361 69,361 --
Capital Market Transactions..... 3,500,000 69,361 69,361 --
Chase Manhattan International... 1,000,000 19,817 19,817 --
CIBC World Markets.............. 5,040,000 99,881 99,881 --
City University of New York..... 109,000 2,160 2,160 --
Consulting Group Capital Markets
Funds......................... 140,000 2,774 2,774 --
C&H Sugar Company, Inc.......... 160,000 3,170 3,170 --
Delphi Foundation Inc........... 24,000 475 475 --
Deutsche Bank Securities Inc.... 28,000,000 554,894 554,894 --
General Motors Employees Global
Group Pension Trust........... 2,796,000 55,410 55,410 --
General Motors Foundation,
Inc........................... 204,000 4,042 4,042 --
Goldman Sachs and Company....... 5,410,000 107,213 107,213 --
Hawaiian Airlines Employees
Pension Plan--IAM............. 50,000 990 990 --
Hawaiian Airlines Pension Plan
for Salaried Employees........ 10,000 198 198 --
Hawaiian Airlines Pilots
Retirement Plan............... 100,000 1,981 1,981 --
Grady Hospital Foundation....... 95,000 1,882 1,882 --
Goldman Sachs and Company....... 2,910,000 57,669 57,669 --
Helix Convertible Opportunities
Fund LTD...................... 1,905,000 37,752 37,752 --
Helix Convertible Opportunities,
L.P........................... 2,175,000 43,103 43,103 --
Highbridge International LLC.... 11,500,000 227,903 227,903 --
Income Portfolio, a series of
IDS Life Series Fund, Inc..... 60,000 1,189 1,189 --
Independence Blue Cross......... 92,000 1,823 1,823 --
Julius Baer Securities, Inc..... 480,000 9,512 9,512 --
Local Initiatives Support
Corporation................... 42,000 832 832 --
Lydian Overseas Partners Master
Fund.......................... 3,500,000 69,361 69,361 --
Mainstay Convertible Fund....... 1,650,000 32,699 32,699 --
Mainstay VP Convertible
Portfolio..................... 1,000,000 19,817 19,817 --
McMahan Securities Co. L.P...... 106,000 2,100 2,100 --
Morgan Stanley & Co............. 15,000,000 297,265 297,265 --
Morgan Stanley Dean Witter
Convertible Securities
Trust......................... 1,000,000 19,817 19,817 --
Merrill Lynch Insurance Group... 220,000 4,359 4,359 --
Merrill Lynch Pierce Fenner &
Smith Inc..................... 3,977,000 78,814 78,814 --
41
COMMON STOCK COMMON STOCK
PRINCIPAL AMOUNT OF ISSUABLE UPON OWNED AFTER
NOTES BENEFICIALLY CONVERSION OF THE COMMON STOCK COMPLETION OF THE
NAME OWNED AND OFFERED NOTES OFFERED OFFERING
- ---- ------------------- ----------------- ------------ -----------------
Motors Insurance Corporation.... 976,000 19,342 19,342 --
Museum of Fine Arts, Boston..... 50,000 990 990 --
Nabisco Holdings................ 26,000 515 515 --
New Orleans Firefighters
Pension/ Relief Fund.......... 99,000 1,961 1,961 --
New York Life Insurance
Company....................... 7,200,000 142,687 142,687 --
New York Life Insurance and
Annuity Corporation........... 800,000 15,854 15,854 --
New York Life Separate Account
#7............................ 1,500,000 29,726 29,726 --
Occidental Petroleum
Corporation................... 170,000 3,369 3,369 --
Parker-Hannifin Corporation..... 80,000 1,585 1,585 --
ProMutual....................... 170,000 3,369 3,369 --
Primerica Life Insurance
Company....................... 736,000 14,585 14,585 --
Putnam Asset Allocation Funds-
Balanced Portfolio............ 340,000 6,738 6,738 --
Putnam Asset Allocation Funds-
Conservative Portfolio........ 210,000 4,161 4,161 --
Putnam Convertible Income-
Growth Trust.................. 1,000,000 19,817 19,817 --
Putnam Convertible Opportunities
and Income Trust.............. 110,000 2,179 2,179 --
Queen's Health Plan............. 35,000 693 693 --
Ramius Capital Group Holdings,
Ltd........................... 1,200,000 23,781 23,781 --
Raytheon Master Pension Trust... 346,000 6,856 6,856 --
RCG Latitude Master Fund........ 400,000 7,927 7,927 --
RJR Reynolds.................... 84,000 1,664 1,664 --
R(2) Investments, LDC........... 25,000,000 495,441 495,441 --
Shell Pension Trust............. 243,000 4,815 4,815 --
Southern Farm Bureau Life
Insurance..................... 625,000 12,386 12,386 --
State of Maryland Retirement
Agency........................ 2,343,000 46,432 46,432 --
State of Oregon/SAIF
Corporation................... 4,100,000 81,252 81,252 --
Susquehanna Capital Group....... 5,000,000 99,088 99,088 --
The Common Fund FAO Absolute
Return Fund................... 420,000 8,323 8,323 --
The Grable Foundation........... 87,000 1,724 1,724 --
The Travelers Indemnity
Company....................... 2,427,000 48,097 48,097 --
The Travelers Insurance Company
-- Life....................... 1,247,000 24,712 24,712 --
The Travelers Insurance Company
Separate Account TLAC......... 141,000 2,794 2,794 --
The Travelers Life and Annuity
Company....................... 149,000 2,952 2,952 --
Total Return Portfolio, a series
of Growth and Income Trust.... 1,030,000 20,412 20,412 --
42
COMMON STOCK COMMON STOCK
PRINCIPAL AMOUNT OF ISSUABLE UPON OWNED AFTER
NOTES BENEFICIALLY CONVERSION OF THE COMMON STOCK COMPLETION OF THE
NAME OWNED AND OFFERED NOTES OFFERED OFFERING
- ---- ------------------- ----------------- ------------ -----------------
Transamerica Life Insurance and
Annuity Company............... 4,000,000 79,270 79,270 --
Travelers Series Trust
Convertible Bond Portfolio.... 300,000 5,945 5,945 --
Tribecca Investments LLC........ 17,000,000 336,900 336,900 --
UBS O'Connor LLC f/b/o UBS
Global Equity Arbitrage Master
Ltd........................... 6,000,000 118,906 118,906 --
United Capital Management,
Inc........................... 250,000 4,954 4,954 --
University of Rochester......... 40,000 792 792 --
ZCM/HFR Index Management,
L.L.C......................... 40,000 792 792 --
1976 Distribution Trust FBO Jane
A. Lauder..................... 13,000 257 257 --
1976 Distribution Trust FBO A.R.
Lauder/Zinterhofer............ 12,000 237 237 --
- ------------------------
Additional information regarding selling holders will be provided by
amendment or supplement to this Registration Statement.
With the exception of Merrill Lynch Pierce Fenner & Smith Inc. and Deutsche
Bank Securities Inc., 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. Merrill
Lynch Pierce Fenner & Smith Inc. and Deutsche Bank Securities Inc. were initial
purchasers of the notes. The selling holders purchased the notes in private
transactions on or after October 27, 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.
43
PLAN OF DISTRIBUTION
The sellingholders 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
44
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 of the shares of common stock issuable upon
conversion thereof and offered hereby is being passed upon for us by Cooley
Godward LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K, as amended, as set forth
in their report, which is incorporated by reference in this prospectus and
elsewhere in the registration statement. 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.
Ernst & Young LLP, independent auditors, have also audited the financial
statements of Bradford Particle Design plc, included in our Current Report on
Form 8-K, as set forth in their report, which is incorporated by reference in
the registration statement. These financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
45
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.......................................... 3
Risk Factors................................................ 5
Where You Can Find More Information......................... 13
Incorporation by Reference.................................. 13
Use of Proceeds............................................. 14
Ratio of Earnings to Fixed Charges.......................... 14
Description of the Notes.................................... 15
Description of Capital Stock................................ 30
Certain United States Federal Income Tax Considerations..... 33
Selling Security Holders.................................... 40
Plan of Distribution........................................ 44
Legal Matters............................................... 45
Experts..................................................... 45
------------------------
$230,000,000
3 1/2% CONVERTIBLE SUBORDINATED NOTES
DUE OCTOBER 17, 2007
AND
4,558,065 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 Inhale 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............................................ $ 57,500
Legal fees and expenses..................................... $ 10,000
Accounting fees and expenses................................ $ 15,000
Printing and engraving...................................... $ 15,000
Nasdaq National Market filing fee........................... $ 17,500
Miscellaneous............................................... $ 10,000
--------
TOTAL................................................... $125,000
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, Inhale 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").
Inhale'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 Inhale 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 Inhale,
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.
Inhale has entered into agreements with its directors and executive officers
that require Inhale 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 Inhale 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 Inhale 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.
II-1
ITEM 16. EXHIBITS
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.
2.2 (16) Recommended Offer, dated December 21, 2000 by Cazenove & Co.
on behalf of Inhale Therapeutic Systems, Inc. for Bradford
Particle Design plc.
3.1 (1) Certificate of Incorporation of Inhale.
3.2 (1) Bylaws of the Inhale.
3.3 (14) Certificate of Amendment of the Amended Certificate of
Incorporation.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 (2) Restated Investor Rights Agreement among the Inhale 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 Inhale and Pfizer Inc.,
dated January 18, 1995.
4.5 (9) Form of Purchase Agreement between Inhale and the individual
Purchasers, dated January 28, 1997.
4.6 (10) Stock Purchase Agreement between Inhale and Capital Research
and Management Company, dated December 8, 1998.
4.7 (12) Purchase Agreement among Inhale 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 Inhale and Lehman
Brothers Inc., Deutsche Bank Securities Inc. and U.S.
Bancorp Piper Jaffray Inc., dated October 13, 1999.
4.9 (12) Indenture between Inhale 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 Inhale 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 Inhale 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 Inhale as Issuer and Chase Manhattan Bank
and Trust Company, National Association, as Trustee, dated
February 8, 2000.
4.14 (14) Specimen common stock certificate.
4.15 (15) Specimen warrants to purchase shares of common stock.
4.16 (17) Purchase Agreement among Inhale and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Deutsche Bank Securities Inc.,
Lehman Brothers Inc., and U.S. Bancorp Piper Jaffray Inc.,
dated October 11, 2000.
4.17 (17) Resale Registration Rights Agreement among Inhale and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche
Bank Securities, Inc., Lehman Brothers Inc., and U.S.
Bancorp Piper Jaffray Inc., dated October 17, 2000.
4.18 (17) Indenture between Inhale, as Issuer, and Chase Manhattan
Bank and Trust Company, National Association, as Trustee,
dated October 17, 2000.
5.1 (17) Opinion of Cooley Godward LLP.
10.1 (4) Inhale's 1994 Equity Incentive Plan, as amended.
II-2
EXHIBIT NUMBER EXHIBIT INDEX
- -------------- -------------
10.2 (7) Inhale's 1994 Non-Employee Directors' Stock Option Plan, as
amended.
10.3 (2) Inhale's 1994 Employee Stock Purchase Plan, as amended.
10.4 (2) Standard Industrial Lease between Inhale 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 Inhale 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 Inhale and W.F.
Batton & Co., Inc.
10.7 (6) Amendment Agreement Number Two, dated November 15, 1995, to
Lease, dated September 17, 1992, between Inhale 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 Inhale and
Batton Trust.
10.9 (11) Amendment Agreement Number Four, dated September 15, 1996,
to Lease, dated September 17, 1992, between Inhale and
Batton Trust.
10.10 (2) Senior Loan and Security Agreement between Inhale and
Phoenix Leasing Incorporated, dated September 15, 1993.
10.11 (2) Sublicense Agreement between Inhale and John S. Patton,
dated September 13, 1991.
10.12 (5) Stock Purchase Agreement between Inhale and Baxter World
Trade Corporation, dated March 1, 1996.
10.13 (8) Sublease and Lease Agreement, dated October 2, 1996, between
Inhale 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 Inhale and
Landlord.
10.15 (11) Letter Agreement, dated April 9, 1997, amending Sublease and
Lease Agreement, dated October 2, 1996, between Inhale and
Landlord.
10.16 (11) Third Amendment, dated April 16, 1997, to Sublease and Lease
Agreement, dated October 2, 1996, between Inhale and
Landlord.
10.17 (11) Fourth Amendment, dated November 5, 1997, to Sublease and
Lease Agreement, dated October 2, 1996, between Inhale and
Landlord.
10.18 (13) Sublease by and between Webvan Group, Inc., as sublessor and
Inhale, as sublessee, dated November 3, 1999.
10.19 (15) Inhale's 2000 Equity Incentive Plan
10.20 (15) Inhale's Stock Option Agreement issued in accordance with
Inhale's 2000 Equity Incentive Plan.
10.21 (15) Agreement for the Contribution of 201 Industrial Road
Project made and entered into as of September 14, 2000 by
and among Inhale, Inhale 201 Industrial Road, L.P., a
California limited partnership and Bernardo Property
Advisors, Inc., a California corporation.
10.22 (15) Agreement of Limited Partnership of Inhale 201 Industrial
Road., L.P., a California limited partnership made and
entered into September 14, 2000, by and among SCIMED PROP
III, Inc., a California corporation, as general partner, 201
Industrial Partnership, a California general partnership, as
limited partner, and Inhale, as limited partner.
10.23 (15) Build-To-Suit Lease made and entered into as of September
14, 2000 by and between Inhale 201 Industrial Road, L.P., a
California limited partnership, as Landlord, and Inhale, as
Tenant.
II-3
EXHIBIT NUMBER EXHIBIT INDEX
- -------------- -------------
10.24 (15) Amendment to Lease dated October 3, 2000 by and between
Inhale 201 Industrial Road, L.P., a California limited
partnership, as Landlord, and Inhale, as Tenant.
10.25 (15) Parking Lease Agreement entered into as of September 14,
2000 by and between Inhale 201 Industrial Road, L.P., a
California limited partnership, as Landlord, and Inhale, as
Tenant.
23.1 (17) Consent of Ernst & Young LLP, Independent Auditors.
23.2 (17) Consent of Ernst & Young LLP, Independent Auditors.
23.3 (17) Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 (17) Power of Attorney (included in signature page).
25.1 (17) 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) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000.
(15) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000.
(16) Incorporated by reference to the indicated exhibit in Inhale's Current
Report on Form 8-K, filed with the SEC on January 11, 2001.
(17) Filed herewith.
II-4
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 Inhale 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 Inhale hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Inhale'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.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Inhale pursuant to provisions described in Item 15, or otherwise, Inhale 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 Inhale of expenses incurred
or paid by a director, officer or controlling person of Inhale 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, Inhale
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 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 January 11, 2001.
By: /s/ AJIT S. GILL
-----------------------------------------
Ajit S. Gill
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert B. Chess, Ajit S. Gill and Brigid A. Makes
and each of them, as his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments, exhibits thereto and other
documents in connection therewith) to this registration statement and any
subsequent registration statement filed by the registrant pursuant to Securities
and Exchange Commission Rule 462, which relates to this registration statement
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratify and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his or her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, 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 January 11, 2001
Ajit S. Gill Director (Principal Executive Officer)
/s/ ROBERT B. CHESS
---------------------------- Chairman of the Board January 11, 2001
Robert B. Chess
/s/ BRIGID A. MAKES Chief Financial Officer and Vice President
---------------------------- (Principal Financial and Accounting January 11, 2001
Brigid A. Makes Officer)
/s/ JOHN S. PATTON
---------------------------- Vice President and Director January 11, 2001
John S. Patton
II-6
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------------- ----------------
/s/ JAMES B. GLAVIN
---------------------------- Director January 11, 2001
James B. Glavin
/s/ MELVIN PERELMAN
---------------------------- Director January 11, 2001
Melvin Perelman
/s/ IRWIN LERNER
---------------------------- Director January 11, 2001
Irwin Lerner
/s/ ROY A. WHITFIELD
---------------------------- Director January 11, 2001
Roy A. Whitfield
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.
2.2 (16) Recommended Offer, dated December 21, 2000 by Cazenove & Co.
on behlaf of Inhale Therapeutic Systems, Inc. for Bradford
Particle Design plc.
3.1 (1) Certificate of Incorporation of Inhale.
3.2 (1) Bylaws of the Inhale.
3.3 (14) Certificate of Amendment of the Amended Certificate of
Incorporation.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 (2) Restated Investor Rights Agreement among Inhale 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 Inhale and Pfizer Inc.,
dated January 18, 1995.
4.5 (9) Form of Purchase Agreement between Inhale and the individual
Purchasers, dated January 28, 1997.
4.6 (10) Stock Purchase Agreement between Inhale and Capital Research
and Management Company, dated December 8, 1998.
4.7 (12) Purchase Agreement among Inhale 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 Inhale and Lehman
Brothers Inc., Deutsche Bank Securities Inc. and U.S.
Bancorp Piper Jaffray Inc., dated October 13, 1999.
4.9 (12) Indenture between Inhale 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 Inhale 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 Inhale 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 Inhale as Issuer and Chase Manhattan Bank
and Trust Company, National Association, as Trustee, dated
February 8, 2000.
4.14 (14) Specimen common stock certificate.
4.15 (15) Specimen warrants to purchase shares of common stock.
4.16 (17) Purchase Agreement among Inhale and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Deutsche Bank Securities Inc.,
Lehman Brothers Inc., and U.S. Bancorp Piper Jaffray Inc.,
dated October 11, 2000.
4.17 (17) Resale Registration Rights Agreement among Inhale and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche
Bank Securities, Inc., Lehman Brothers Inc., and U.S.
Bancorp Piper Jaffray Inc., dated October 17, 2000.
4.18 (17) Indenture between Inhale, as Issuer, and Chase Manhattan
Bank and Trust Company, National Association, as Trustee,
dated October 17, 2000.
5.1 (17) Opinion of Cooley Godward LLP.
10.1 (4) Inhale's 1994 Equity Incentive Plan, as amended.
10.2 (7) Inhale's 1994 Non-Employee Directors' Stock Option Plan, as
amended.
10.3 (2) Inhale's 1994 Employee Stock Purchase Plan, as amended.
EXHIBIT NUMBER EXHIBIT INDEX
- -------------- -------------
10.4 (2) Standard Industrial Lease between Inhale 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 Inhale 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 Inhale and W.F.
Batton & Co., Inc.
10.7 (6) Amendment Agreement Number Two, dated November 15, 1995, to
Lease, dated September 17, 1992, between Inhale 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 Inhale and
Batton Trust.
10.9 (11) Amendment Agreement Number Four, dated September 15, 1996,
to Lease, dated September 17, 1992, between Inhale and
Batton Trust.
10.10 (2) Senior Loan and Security Agreement between Inhale and
Phoenix Leasing Incorporated, dated September 15, 1993.
10.11 (2) Sublicense Agreement between Inhale and John S. Patton,
dated September 13, 1991.
10.12 (5) Stock Purchase Agreement between Inhale and Baxter World
Trade Corporation, dated March 1, 1996.
10.13 (8) Sublease and Lease Agreement, dated October 2, 1996, between
Inhale 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 Inhale and
Landlord.
10.15 (11) Letter Agreement, dated April 9, 1997, amending Sublease and
Lease Agreement, dated October 2, 1996, between Inhale and
Landlord.
10.16 (11) Third Amendment, dated April 16, 1997, to Sublease and Lease
Agreement, dated October 2, 1996, between Inhale and
Landlord.
10.17 (11) Fourth Amendment, dated November 5, 1997, to Sublease and
Lease Agreement, dated October 2, 1996, between Inhale and
Landlord.
10.18 (13) Sublease by and between Webvan Group, Inc., as sublessor and
Inhale, as sublessee, dated November 3, 1999.
10.19 (15) Inhale's 2000 Equity Incentive Plan
10.20 (15) Inhale's Stock Option Agreement issued in accordance with
Inhale's 2000 Equity Incentive Plan.
10.21 (15) Agreement for the Contribution of 201 Industrial Road
Project made and entered into as of September 14, 2000 by
and among Inhale, Inhale 201 Industrial Road, L.P., a
California limited partnership and Bernardo Property
Advisors, Inc., a California corporation.
10.22 (15) Agreement of Limited Partnership of Inhale 201 Industrial
Road., L.P., a California limited partnership made and
entered into September 14, 2000, by and among SCIMED PROP
III, Inc., a California corporation, as general partner, 201
Industrial Partnership, a California general partnership, as
limited partner, and Inhale, as limited partner.
10.23 (15) Build-To-Suit Lease made and entered into as of September
14, 2000 by and between Inhale 201 Industrial Road, L.P., a
California limited partnership, as Landlord, and Inhale, as
Tenant.
10.24 (15) Amendment to Lease dated October 3, 2000 by and between
Inhale 201 Industrial Road, L.P., a California limited
partnership, as Landlord, and Inhale, as Tenant.
EXHIBIT NUMBER EXHIBIT INDEX
- -------------- -------------
10.25 (15) Parking Lease Agreement entered into as of September 14,
2000 by and between Inhale 201 Industrial Road, L.P., a
California limited partnership, as Landlord, and Inhale, as
Tenant.
23.1 (17) Consent of Ernst & Young LLP, Independent Auditors.
23.2 (17) Consent of Ernst & Young LLP, Independent Auditors.
23.3 (17) Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 (17) Power of Attorney (included in signature page).
25.1 (17) 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) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000.
(15) Incorporated by reference to the indicated exhibit in Inhale's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000.
(16) Incorporated by reference to the indicated exhibit in Inhale's Current
Report on Form 8-K, filed on January 11, 2001.
(17) Filed herewith.
Exhibit 4.16
INHALE THERAPEUTIC SYSTEMS, INC.
(a Delaware corporation)
$200,000,000
3 1/2% Convertible Subordinated Notes due 2007
PURCHASE AGREEMENT
October 11, 2000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Deutsche Bank Securities Inc.
Lehman Brothers Inc.
U.S. Bancorp Piper Jaffray Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Inhale Therapeutic Systems, Inc., a Delaware corporation (the
"Company"), confirms its agreement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Initial Purchasers named in
SCHEDULE A hereto (collectively, the "Initial Purchasers", which term shall also
include any initial purchaser substituted as hereinafter provided in Section 8
hereof), for whom Merrill Lynch and Deutsche Bank Securities Inc. are acting as
representatives (in such capacity, the "Representatives"), with respect to the
issue and sale by the Company and the purchase by the Initial Purchasers, acting
severally and not jointly, of the respective principal amounts set forth in said
SCHEDULE I of $200,000,000 aggregate principal amount of the Company's 3 1/2%
Convertible Subordinated Notes due 2007 (the "Firm Notes"), and with respect to
the grant by the Company to the Initial Purchasers, acting severally and not
jointly, of the option described in Section 2(b) hereof (the "Option") to
purchase all or any part of an additional $50,000,000 principal amount of the
Company's 3 1/2% Convertible Subordinated Notes due 2007 to cover
over-allotments, if any (the "Optional Notes" and, together with the Firm Notes,
the "Notes").
The Notes will be convertible into fully paid, nonassessable shares of
common stock of the Company, par value $0.0001 per share (the "Common Stock"),
on the terms, and subject to the conditions, set forth in the Indenture. As used
herein, "Conversion Shares" means the shares of Common Stock into which the
Notes are convertible. The Notes will be issued pursuant to an
1
Indenture (the "Indenture") to be dated as of the First Delivery Date (as
defined in Section 2(a)), between the Company and Chase Manhattan Bank and Trust
Company, National Association, as Trustee (the "Trustee").
The Notes will be offered and sold without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions therefrom. The Company has prepared and delivered to each Initial
Purchaser copies of a preliminary offering memorandum dated October 9, 2000 (the
"Preliminary Offering Memorandum") and has prepared and will deliver to each
Initial Purchaser, on the date hereof or the next succeeding day, copies of a
final offering memorandum dated October 11, 2000 (the "Final Offering
Memorandum"), each for use by such Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the Notes. "Offering Memorandum"
means, with respect to any date or time referred to in this Agreement, the most
recent offering memorandum (whether the Preliminary Offering Memorandum or the
Final Offering Memorandum, or any amendment or supplement to either such
document), including exhibits thereto and any documents incorporated therein by
reference, which has been prepared and delivered by the Company to the Initial
Purchasers in connection with their solicitation of purchases of, or offering
of, the Notes.
Holders of the Notes (including the Initial Purchasers and their direct
and indirect transferees) will be entitled to the benefits of a Resale
Registration Rights Agreement, dated the First Delivery Date, between the
Company and the Initial Purchasers (the "Registration Rights Agreement"),
pursuant to which the Company will agree to file with the Securities and
Exchange Commission (the "Commission") a shelf registration statement pursuant
to Rule 415 under the Securities Act (the "Registration Statement") covering the
resale of the Notes and the Conversion Shares, and to use its best efforts to
cause the Registration Statement to be declared effective.
This Agreement, the Indenture, the Notes and the Registration Rights
Agreement are referred to herein collectively as the "Operative Documents".
Capitalized terms used herein without definition have the respective
meanings specified in the Offering Memorandum.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to each Initial Purchaser as of the date hereof
and as of each Delivery Date (as defined in Section 2(b)) and agrees with each
Initial Purchaser, as follows:
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, did not as of its respective date, and the Offering Memorandum will
not as of a Delivery Date (as defined in Section 2(b)), contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED that the Company makes no
representation or warranty as to information contained in or omitted from the
Preliminary Offering Memorandum or the Offering Memorandum in reliance upon and
in conformity with written information furnished to the Company by or on the
behalf of any Initial Purchaser through the Representatives specifically for
inclusion therein.
2
(b) Assuming the accuracy of the representations and warranties of the
Initial Purchasers contained in Section 6 and their compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Notes to the Initial Purchasers and the offer, resale
and delivery of the Notes by the Initial Purchasers in the manner contemplated
by this Agreement, the Indenture, the Registration Rights Agreement and the
Offering Memorandum, to register the Notes or the Conversion Shares under the
Securities Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act").
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which its ownership or lease of property or the conduct of
its businesses requires such qualification (except for where the failure to be
so qualified would not have a material adverse effect on the affairs,
management, business, properties, financial condition, results of operations or
prospects of the Company, whether or not arising in the ordinary course of
business (a "Material Adverse Effect")), and has all power and authority
necessary to own or hold its properties and to conduct the businesses in which
it is engaged, as described in the Offering Memorandum; and the Company has no
subsidiaries.
(d) The authorized, issued and outstanding capital stock of the
Company, as of June 30, 2000, is as set forth in the Offering Memorandum under
the column entitled "Actual" under the caption "Capitalization", and all of the
issued and outstanding shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and nonassessable; none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company; the
capital stock of the Company conforms to the description thereof contained in
the Offering Memorandum and such description conforms to the rights set forth in
the instruments defining the same; the Conversion Shares, which are authorized
on the date hereof, have been duly and validly authorized and reserved for
issuance upon conversion of the Notes by all necessary corporate action and are
free of preemptive rights; all Conversion Shares, when so issued and delivered
upon such conversion in accordance with the terms of the Indenture, will be duly
and validly authorized and issued, fully paid and nonassessable and free and
clear of all liens, encumbrances, equities or claims; and the issuance of such
Conversion Shares upon such conversion will not be subject to the preemptive or
other similar rights of any securityholder of the Company.
(e) The execution, delivery and performance of the Operative Documents
by the Company and the issuance of the Notes and the Conversion Shares and the
consummation of the transactions contemplated hereby and thereby will not (x)
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the properties or
assets of the Company is subject, (y) result in any violation of the provisions
of the certificate of incorporation or bylaws of the Company or (z) result in
any violation of any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
properties or assets; and except (i) with respect to the transactions
contemplated by the Registration Rights Agreement, as may be required under the
Securities Act, the Trust Indenture Act and the rules and regulations
promulgated thereunder and (ii) as
3
required by the state securities or "blue sky" laws, no consent, approval,
authorization or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery and
performance of the Operative Documents by the Company, and the consummation of
the transactions contemplated hereby and thereby.
(f) The Company has all necessary corporate right, power and authority
to execute and deliver this Agreement and perform its obligations hereunder; and
this Agreement and the transactions contemplated hereby have been duly
authorized, executed and delivered by the Company.
(g) The Company has all necessary corporate right, power and authority
to execute and deliver the Indenture and perform its obligations thereunder; the
Indenture has been duly authorized by the Company, and upon the effectiveness of
the Registration Statement, will be qualified under the Trust Indenture Act; on
the First Delivery Date, the Indenture will have been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
of the Indenture by the Trustee, will constitute a legally valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, subject to general
principles of equity and to limitations on availability of equitable relief,
including specific performance (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing; and the
Indenture conforms in all material respects to the description thereof contained
in the Offering Memorandum and will be in substantially the form last delivered
to the Initial Purchasers prior to the date of this Agreement.
(h) The Company has all necessary corporate right, power and authority
to execute and deliver the Registration Rights Agreement and perform its
obligations thereunder; the Registration Rights Agreement and the transactions
contemplated thereby have been duly authorized by the Company; when the
Registration Rights Agreement is duly executed and delivered by the Company
(assuming due authorization, execution and delivery by the Initial Purchasers),
it will be a legally valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, subject to general principles of equity and to
limitations on availability of equitable relief, including specific performance
(whether considered in a proceeding in equity or at law) and an implied covenant
of good faith and fair dealing, and except with respect to the rights of
indemnification and contribution thereunder, where enforcement thereof may be
limited by federal or state securities laws or the policies underlying such
laws; and the Registration Rights Agreement conforms in all material respects to
the description thereof contained in the Offering Memorandum and will be in
substantially the form last delivered to the Initial Purchasers prior to the
date of this Agreement.
(i) The Company has all necessary corporate right, power and authority
to execute, issue and deliver the Notes and perform its obligations thereunder;
the Notes have been duly authorized by the Company; when the Notes are executed,
authenticated and issued in accordance with the terms of the Indenture and
delivered to and paid for by the Initial Purchasers pursuant to this Agreement
on the respective Delivery Date (assuming due authentication of the
4
Notes by the Trustee), such Notes will constitute legally valid and binding
obligations of the Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, subject to general principles of equity
and to limitations on availability of equitable relief, including specific
performance (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing; and the Notes conform in all
material respects to the description thereof contained in the Offering
Memorandum and will be in substantially the form last delivered to the Initial
Purchasers prior to the date of this Agreement.
(j) Except for the Registration Rights Agreement and the Stock Purchase
Agreement, dated January 18, 1995, between the Company and Pfizer, Inc.
("Pfizer"), the Stock Purchase Agreement, dated March 1, 1996, as amended,
between the Company and Baxter Healthcare Corporation, the Restated Investor
Rights Agreement, dated April 29, 1993, as amended October 29, 1993, among the
Company and certain stockholders of the Company, the Resale Registration Rights
Agreement, dated October 13, 1999, between the Company and the initial
purchasers named therein, the Registration Rights Agreement between the Company
and Alliance Pharmaceutical Corp., dated January 24, 2000, and the Resale
Registration Rights Agreement, dated February 8, 2000, between the Company and
the initial purchasers named therein, there are no contracts, agreements or
understandings between the Company and any person granting such person the right
(other than rights which have been waived or satisfied) to require the Company
to file a registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to require the
Company to include such securities in any securities being registered pursuant
to any registration statement filed by the Company under the Securities Act.
(k) The Company has not sustained, since the date of the latest audited
financial statements included in the Offering Memorandum, any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree; and, since such dates, there has not been
any change in the capital stock or long-term debt of the Company or any material
adverse change in or affecting the affairs, management, business, properties,
financial condition, stockholders' equity, results of operations or prospects of
the Company, whether or not arising in the ordinary course of business, except:
(i) as described in the Offering Memorandum, (ii) any grants under the Company's
employee stock plans in accordance with the terms of such plans as described in
the Offering Memorandum, or other shares of Common Stock (or rights to receive
Common Stock) issued to service providers to the Company in the ordinary course
of business ("Authorized Grants"), (iii) operating losses incurred in the
ordinary course of business, (iv) the issuance and sale of the Outstanding
Debentures (as defined below), (v) an aggregate of 20,000 warrants to purchase
Common Stock issued to 201 Industrial Partnership and SCIMED PROP III, Inc. in
connection with transactions related to the sale, transfer, contribution and
lease of Company property and facilities (the "Authorized Warrants"), (vi) the
issuance of Common Stock pursuant to a 100% stock dividend in August 2000 (vii)
shares of Common Stock (the "Old Conversion Shares") into which each of the
Company's outstanding 6-3/4% Convertible Subordinated Debentures due 2006 and
the Company's outstanding 5% Convertible Subordinated Debentures due 2007 (the
"Outstanding Debentures") are convertible
5
or (viii) an aggregate of 1,566 shares of Common Stock of the Company issued to
Marcia Dressler in connection with a the acquisition and license of certain
intellectual property (the "Dressler Issuance").
(l) The financial statements of the Company (including the related
notes and supporting schedules) included in the Offering Memorandum present
fairly the financial condition and results of operations of the Company, at the
dates and for the periods indicated, and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The selected financial information included in
the Offering Memorandum present fairly the information shown therein and have
been compiled on a basis consistent with that of the audited financial
statements included in the Offering Memorandum.
(m) Ernst & Young LLP, who have certified the financial statements of
the Company included in the Offering Memorandum, whose report appears in the
Offering Memorandum, are independent accountants as required by the Securities
Act and the rules and regulations promulgated thereunder.
(n) The Company has good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by it, in
each case free and clear of all liens, encumbrances, security interests, claims
and defects, except such as are described in the Offering Memorandum or such as
do not, singly or in the aggregate, materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company; and all real property and personal property held under lease or
sublease by the Company is held by it under valid, subsisting and enforceable
leases (or subleases, as the case may be) in full force and effect, with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property by the Company. The Company has no notice
of any material claim of any sort that has been asserted by anyone adverse to
the rights of the Company under any of the leases or subleases mentioned above,
or affecting or questioning the rights of such the Company thereof to the
continued possession of the leased or subleased premises under any such lease or
sublease.
(o) The Company carries, or is covered by, insurance as is customary
for companies similarly situated and engaged in similar businesses in similar
industries.
(p) The Company owns, or possesses adequate rights to use, all material
trademarks, service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of its
business, and has no reason to believe that the conduct of its business will
conflict with, and has not received any notice of any claim of conflict with,
any such rights of others.
(q) The Company owns, or possesses adequate rights to use, all material
patents necessary for the conduct of its business. Except as set forth in the
Offering Memorandum, no valid U.S. patent is, or to the knowledge of the Company
would be, infringed by the activities of the Company in the manufacture, use,
offer for sale or sale of any product or component thereof as described in the
Offering Memorandum. The patent applications (the "Patent Applications") filed
by or on behalf of the Company described in the Offering Memorandum have been
properly
6
prepared and filed on behalf of the Company; each of the Patent Applications and
patents (the "Patents") described in the Offering Memorandum is assigned or
licensed to the Company, and, except as set forth or contemplated in the
Offering Memorandum, no other entity or individual has any right or claim in any
Patent, Patent Application or any patent to be issued therefrom; and, to the
knowledge of the Company, each of the Patent Applications discloses potentially
patentable subject matter. There are no actions, suits or judicial proceedings
pending relating to patents or proprietary information to which the Company is a
party or of which any property of the Company is subject, and, to the knowledge
of the Company, no actions, suits or judicial proceedings are threatened by
governmental authorities or, except as set forth or contemplated in the Offering
Memorandum, others. The Company is not aware of, except as set forth or
contemplated in the Offering Memorandum, any claim by others that the Company is
infringing or otherwise violating any patents or other intellectual property
rights of others and is not aware of any rights of third parties to any of the
Company's Patent Applications, licensed Patents or licenses which could affect
materially the use thereof by the Company. Except as set forth in the Offering
Memorandum, the Company owns or possesses sufficient licenses or other rights to
use all patents, trade secrets, technology and know-how necessary to conduct the
Company's business as described in the Offering Memorandum.
(r) Except as disclosed in the Offering Memorandum, the Company has
filed with the Food and Drug Administration (the "FDA") and the California Food
and Drug Branch ("CFDB") for and received approval of all registrations,
applications, licenses, requests for exemptions, permits and other regulatory
authorizations necessary to conduct the Company's business as it is described in
the Offering Memorandum; the Company is in material compliance with all such
registrations, applications, licenses, requests for exemptions, permits and
other regulatory authorizations, and all applicable FDA and CFDB rules and
regulations, guidelines and policies, including but not limited to, applicable
FDA and CFDB rules, regulations and policies relating to current good
manufacturing practice ("CGMP") and current good laboratory practice ("CGLP");
the Company has no reason to believe that any party granting any such
registration, application, license, request for exemption, permit or other
authorization is considering limiting, suspending or revoking the same and knows
of no basis for any such limitation, suspension or revocation.
(s) The human clinical trials, animal studies and other preclinical
tests conducted by the Company or in which the Company has participated that are
described in the Offering Memorandum or the results of which are referred to in
the Offering Memorandum, and, to the knowledge of the Company, such studies and
tests conducted on behalf of the Company, were and, if still pending, are being
conducted in accordance with commonly used or appropriate experimental
protocols, procedures and controls applied by research scientists generally in
the preclinical or clinical study of new drugs; the descriptions or the results
of such studies and tests contained in the Offering Memorandum are accurate and
complete in all material respects, and the Company has no knowledge of any other
studies or tests, the results of which reasonably call into question the results
described or referred to in the Offering Memorandum; and the Company has not
received any notices or other correspondence from the FDA or any other
governmental agency requiring the termination, suspension or modification of any
animal studies or other preclinical tests, or clinical studies conducted by or
on behalf of the Company or in which the Company has participated that are
described in the Offering Memorandum or the results of which are referred to in
the Offering Memorandum.
7
(t) Except as disclosed in the Offering Memorandum, there are no legal
or governmental proceedings pending to which the Company is a party or of which
any property or asset of the Company is the subject which, if determined
adversely to the Company might have a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the consummation of
the transactions contemplated by this Agreement or the performance by the
Company of its obligations hereunder; to the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or,
except as set forth or contemplated in the Offering Memorandum, threatened by
others; and the aggregate of all pending legal or governmental proceedings to
which the Company is a party or of which any of its property or assets is the
subject (other than the Company's patent applications currently pending before
the U.S. Patent and Trademark Office or before any foreign governmental
authority that administers the registration of patents), which are not described
in the Offering Memorandum, including ordinary routine litigation incidental to
the business, could not reasonably be expected to result in a Material Adverse
Effect.
(u) No event has occurred nor has any circumstance arisen which, had
the Notes been issued on such Delivery Date, would constitute a default or an
Event of Default (as such term is defined in the Indenture).
(v) The Company is not (i) in violation of its certificate of
incorporation or bylaws, (ii) in default, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or its properties or
assets may be subject or has failed to obtain any license, permit, certificate,
franchise or other governmental authorization or permit necessary to the
ownership of its properties or to the conduct of its business, except to the
extent that any such default, event or violation described in the foregoing
clauses (i), (ii) and (iii) would not have a Material Adverse Effect.
(w) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(x) The Company is subject to the reporting requirements of Section 13
or Section 15(d) of the Exchange Act. The Company has timely and properly filed
with the Commission all reports and other documents required to have been filed
by it with the
8
Commission pursuant to the Exchange Act and the Exchange Act Regulations
("Exchange Act Reports"); PROVIDED, HOWEVER, that the Company makes no such
representation or warranty with respect to any statement in or omission from the
Exchange Act Reports relating, directly or indirectly, to the conversion of any
of the Company's Outstanding Debentures.
(y) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof or has
requested extensions thereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company, might have) a Material Adverse Effect.
(z) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company (or, to the
knowledge of the Company, any of its predecessors in interest) at, upon or from
any of the property now or previously owned or leased by the Company in
violation of any applicable law, ordinance, rule, regulation, order, judgment,
decree or permit or which would require remedial action under any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions a Material Adverse Effect; there has been no
material spill, discharge, leak, emission, injection, escape, dumping or release
of any kind onto such property or into the environment surrounding such property
of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or with respect to which the Company
has knowledge, except for any such spill, discharge, leak, emission, injection,
escape, dumping or release which would not have or would not be reasonably
likely to have, singularly or in the aggregate with all such spills, discharges,
leaks, emissions, injections, escapes, dumpings and releases, a Material Adverse
Effect; and the terms "hazardous wastes", "toxic wastes", "hazardous substances"
and "medical wastes" shall have the meanings specified in any applicable local,
state, federal and foreign laws or regulations with respect to environmental
protection.
(aa) There are no contracts or other documents which would be required
to be described in the Offering Memorandum if the Offering Memorandum were a
prospectus included in a registration statement on Form S-1 that have not been
so described in the Offering Memorandum.
(bb) There is no relationship, direct or indirect, between or among the
Company, on the one hand, and the directors, officers, shareholders, customers
or suppliers of the Company, on the other hand, which would be required to be
described in the Offering Memorandum if the Offering Memorandum were a
prospectus included in a registration statement on Form S-1 that has not been so
described.
(cc) Since the date as of which information is given in the Offering
Memorandum through the date hereof, the Company has not (i) issued or granted
any securities (other than Authorized Grants, the Authorized Warrants or the Old
Conversion Shares), (ii) incurred any material liability or obligation, direct
or contingent, other than liabilities and obligations which were incurred in the
ordinary course of business, (iii) entered into any material transaction not in
9
the ordinary course of business (other than privately negotiated transactions
relating to the conversion of any of the Company's Outstanding 2007 Debentures
as described in the Offering Memorandum) or (iv) declared or paid any dividend
on its capital stock.
(dd) Except as disclosed in the Offering Memorandum, (i) there are no
outstanding securities convertible into or exchangeable for, or warrants, rights
or options issued by the Company to purchase, any shares of the capital stock of
the Company (except, in the case of options, any Authorized Grants or in the
case of warrants, the Authorized Warrants), (ii) there are no statutory,
contractual, preemptive or other rights to subscribe for or to purchase any
Common Stock that do not by their terms terminate upon the First Delivery Date
and (iii) there are no restrictions upon transfer of the Common Stock pursuant
to the Company's certificate of incorporation or bylaws.
(ee) The Company (i) makes and keeps materially accurate books and
records and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of its financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is compared
with existing assets at reasonable intervals.
(ff) Neither the Company nor any director, officer, agent or employee
acting on behalf of the Company has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (iii)
violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977 or (iv) made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment.
(gg) No labor disturbance by the employees of the Company exists or, to
the knowledge of the Company, is imminent which might be expected to have a
Material Adverse Effect.
(hh) The Company is not, and upon the issuance and sale of the Notes as
herein contemplated and the application of the net proceeds therefrom as
described in the Offering Memorandum will not be, an "investment company" or an
entity "controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(ii) Assuming the accuracy of the representations and warranties of the
Initial Purchasers contained in Section 6 and their compliance with the
agreements set forth therein, the Securities will be eligible for resale
pursuant to Rule 144A. No securities of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as the Notes are listed on any
national securities exchange registered under Section 6 of the Exchange Act or
quoted on an automated inter-dealer quotation system.
(jj) None of the Company or any of its Affiliates (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) (other than
the Initial Purchasers, about
10
which no representation is made by the Company), has, directly or through an
agent, engaged or will engage in any form of general solicitation or general
advertising in connection with the offering of the Notes (as those terms are
used in Regulation D) under the Securities Act or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities Act; the
Company has not entered into any contractual arrangement with respect to the
distribution of the Notes except for this Agreement and the Company will not
enter into any such arrangement.
(kk) None of the Company or any of its affiliates (other than the
Initial Purchasers, about which no representation is made by the Company), has,
directly or through any agent, sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any "security" (as defined in the
Securities Act) which is or will be integrated with the sale of the Notes in a
manner that would require the registration under the Securities Act of the
Notes.
(ll) The Company has not taken, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company in connection with the offering of the
Notes.
2. PURCHASE, SALE AND DELIVERY OF NOTES.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell to
each Initial Purchaser, and each Initial Purchaser agrees, severally and not
jointly, to purchase from the Company, at a purchase price of 97.00% of the
principal amount thereof (the "purchase price") the principal amount of Firm
Notes set forth opposite such Initial Purchaser's name in SCHEDULE I hereto (or
such number increased as set forth in Section 8).
Delivery of and payment for the Firm Notes shall be made at the office
of Brown & Wood LLP, One World Trade Center, New York, New York 10048, at 10:00
a.m. (New York City time) on October 17, 2000, or such later date as the Initial
Purchasers shall designate, which date and time may be postponed by agreement
between the Initial Purchasers and the Company or as provided in Section 8 (such
date and time of delivery and payment for the Firm Notes being herein called the
"First Delivery Date"). Delivery of the Firm Notes shall be made to the Initial
Purchasers against payment of the purchase price by the Initial Purchasers.
Payment for the Firm Notes shall be effected either by wire transfer of
immediately available funds to an account with a bank in The City of New York,
the account number and the ABA number for such bank to be provided by the
Company to the Initial Purchasers at least two business days in advance of the
First Delivery Date, or by such other manner of payment as may be agreed by the
Company and the Initial Purchasers. It is understood that each Initial Purchaser
has authorized the Representatives, for its account, to accept delivery of,
issue a receipt for, and make payment of the purchase price for, the Firm Notes
that it has agreed to purchase. Merrill Lynch, individually and not as
representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Firm Notes to be purchased by any
Initial Purchaser whose funds have not been received by the First Delivery Date
but such payment shall not relieve such Initial Purchaser from its obligations
hereunder.
11
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants the
Option to the Initial Purchasers to purchase, severally and not jointly, the
Optional Notes at the same price as the Initial Purchasers shall pay for the
Firm Notes and the principal amount of the Optional Notes to be sold to each
Initial Purchaser shall be that principal amount which bears the same ratio to
the aggregate principal amount of Optional Notes being purchased as the
principal amount of Firm Notes set forth opposite the name of such Initial
Purchaser in SCHEDULE I hereto (or such number increased as set forth in Section
8). The Option may be exercised only to cover over-allotments in the sale of the
Firm Notes by the Initial Purchasers. The Option may be exercised once in whole
or in part at any time not more than 30 days subsequent to the date of this
Agreement upon notice in writing or by facsimile by the Representatives to the
Company setting forth the amount (which shall be an integral multiple of $1,000)
of Optional Notes as to which the Initial Purchasers are exercising the Option.
The date for the delivery of and payment for the Optional Notes, being
herein referred to as an "Optional Delivery Date", which may be the First
Delivery Date (the First Delivery Date and the Optional Delivery Date, if any,
being sometimes referred to as a "Delivery Date"), shall be determined by the
Initial Purchasers but shall not be later than five full business days after
written notice of election to purchase Optional Notes is given. Delivery of the
Optional Notes shall be made to the Initial Purchasers against payment of the
purchase price by the Initial Purchasers. Payment for the Optional Notes shall
be effected either by wire transfer of immediately available funds to an account
with a bank in The City of New York, the account number and the ABA number for
such bank to be provided by the Company to the Initial Purchasers at least two
business days in advance of the Optional Delivery Date, or by such other manner
of payment as may be agreed by the Company and the Initial Purchasers. It is
understood that each Initial Purchaser has authorized the Representatives, for
its account, to accept delivery of, issue a receipt for, and make payment of the
purchase price for, the Optional Notes that it has agreed to purchase. Merrill
Lynch, individually and not as representative of the Initial Purchasers, may
(but shall not be obligated to) make payment of the purchase price for the
Optional Notes to be purchased by any Initial Purchaser whose funds have not
been received by the Delivery Date but such payment shall not relieve such
Initial Purchaser from its obligations hereunder.
(c) The Company will deliver against payment of the purchase price the
Notes initially sold to qualified institutional buyers ("QIBs"), as defined in
Rule 144A under the Securities Act ("Rule 144A") in the form of one or more
permanent global certificates (the "Global Notes"), registered in the name of
Cede & Co., as nominee for The Depository Trust Company ("DTC"). Beneficial
interests in the Notes initially sold to QIBs will be shown on, and transfers
thereof will be effected only through, records maintained in book-entry form by
DTC and its participants.
The Global Notes will be made available, at the request of the Initial
Purchasers, for checking at least 24 hours prior to such Delivery Date. The
Certificated Notes will be made available, at the request of the Initial
Purchasers, for checking at least 48 hours prior to such Delivery Date.
12
(d) Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligations
of the Initial Purchasers hereunder.
3. FURTHER AGREEMENTS OF THE COMPANY. The Company further agrees with
each Initial Purchaser as follows:
(a) The Company will advise the Initial Purchasers promptly of any
proposal to amend or supplement the Offering Memorandum and not to effect any
such amendment or supplement without the consent of the Initial Purchasers
and/or Brown & Wood LLP, counsel to the Initial Purchasers. Neither the consent
of the Initial Purchasers, nor the Initial Purchaser's delivery of any such
amendment or supplement, shall constitute a waiver of any of the conditions set
forth in Section 5. The Company will immediately notify each Initial Purchaser,
and confirm such notice in writing, of (i) any filing made by the Company of
information relating to the offering of the Notes by the Company with any
securities exchange or any other regulatory body in the United States or any
other jurisdiction, and (ii) prior to the completion of the placement of the
Notes by the Initial Purchasers as evidenced by a notice in writing from the
Initial Purchasers to the Company, any material changes in or affecting the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Company which (x) make any statement in the Offering Memorandum
false or misleading or (y) are not disclosed in the Offering Memorandum. In such
event or if during such time any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Offering Memorandum
in order that the Offering Memorandum will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time it is
delivered to a purchaser, not misleading, to promptly notify the Initial
Purchasers and/or Brown & Wood LLP, counsel to the Initial Purchasers, and
prepare, subject to the first sentence of this Section 3(a), such amendment or
supplement as may be necessary to correct such untrue statement or omission.
(b) The Company will furnish to the Initial Purchasers and to Brown &
Wood LLP, counsel to the Initial Purchasers, copies of the Preliminary Offering
Memorandum and the Offering Memorandum (and all amendments and supplements
thereto) in each case as soon as available and in such quantities as the Initial
Purchasers reasonably request for internal use and for distribution to
prospective purchasers; and to furnish to the Initial Purchasers on the date
hereof four copies of the Offering Memorandum signed by duly authorized officers
of the Company, one of which will include the independent auditors' reports
therein manually signed by such independent auditors. The Company will pay the
expenses of printing and distributing to the Initial Purchasers all such
documents.
(c) The Company will use its reasonable efforts to take such action as
the Initial Purchasers may reasonably request from time to time, to qualify the
Notes and the Conversion Shares for offering and sale under the securities laws
of such jurisdictions as the Initial Purchasers may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions in the United States for as long as may be necessary to complete
the resale of the Notes; PROVIDED that in connection therewith, the Company
shall not be required to qualify as a foreign corporation or otherwise subject
itself to taxation in any jurisdiction in which it is not otherwise so qualified
or subject.
13
(d) The Company will apply the proceeds from the sale of the Notes as
set forth under "Use of Proceeds" in the Offering Memorandum.
(e) During a period of 90 days from the date of the Offering
Memorandum, the Company will not, and will cause its directors and officers not
to, without the prior written consent of Merrill Lynch, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option right or
warrant to purchase or otherwise transfer or dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(collectively, the "Restricted Securities") or file any registration statement
under the Securities Act with respect to any Restricted Securities, or (ii)
enter into any swap or any other agreement or any transaction (other than the
Operative Documents) that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of any Restricted Securities,
whether any such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Restricted Securities, in cash or otherwise. The
foregoing sentence shall not apply to Authorized Grants, the issuance of shares
pursuant to Authorized Warrants, the Old Conversion Shares, the Conversion
Shares or the sale of up to $125 million in the aggregate of the Company's
Common Stock (as measured on the date of such sales(s)) only (x) in a private
placement or (y) in connection with the Company's acquisition of companies. The
Company further agrees not to permit to become effective under the Securities
Act during a period of 90 days from the date of the Offering Memorandum a
registration statement, other than a registration statement on Form S-4 relating
to the acquisition of the entity or of the outstanding securities of the entity
discussed under "Recent Events" in the Offering Memorandum, covering any shares
of the Company's Common Stock sold pursuant to a transaction described in
clauses (x) and (y) above. The Company further agrees to cause each officer and
director of the Company to furnish to the Initial Purchasers, prior to the First
Delivery Date, a letter or letters, in form and substance satisfactory to
counsel to the Initial Purchasers, pursuant to which each such person shall
agree not to enter into any transaction described in clause (i) or (ii) of the
first sentence of this paragraph; PROVIDED, HOWEVER, that such restrictions
shall not apply to the sale of up to 500,000 shares of Common Stock in the
aggregate by all such officers and directors.
(f) The Company agrees that it will not, and will cause its Affiliates
(as defined in Rule 501(b) of Regulation D) not to, directly or indirectly,
solicit any offer to buy, sell or make any offer or sale of, or otherwise
negotiate in respect of, securities of the Company of any class if, as a result
of the doctrine of "integration" referred to in Rule 502 under the Securities
Act, such offer or sale would render invalid (for the purpose of (i) the sale of
the Notes by the Company to the Initial Purchasers, (ii) the resale of the Notes
by the Initial Purchasers to subsequent purchasers or (iii) the resale of the
Notes or Conversion Shares by such subsequent purchasers to others) the
exemption from the registration requirements of the Securities Act provided by
Section 4(2) thereof or by Rule 144A thereunder or otherwise. Notwithstanding
the foregoing, no stockholder of the Company that does not control, is not
controlled by or is not under common control with, an officer or director of the
Company shall be deemed to be an Affiliate for purposes of this paragraph.
(g) For so long as any of the Notes are "restricted securities" within
the meaning of Rule 144(a)(3) under the Securities Act, the Company will provide
to any holder of the Notes or to any prospective purchaser of the Notes
designated by any holder, upon request of such holder
14
or prospective purchaser, information required to be provided by Rule 144A(d)(4)
of the Securities Act if, at the time of such request, the Company is not
subject to the reporting requirements under Section 13 or 15(d) of the Exchange
Act.
(h) Until the expiration of two years after the original issuance of
the Notes, the Company will not, and will cause its Affiliates (as defined in
Rule 501(b) of Regulation D) not to, resell any Notes or Conversion Shares which
are "restricted securities" (as such term is defined under Rule 144(a)(3) under
the Securities Act), whether as beneficial owner or otherwise (except as agent
acting as a securities broker on behalf of and for the account of customers in
the ordinary course of business in unsolicited broker's transactions).
Notwithstanding the foregoing, no stockholder of the Company that does not
control, is not controlled by or is not under common control with, an officer or
director of the Company shall be deemed to be an Affiliate for purposes of this
paragraph.
(i) Each of the Notes will bear, to the extent applicable, the legend
contained in "Notice to Investors" in the Offering Memorandum for the time
period and upon the other terms stated therein, except after the Notes are
resold pursuant to a registration statement effective under the Securities Act.
(j) The Company will take such steps as shall be necessary to ensure
that it shall not become an "investment company" within the meaning of such term
under the Investment Company Act, and the rules and regulations of the
Commission thereunder.
(k) None of the Company or any of its affiliates will take, directly or
indirectly, any action which is designed to stabilize or manipulate, or which
constitutes or which might reasonably be expected to cause or result in
stabilization or manipulation, of the price of any security of the Company in
connection with the offering of the Notes.
(l) The Company will execute and deliver the Registration Rights
Agreement in form and substance satisfactory to the Initial Purchasers.
(m) The Company will use its best efforts to assist the Initial
Purchasers in arranging to cause the Notes to be accepted to trade in the PORTAL
market ("PORTAL") of the National Association of Securities Dealers, Inc.
("NASD").
(n) The Company will use its best efforts to cause the Notes to be
accepted for clearance and settlement through the facilities of DTC.
(o) The Company will use its best efforts to have the Conversion Shares
approved by the Nasdaq National Market ("Nasdaq") for inclusion prior to the
effectiveness of the Registration Statement.
4. EXPENSES. The Company agrees to pay:
(a) the costs incident to the authorization, issuance, sale and
delivery of the Notes, and any taxes payable in that connection;
15
(b) the costs incident to the preparation, printing and distribution of
the Preliminary Offering Memorandum, the Offering Memorandum and any amendment
or supplement to the Offering Memorandum, all as provided in this Agreement;
(c) the costs of producing and distributing the Operative Documents;
(d) the fees and expenses of Cooley Godward LLP and Ernst & Young LLP;
(e) the costs of distributing the terms of agreement relating to the
organization of the underwriting syndicate and selling group to the members
thereof by mail, telex or other means of communication;
(f) the fees and expenses of qualifying the Notes under the securities
laws of the several jurisdictions as provided in Section 3(c);
(g) all costs and expenses incident to (i) the preparation of the "road
show" presentation materials and (ii) the road show travelling expenses of the
Company;
(h) the costs of preparing the Notes;
(i) all expenses and fees in connection with the application for
inclusion of the Notes in the PORTAL market and the inclusion of the Conversion
Shares on the NASDAQ;
(j) the fees and expenses (including fees and disbursements of counsel)
of the Trustee, and the costs and charges of any registrar, transfer agent,
paying agent or conversion agent; and
(k) all other costs and expenses incident to the performance of the
obligations of the Company under this Agreement;
PROVIDED that, except as provided in this Section 4 and in Section 7, the
Initial Purchasers shall pay their own costs and expenses, including the costs
and expenses of their counsel and any transfer taxes on the Notes which they may
sell.
5. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The several
obligations of the Initial Purchasers hereunder are subject to the accuracy,
when made and on each Delivery Date, of the representations and warranties of
the Company contained herein, to the performance by the Company of its
obligations hereunder, and to each of the following additional terms and
conditions:
(a) No Initial Purchaser shall have discovered and disclosed to the
Company prior to or on such Delivery Date that the Offering Memorandum or any
amendment or supplement thereto contains any untrue statement of a fact which,
in the opinion of counsel to the Initial Purchasers, is material or omits to
state any fact which is material and necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
16
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of the Operative Documents and the Offering
Memorandum or any amendment or supplement thereto, and all other legal matters
relating to the Operative Documents and the transactions contemplated thereby
shall be satisfactory in all material respects to counsel to the Initial
Purchasers, and the Company shall have furnished to such counsel all documents
and information that they may reasonably request to enable them to pass upon
such matters.
(c) Cooley Godward LLP shall have furnished to the Initial Purchasers
their written opinion, as counsel to the Company, addressed to the Initial
Purchasers and dated such Delivery Date, in form and substance satisfactory to
the Initial Purchasers, to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, and, based solely on certificates of public officials, is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a material
adverse effect on the Company, whether or not arising in the ordinary
course of business, and has all corporate power and authority necessary
to own or hold its properties and conduct the businesses in which it is
engaged, as described in the Offering Memorandum; and, to the knowledge
of such counsel, the Company has no subsidiaries;
(ii) the Conversion Shares, which are authorized on the date
hereof, have been duly and validly authorized and reserved for issuance
upon conversion of the Notes by all necessary corporate action and are
free of preemptive rights; all Conversion Shares, when so issued and
delivered upon such conversion in accordance with the terms of the
Indenture, will be duly and validly authorized and issued, fully paid
and nonassessable and free and clear of all liens, encumbrances,
equities or claims imposed by or arising from actions of the Company;
(iii) The statements in the Offering Memorandum under the
captions "Description of the Notes" and "Description of Capital Stock",
insofar as they purport to summarize the provisions of the Indenture,
the Registration Rights Agreement, the Notes and the Common Stock
(including the Conversion Shares) are accurate and complete in all
material respects to the extent required if such statements were
contained in a registration statement on Form S-3 under the Securities
Act;
(iv) There is no restriction upon the voting or transfer of,
any shares of Common Stock pursuant to the Company's certificate of
incorporation or bylaws;
(v) To the knowledge of such counsel and other than as set
forth in the Offering Memorandum, there are no legal or governmental
proceedings pending to which the Company is a party or of which any
property or asset of the Company is the subject which, if determined
adversely to the Company might have a material adverse effect on the
Company or which might reasonably be expected to materially and
adversely affect the consummation of the transactions contemplated by
this Agreement or the performance by the Company of its obligations
hereunder; to the actual knowledge of such counsel, no such proceedings
are overtly threatened or contemplated by governmental authorities or,
except as set forth or contemplated in the Offering Memorandum, overtly
threatened by others; and, to the actual knowledge of
17
such counsel, the aggregate of all pending legal or governmental
proceedings to which the Company is a party or of which any of its
property or assets is the subject (other than the Company's patent
applications currently pending before the U.S. Patent and Trademark
Office or before any foreign governmental authority that administers
the registration of patents) which are not described in the Offering
Memorandum, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a material
adverse effect on the Company.
(vi) The execution, delivery and performance of this
Agreement, the Indenture and the Registration Rights Agreement and the
issuance of the Notes and the Conversion Shares and the consummation of
the transactions contemplated hereby and thereby do not result in any
violation of the provisions of the certificate of incorporation or
bylaws of the Company or any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or body
having jurisdiction over the Company or any of its properties or
assets; and, except as may be required by the securities or "blue sky"
laws of any state of the United States in connection with the sale of
the Notes, no consent, approval, authorization or order of, or filing
or registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement
and the Indenture by the Company and the issuance of the Notes and the
Conversion Shares and the consummation of the transactions contemplated
hereby and thereby;
(vii) No registration of the Notes or the Conversion Shares
under the Securities Act, and no qualification of the Indenture or an
indenture under the Trust Indenture Act, is required in connection with
the offer, sale and delivery of the Notes or in connection with the
conversion of the Notes into Conversion Shares, in each case, in the
manner contemplated by the Offering Memorandum, this Agreement and the
Indenture;
(viii) The statements in the Offering Memorandum under the
caption "Certain United States Federal Income Tax Considerations",
insofar as they purport to constitute summaries of matters of United
States federal income tax law and regulations or legal conclusions with
respect thereto, constitute accurate summaries of the matters described
therein in all material respects to the extent required if such
statements were contained in a registration statement on Form S-3 under
the Securities Act;
(ix) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(x) The Company has all necessary corporate right, power and
authority to execute and deliver each of the Operative Documents to
which it is a party and to perform its obligations thereunder and to
issue, sell and deliver the Notes and the Conversion Shares to the
Initial Purchasers;
18
(xi) This Agreement has been duly authorized, executed and
delivered by the Company;
(xii) The Indenture has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and
delivery thereof by the Trustee, constitutes a legally valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms except as the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, subject to general principles of equity and to
limitations on availability of equitable relief, including specific
performance (regardless of whether such enforceability is considered in
a proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing;
(xiii) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and, assuming due
authorization, execution and delivery thereof by the Initial
Purchasers, constitutes a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms
except as rights to indemnity contained therein may be limited by
applicable law and except as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, subject to general principles of equity and to
limitations on availability of equitable relief, including specific
performance (regardless of whether such enforceability is considered in
a proceeding in equity or at law), by an implied covenant of good faith
and fair dealing; and
(xiv) The Notes have been duly authorized by the Company and
when executed, issued and authenticated in accordance with terms of the
Indenture and delivered to and paid for by the Initial Purchasers, will
constitute legally valid and binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms except as the enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, subject to general principles of
equity and to limitations on availability of equitable relief,
including specific performance (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by
an implied covenant of good faith and fair dealing.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the federal laws of the United States of America,
the laws of the State of New York and the Delaware General Corporation Law and
may state that it is relying, in respect of matters of New York law, upon Brown
& Wood LLP, and in respect of matters of fact, upon certificates of officers of
the Company, PROVIDED that such counsel shall state that it believes that the
Initial Purchasers and it are justified in relying upon such certificates. Such
counsel shall also have furnished to the Initial Purchasers a written statement,
addressed to the Initial Purchasers and dated such Delivery Date, in form and
substance satisfactory to the Initial Purchasers, to the effect that during the
course of preparing the Offering Memorandum, such counsel participated in
conferences with officers and other representatives of the Company, the
Company's independent public accountants, the Initial Purchasers and their
counsel, at which the contents of
19
the Offering Memorandum were discussed, and while such counsel has not
independently verified and is not passing upon the accuracy, completeness or
fairness of the statements made in the Offering Memorandum except as explicitly
set forth above, no facts have come to the attention of such counsel which lead
it to believe that the Offering Memorandum (other than the financial statements,
financial and statistical data and supporting schedules as to which such counsel
shall make no statement), as of its date or as of such Delivery Date, contained
or contains any untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(d) Stephen L. Hurst, Esq., General Counsel and Secretary of the
Company, shall have furnished to the Initial Purchasers his written opinion,
addressed to the Initial Purchasers and dated such Delivery Date, in form and
substance satisfactory to the Initial Purchasers, to the effect that:
(i) The authorized, issued and outstanding capital stock of the
Company, as of June 30, 2000, is as set forth in the Offering
Memorandum under the column entitled "Actual" under the caption
"Capitalization", and all of the issued and outstanding shares of
capital stock of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable;
(ii) Except as disclosed in the Offering Memorandum, there are no
preemptive or other rights to subscribe for or to purchase from the
Company, or any restriction upon the voting or transfer of, any shares
of Common Stock pursuant to any agreement or other instrument to which
the Company is a party known to such counsel; the issuance of the
Conversion Shares, upon conversion of the Notes in accordance with the
terms of the Indenture, will not be subject to the preemptive or other
similar rights of any securityholder of the Company and
(iii) The execution, delivery and performance of this Agreement,
the Indenture and the Registration Rights Agreement and the issuance of
the Notes and the Conversion Shares and the consummation of the
transactions contemplated hereby and thereby do not result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company is a party or by which the Company is bound or to which any of
the property or assets of the Company is subject.
Such counsel shall also have furnished to the Initial Purchasers a
written statement, addressed to the Initial Purchasers and dated such Delivery
Date, in form and substance satisfactory to the Initial Purchasers, to the
effect that he has no reason to believe that the statements under the captions
"Risk Factors--Our patents may not protect our products and our products may
infringe on third-party patent rights" and "Patents and Proprietary Rights" in
the Offering Memorandum, as of its date or as of such Delivery Date, contained
or contains any untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
20
(e) Brown & Wood LLP, shall have furnished to the Initial Purchasers
their written opinion, as counsel to the Initial Purchasers, addressed to the
Initial Purchasers and dated such Delivery Date, in form and substance
satisfactory to the Initial Purchasers.
(f) With respect to the letter of Ernst & Young LLP delivered to the
Initial Purchasers concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the Initial Purchasers a
letter (the "bring-down letter") of such accountants, addressed to the Initial
Purchasers and dated such Delivery Date (i) confirming that they are independent
accountants within the meaning of the Securities Act and are in compliance with
the applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of
the bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Offering Memorandum, as of a date not more than five
days prior to the date of the bring-down letter), the conclusions and findings
of such firm with respect to the financial information and other matters covered
by the initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(g) The Company shall have furnished to the Initial Purchasers on such
Delivery Date a certificate, dated such Delivery Date and delivered on behalf of
the Company by one of its co-chief executive officers and its chief financial
officer, in form and substance satisfactory to the Initial Purchasers, to the
effect that:
(i) The representations, warranties and agreements of the Company
in Section 1 are true and correct as of the date given and as of such
Delivery Date; and the Company has complied in all material respects
with all its agreements contained herein to be performed prior to or on
such Delivery Date;
(ii) (A) The Company has not sustained since the date of the latest
audited financial statements included in the Offering Memorandum any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, except (x) as
set forth or contemplated in the Offering Memorandum and (y) for
operating losses incurred in the ordinary course of business, or (B)
since such date there has not been any change in the capital stock or
long-term debt of the Company (except for issuances of shares of Common
Stock upon conversion of Old Debentures or exercise of outstanding
options or warrants described in the Offering Memorandum or pursuant to
Authorized Grants, Authorized Warrants or the Dressler Issuance), or
any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, except as
set forth or contemplated in the Offering Memorandum; and
(iii) Such officer has carefully examined the Offering Memorandum
and, in such officer's opinion (A) the Offering Memorandum, as of its
date, did not include any untrue statement of a material fact and did
not omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, and (B) since the date of the Offering Memorandum, no
event has
21
occurred which should have been set forth in a supplement or
amendment to the Offering Memorandum.
(h) The Indenture shall have been duly executed and delivered by the
Company and the Trustee and the Notes shall have been duly executed and
delivered by the Company and duly authenticated by the Trustee.
(i) The Company and the Initial Purchasers shall have executed and
delivered the Registration Rights Agreement (in form and substance satisfactory
to the Initial Purchasers) and the Registration Rights Agreement shall be in
full force and effect.
(j) The NASD shall have accepted the Notes for trading on PORTAL.
(k) (i) The Company shall not have sustained since the date of the
latest audited financial statements included in the Offering Memorandum any loss
or interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, except (A) as set forth or contemplated in
the Offering Memorandum and (B) for operating losses incurred in the ordinary
course of business, or (ii) since such date there shall not have been any change
in the capital stock or long-term debt of the Company (except for issuances of
shares of Common Stock upon conversion of Old Debentures or exercise of
outstanding options or warrants described in the Offering Memorandum or pursuant
to Authorized Grants, Authorized Warrants or the Dressler Issuance), or any
change, or any development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company, except as set forth or contemplated in the
Offering Memorandum, the effect of which, in any such case described in clause
(i) or (ii), is, in the reasonable judgment of the Initial Purchasers, so
material and adverse as to make it impracticable or inadvisable to proceed with
the sale or the delivery of the Notes being delivered on such Delivery Date on
the terms and in the manner contemplated in the Offering Memorandum.
(l) The Company shall have furnished to the Initial Purchasers such
further information, certificates and documents as the Initial Purchasers may
reasonably request to evidence compliance with the conditions set forth in this
Section 5.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
to the Initial Purchasers.
If any condition specified in this Section 5 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Representatives by notice to the Company at any time at or prior to the
First Delivery Date, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and except that
Sections 1 and 7 shall survive any such termination and remain in full force and
effect.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF INITIAL PURCHASERS.
Each Initial Purchaser, severally and not jointly, represents and warrants that
such Initial Purchaser is a QIB. Each Initial Purchaser, severally and not
jointly, agrees with the Company that:
22
(a) The Notes and the Conversion Shares have not been and will not be
registered under the Securities Act in connection with the initial offering of
the Notes.
(b) Such Initial Purchaser is a QIB;
(c) Such Initial Purchaser will not offer or sell the Notes in the
United States by means of any form of general solicitation or general
advertising within the meaning of Rule 502(c) of Regulation D, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising in the United States; and
(d) Such Initial Purchaser has not offered or sold, and will not offer
or sell, any Notes in the United States except to persons whom it reasonably
believes to be QIBs.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each Initial
Purchaser, its officers and employees and each person, if any, who controls any
Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of the Notes), to which that Initial Purchaser, officer,
employee or controlling person may become subject:
(i) insofar as such loss, claim, damage, liability or action arises
out of, or is based upon: (A) any untrue statement or alleged untrue
statement of a material fact contained in (I) any Preliminary Offering
Memorandum or the Offering Memorandum, or in any amendment or
supplement thereto, or (II) any blue sky application or other document
prepared or executed by the Company (or based upon any written
information furnished by the Company) filed in any jurisdiction
specifically for the purpose of qualifying any or all of the Notes
under the securities laws of any state or other jurisdiction (such
application, document or information being hereinafter called a "Blue
Sky Application"), or (B) the omission or alleged omission to state
therein any material fact necessary to make the statements therein not
misleading; or
(ii) to the extent of the aggregate amount paid in settlement of
any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged
untrue statement or omission; provided that (subject to Section 7(c))
any such settlement is effected with the written consent of the
Company,
and shall reimburse each Initial Purchaser and each such officer, employee and
controlling person promptly upon demand for any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by Merrill
Lynch, except as reimbursement of such fees may be limited by Section 7(c)),
reasonably incurred by that Initial Purchaser, officer, employee or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred;
23
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Offering Memorandum or the Offering
Memorandum, or in any such amendment or supplement, or in any Blue Sky
Application in reliance upon and in conformity with the written information
furnished to the Company by or on behalf of any Initial Purchaser specifically
for inclusion therein and described in Section 7(e); PROVIDED, FURTHER, that as
to any Preliminary Offering Memorandum, this indemnity agreement shall not inure
to the benefit of any Initial Purchaser, its officers or employees or any person
controlling that Initial Purchaser on account of any loss, claim, damage,
liability or action arising from the sale of Notes to any person by that Initial
Purchaser if that Initial Purchaser failed to send or give a copy of the
Offering Memorandum, as the same may be amended or supplemented, to that person,
and the untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact in such Preliminary
Offering Memorandum was corrected in the Offering Memorandum, unless such
failure resulted from non-compliance by the Company with Section 3(b). The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Initial Purchaser or to any officer, employee or
controlling person of that Initial Purchaser.
(b) Each Initial Purchaser, severally and not jointly, shall indemnify
and hold harmless, the Company, its officers and directors, and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any loss, claim, damage
or liability, joint or several, or any action in respect thereof, to which the
Company or any such director, officer or controlling person may become subject,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon:
(i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Offering Memorandum or the Offering
Memorandum or in any amendment or supplement thereto, or in any Blue
Sky Application, or
(ii) the omission or alleged omission to state therein any material
fact necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with the written information furnished to the Company by or on behalf
of that Initial Purchaser specifically for inclusion therein and described in
Section 7(e), and shall reimburse the Company and any such director, officer or
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any Initial Purchaser may otherwise have to the Company or any such
director, officer or controlling person.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 7, notify the
24
indemnifying party in writing of the claim or the commencement of that action;
PROVIDED, HOWEVER, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 7 except to
the extent it has been materially prejudiced by such failure and, PROVIDED,
FURTHER, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise than
under this Section 7. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 7 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; PROVIDED,
HOWEVER, that the Initial Purchasers shall have the right to employ counsel to
represent jointly the Initial Purchasers and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Initial Purchasers
against the Company under this Section 7, if the Initial Purchasers shall have
reasonably concluded that there may be one or more legal defenses available to
the Initial Purchasers and their respective officers, employees and controlling
persons that are different from or additional to those available to the Company
and its officers, employees and controlling persons, the fees and expenses of a
single separate counsel shall be paid by the Company. No indemnifying party
shall:
(i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld) settle or compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim
or action) unless such settlement, compromise or consent (1) includes
an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding and (2) does not
include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party, or
(ii) be liable for any settlement of any such action effected
without its written consent (which consent shall not be unreasonably
withheld) but if settled with its written consent or if there be a
final judgment of the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from
and against any loss of liability by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 7 shall for any
reason be unavailable or insufficient to hold harmless an indemnified party
under Section 7(a) or 7(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof:
25
(i) in such proportion as shall be appropriate to reflect the
relative benefits received by the Company on the one hand and the
Initial Purchasers on the other from the offering of the Notes, or
(ii) if the allocation provided by clause 7(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) but also the
relative fault of the Company on the one hand and the Initial
Purchasers on the other with respect to the statements or omissions or
alleged statements or alleged omissions that resulted in such loss,
claim, damage or liability (or action in respect thereof), as well as
any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other with respect to such offering shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Notes purchased under this Agreement (before deducting expenses) received by the
Company on the one hand, and the total discounts and commissions received by the
Initial Purchasers with respect to the Notes purchased under this Agreement, on
the other hand, bear to the total gross proceeds from the offering of the Notes
under this Agreement, in each case as set forth in the table on the cover page
of the Offering Memorandum.
The relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Initial Purchasers, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if the amount of contributions pursuant to this Section 7(d) were
to be determined by PRO RATA allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section 7(d) shall be deemed to include, for purposes of this
Section 7(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, preparing or defending any
such litigation, investigation or proceeding by any governmental agency or body,
or commenced or threatened action or claim.
Notwithstanding the provisions of this Section 7(d), no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the Notes resold by it in the initial placement
of such Notes were offered to investors exceeds the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
26
For purposes of this Section 7(d), each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Initial Purchaser, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company. The Initial
Purchasers' obligations to contribute as provided in this Section 7(d) are
several in proportion to their respective purchase obligations and not joint.
(e) The Initial Purchasers severally confirm that the statements (i)
with respect to the offering of the Notes set forth in the third sentence of the
ninth paragraph on the cover page of the Offering Memorandum; (ii) in the third
sentence of the second paragraph under the heading "Plan of Distribution" in the
Offering Memorandum; (iii) in the fourth paragraph under "Plan of Distribution";
(iv) in the first paragraph under the heading "Plan of Distribution--Commissions
and Discounts" in the Offering Memorandum; (v) in the paragraph under the
heading "Plan of Distribution--Notes Are Not Being Registered" in the Offering
Memorandum; (vi) in the third and fourth sentences of the first paragraph under
the heading "Plan of Distribution--New Issue of Notes" in the Offering
Memorandum; and (vii) in the first and third sentences of the first paragraph
under the heading "Plan of Distribution--Price Stabilization and Short
Positions" in the Offering Memorandum are correct and constitute the only
information furnished in writing to the Company by or on behalf of the Initial
Purchasers specifically for inclusion in the Offering Memorandum.
8. DEFAULTING INITIAL PURCHASERS.
If, on any Delivery Date, any Initial Purchaser defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Initial Purchasers shall be obligated to purchase the aggregate
principal amount of Notes which the defaulting Initial Purchaser agreed but
failed to purchase on such Delivery Date in the respective proportions which the
total aggregate principal amount of Notes set opposite the name of each
remaining non-defaulting Initial Purchaser in Schedule 1 hereto bears to the
total aggregate principal amount of Notes set opposite the names of all the
remaining non-defaulting Initial Purchasers in Schedule 1 hereto; PROVIDED,
HOWEVER, that the remaining non-defaulting Initial Purchasers shall not be
obligated to purchase any Notes on such Delivery Date if the total aggregate
principal amount of Notes which the defaulting Initial Purchasers agreed but
failed to purchase on such date exceeds 9.09% of the total aggregate principal
amount at maturity of Notes to be purchased on such Delivery Date, and any
remaining non-defaulting Initial Purchaser shall not be obligated to purchase
more than 110% of the aggregate principal amount at maturity of Notes which it
agreed to purchase on such Delivery Date pursuant to the terms of Section 2. If
the foregoing maximums are exceeded, the remaining non-defaulting Initial
Purchasers, or those other purchasers satisfactory to the Initial Purchasers who
so agree, shall have the right, but shall not be obligated, to purchase on such
Delivery Date, in such proportion as may be agreed upon among them, the total
aggregate principal amount of Notes to be purchased on such Delivery Date. If
the remaining Initial Purchasers or other purchasers satisfactory to the Initial
Purchasers do not elect to purchase on such Delivery Date the aggregate
principal amount of Notes which the defaulting Initial Purchasers agreed but
failed to purchase, this Agreement (or with respect to the Optional Delivery
Date, the obligation of the Initial Purchasers to purchase the Optional Notes)
shall terminate without liability on the part of any non-defaulting Initial
Purchasers and
27
the Company, except that the Company will continue to be liable for the payment
of expenses to the extent set forth in Sections 4 and 10. As used in this
Agreement, the term "Initial Purchaser" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 8, purchases Notes which a
defaulting Initial Purchaser agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Initial Purchaser
of any liability it may have to the Company for damages caused by its default.
If other purchasers are obligated or agree to purchase the Notes of a defaulting
or withdrawing Initial Purchaser, either the remaining non-defaulting Initial
Purchasers or the Company may postpone the Delivery Date for up to seven full
business days in order to effect any changes in the Offering Memorandum or in
any other document or arrangement that, in the opinion of counsel to the Company
or counsel to the Initial Purchasers, may be necessary.
9. TERMINATION.
(a) The obligations of the Initial Purchasers hereunder may be
terminated by the Initial Purchasers by notice given to and received by the
Company prior to delivery of and payment for the Notes if, prior to that time:
(i) there has occurred one of the events described in Section 5(k), or (ii)
there has occurred any material adverse change in the financial markets in the
United States, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Notes or to enforce contracts for
the sale of the Notes, or (iii) trading in any securities of the Company has
been suspended or materially limited by the Commission or the Nasdaq National
Market, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in The Nasdaq Stock Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) a banking moratorium has been
declared by either Federal or New York authorities.
(b) If this Agreement is terminated pursuant to this Section 9, such
termination shall be without liability of any party to any other party except as
provided in Section 10 and PROVIDED, FURTHER, that Sections 1, 7 and 13 shall
survive such termination and remain in full force and effect.
10. REIMBURSEMENT OF INITIAL PURCHASERS' EXPENSES. If (a) the Company
shall fail to tender the Notes for delivery to the Initial Purchasers for any
reason permitted under this Agreement or (b) the Initial Purchasers shall
decline to purchase the Notes for any reason permitted under this Agreement
(including the termination of this Agreement pursuant to Section 9), the Company
shall reimburse the Initial Purchasers for the fees and expenses of their
counsel and for such other out-of-pocket expenses as shall have been incurred by
them in connection with this Agreement and the proposed purchase of the Notes,
and upon demand the Company shall pay the full amount thereof to the Initial
Purchasers. If this Agreement is terminated pursuant to Section 8 by reason of
the default of one or more Initial Purchasers, the
28
Company shall not be obligated to reimburse any defaulting Initial Purchaser on
account of those expenses.
11. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail,
telex or facsimile transmission to c/o Merrill Lynch & Co., North Tower, World
Financial Center, New York, New York 10281, Attention: Paul A. Pepe (Fax:
212-738-1069); and
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to Inhale Therapeutic Systems, Inc., 150 Industrial Road,
San Carlos, California 94070, Attention: Stephen L. Hurst, Esq. (Fax:
650-631-3150).
PROVIDED, HOWEVER, that any notice to an Initial Purchaser pursuant to Section
7(c) shall be delivered or sent by mail, telex or facsimile transmission to each
such Initial Purchaser, which address will be supplied to any other party hereto
by Lehman Brothers Inc. upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Initial Purchasers by Merrill Lynch.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers, the Company
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the officers and
employees of each Initial Purchaser and the person or persons, if any, who
control each Initial Purchaser within the meaning of Section 15 of the
Securities Act and any indemnity agreement of the Initial Purchasers contained
in Section 7(b) of this Agreement shall be deemed to be for the benefit of
directors, officers and employees of the Company, and any person controlling the
Company within the meaning of Section 15 of the Securities Act. Nothing
contained in this Agreement is intended or shall be construed to give any
person, other than the persons referred to in this Section 12, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
13. SURVIVAL. The respective indemnities, representations, warranties
and agreements of the Company and the Initial Purchasers contained in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Notes and shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement or any investigation made by or on behalf of any of them or
any person controlling any of them.
14. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the rules and regulations promulgated under the
Securities Act.
29
15. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
30
If the foregoing correctly sets forth the agreement between the Company
and the Initial Purchasers, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
INHALE THERAPEUTIC SYSTEMS, INC.
By: ___________________________
Name:
Title:
Accepted and agreed by:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEUTSCHE BANK SECURITIES INC.
LEHMAN BROTHERS INC.
U.S. BANCORP PIPER JAFFRAY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _________________________________
Authorized Representative
31
SCHEDULE 1
PRINCIPAL AMOUNT
INITIAL PURCHASERS OF FIRM NOTES
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..........................................$100,000,000
Deutsche Bank Securities Inc...........................................$60,000,000
Lehman Brothers Inc. ..................................................$24,000,000
U.S. Bancorp Piper Jaffray Inc.........................................$16,000,000
Total............................................................$200,000,000
Exhibit 4.17
RESALE REGISTRATION RIGHTS AGREEMENT
among
INHALE THERAPEUTIC SYSTEMS, INC.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEUTSCHE BANK SECURITIES INC.
LEHMAN BROTHERS INC.
and
U.S. BANCORP PIPER JAFFRAY INC.
Dated as of October 17, 2000
Resale Registration Rights Agreement (the "Agreement"), dated as of
October 17, 2000 among Inhale Therapeutic Systems, Inc., a Delaware corporation
(together with any successor entity, herein referred to as the "Issuer"),
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities
Inc., Lehman Brothers Inc., and U.S. Bancorp Piper Jaffray Inc. (collectively,
the "Initial Purchasers").
Pursuant to the Purchase Agreement, dated October 11, 2000, between the
Issuer and the Initial Purchasers (the "Purchase Agreement"), the Initial
Purchasers have agreed to purchase from the Issuer up to $200,000,000
($250,000,000 if the Initial Purchasers exercise the over-allotment option in
full) in aggregate principal amount of 3 1/2% Convertible Subordinated Notes due
2007 (the "Notes"). The Notes will be convertible into fully paid, nonassessable
common stock, par value $0.0001 per share, of the Issuer (the "Common Stock") on
the terms, and subject to the conditions, set forth in the Indenture (as defined
herein). To induce the Initial Purchasers to purchase the Notes, the Issuer has
agreed to provide the registration rights set forth in this Agreement pursuant
to Section 3(l) of the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
terms shall have the following meanings:
ADVICE: As defined in Section 4(c)(ii) hereof.
AGREEMENT: As defined in the preamble hereto.
BLUE SKY APPLICATION: As defined in Section 6(a) hereof.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
BUSINESS DAY: A day other than a Saturday or Sunday or any federal
holiday in the United States.
CLOSING DATE: The date of this Agreement.
COMMISSION: Securities and Exchange Commission.
COMMON STOCK: As defined in the preamble hereto.
DAMAGES PAYMENT DATE: Each Interest Payment Date. For purposes of this
Agreement, if no Notes are outstanding, "Damages Payment Date" shall mean each
April 17 and October 17.
EFFECTIVENESS PERIOD: As defined in Section 2(a)(iii) hereof.
EFFECTIVENESS TARGET DATE: As defined in Section 2(a)(ii) hereof.
EXCHANGE ACT: Securities Exchange Act of 1934, as amended.
HOLDER: A Person who owns, beneficially or otherwise, Transfer
Restricted Securities.
1
INDEMNIFIED HOLDER: As defined in Section 6(a) hereof.
INDENTURE: The Indenture, dated as of October 17, 2000, between the
Issuer and Chase Manhattan Bank and Trust Company, National Association, as
trustee (the "Trustee"), pursuant to which the Notes are to be issued, as such
Indenture is amended, modified or supplemented from time to time in accordance
with the terms thereof.
INITIAL PURCHASERS: As defined in the preamble hereto.
INTEREST PAYMENT DATE: As defined in the Indenture.
ISSUER: As defined in the preamble hereto.
LIQUIDATED DAMAGES: As defined in Section 3(a) hereof.
MAJORITY OF HOLDERS: Holders holding over 50% of the aggregate
principal amount of Notes outstanding; provided that, for purpose of this
definition, a holder of shares of Common Stock which constitute Transfer
Restricted Securities and were issued upon conversion of the Notes shall be
deemed to hold an aggregate principal amount of Notes (in addition to the
aggregate principal amount of Notes held by such holder) equal to the aggregate
principal amount of Notes converted by such Holder into such shares of Common
Stock.
NASD: National Association of Securities Dealers, Inc.
NOTES: As defined in the preamble hereto.
PERSON: An individual, partnership, corporation, unincorporated
organization, trust, joint venture or a government or agency or political
subdivision thereof.
PROSPECTUS: The prospectus included in a Shelf Registration Statement,
as amended or supplemented by any prospectus supplement and by all other
amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
QUESTIONNAIRE DEADLINE: As defined in Section 2(b) hereof.
RECORD HOLDER: With respect to any Damages Payment Date, each Person
who is a Holder on the record date with respect to the Interest Payment Date on
which such Damages Payment Date shall occur. In the case of a Holder of shares
of Common Stock issued upon conversion of the Notes, "Record Holder" shall mean
each Person who is a Holder of shares of Common Stock which constitute Transfer
Restricted Securities on the April 2 or October 2 immediately preceding the
Damages Payment Date.
REGISTRATION DEFAULT: As defined in Section 3(a) hereof.
SALE NOTICE: As defined in Section 4(e) hereof.
SECURITIES ACT: Securities Act of 1933, as amended.
SHELF FILING DEADLINE: As defined in Section 2(a)(i) hereof.
2
SHELF REGISTRATION STATEMENT: As defined in Section 2(a)(i) hereof.
SUSPENSION PERIOD. As defined in Section 4(b)(i) hereof.
TIA: Trust Indenture Act of 1939, as in effect on the date the
Indenture is qualified under the TIA.
TRANSFER RESTRICTED SECURITIES: Each Note and each share of Common
Stock issued upon conversion of Notes until the earlier of:
(i) the date on which such Note or such share of Common Stock issued
upon conversion has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration
Statement;
(ii) the date on which such Note or such share of Common Stock
issued upon conversion is transferred in compliance with Rule 144 under
the Securities Act or may be sold or transferred pursuant to Rule 144
under the Securities Act (or any other similar provision then in
force); or
(iii) the date on which such Note or such share of Common Stock
issued upon conversion ceases to be outstanding (whether as a result of
redemption, repurchase and cancellation, conversion or otherwise).
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Issuer are sold to an underwriter for reoffering to the
public.
2. SHELF REGISTRATION.
(a) The Issuer shall:
(i) not later than 90 days after the date hereof (the "Shelf Filing
Deadline"), cause to be filed a registration statement pursuant to Rule
415 under the Securities Act (the "Shelf Registration Statement"),
which Shelf Registration Statement shall provide for resales of all
Transfer Restricted Securities held by Holders that have provided the
information required pursuant to the terms of Section 2(b) hereof;
(ii) use its best efforts to cause the Shelf Registration Statement
to be declared effective by the Commission as promptly as reasonably
practicable, but in no event later than 180 days after the date hereof
(the "Effectiveness Target Date"); and
(iii) use its best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended as required by the
provisions of Section 4(b) hereof to the extent necessary to ensure
that (A) it is available for resales by the Holders of Transfer
Restricted Securities entitled to the benefit of this Agreement and (B)
conforms with the requirements of this Agreement and the Securities Act
and the rules and regulations of the Commission promulgated thereunder
as announced from time to time for a period (the "Effectiveness
Period") of:
3
(1) two years following the last date of original issuance of
Notes; or
(2) such shorter period that will terminate when (x) all of the
Holders of Transfer Restricted Securities are able to sell all
Transfer Restricted Securities immediately without restriction
pursuant to Rule 144(k) under the Securities Act or any successor
rule thereto, (y) when all Transfer Restricted Securities have
ceased to be outstanding (whether as a result of redemption,
repurchase and cancellation, conversion or otherwise) or (z) all
Transfer Restricted Securities registered under the Shelf
Registration Statement have been sold.
(b) No Holder of Transfer Restricted Securities may include any of its
Transfer Restricted Securities in the Shelf Registration Statement pursuant to
this Agreement unless such Holder furnishes to the Issuer in writing, prior to
or on the 20th Business Day after receipt of a request therefor (the
"Questionnaire Deadline"), such information as the Issuer may reasonably request
for use in connection with the Shelf Registration Statement or the Prospectus or
preliminary Prospectus included therein and in any application to be filed with
or under state securities laws. In connection with all such requests for
information from Holders of Transfer Restricted Securities, the Issuer shall
notify such Holders of the requirements set forth in the preceding sentence. No
Holder of Transfer Restricted Securities shall be entitled to Liquidated Damages
pursuant to Section 3 hereof unless such Holder shall have provided all such
reasonably requested information prior to or on the Questionnaire Deadline. Each
Holder as to which the Shelf Registration Statement is being effected agrees to
furnish promptly to the Issuer all information required to be disclosed in order
to make information previously furnished to the Issuer by such Holder not
materially misleading.
3. LIQUIDATED DAMAGES.
(a) If:
(i) the Shelf Registration Statement is not filed with the
Commission prior to or on the Shelf Filing Deadline;
(ii) the Shelf Registration Statement has not been declared
effective by the Commission prior to or on the Effective Target Date;
(iii) subject to the provisions of Section 4(b)(i) hereof, the Shelf
Registration Statement is filed and declared effective but, during the
Effectiveness Period, shall thereafter cease to be effective or fail to
be usable for its intended purpose without being succeeded within five
Business Days by a post-effective amendment to the Shelf Registration
Statement or a report filed with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such failure
and, in the case of a post-effective amendment, is itself immediately
declared effective; or
(iv) prior to or on the 45th or 60th day, as the case may be, of any
Suspension Period, such suspension has not been terminated,
4
(each such event referred to in foregoing clauses (i) through (iv),
a "Registration Default"), the Issuer hereby agrees to pay liquidated
damages ("Liquidated Damages") with respect to the Transfer Restricted
Securities from and including the day following the Registration
Default to but excluding the day on which the Registration Default has
been cured:
(A) in respect of the Notes, to each holder of Notes, (x) with
respect to the first 90-day period during which a Registration
Default shall have occurred and be continuing, in an amount per
year equal to an additional 0.25% of the principal amount of the
Notes, and (y) with respect to the period commencing on the 91st
day following the day the Registration Default shall have occurred
and be continuing, in an amount per year equal to an additional
0.50% of the principal amount of the Notes; provided that in no
event shall Liquidated Damages accrue at a rate per year exceeding
0.50% of the principal amount of the Notes; and
(B) in respect of any shares of Common Stock, to each holder of
shares of Common Stock issued upon conversion of Notes, (x) with
respect to the first 90-day period in which a Registration Default
shall have occurred and be continuing, in an amount per year equal
to 0.25% of the principal amount of the converted Notes, and (y)
with respect to the period commencing the 91st day following the
day the Registration Default shall have occurred and be continuing,
in an amount per year equal to 0.50% of the principal amount of the
converted Notes; provided that in no event shall Liquidated Damages
accrue at a rate per year exceeding 0.50% of the principal amount
of the converted Notes.
(b) All accrued Liquidated Damages shall be paid in arrears to Record
Holders by the Issuer on each Damages Payment Date by wire transfer of
immediately available funds or by federal funds check. Following the cure of all
Registration Defaults relating to any particular Note or share of Common Stock,
the accrual of Liquidated Damages with respect to such Note or share of Common
Stock will cease.
All obligations of the Issuer set forth in this Section 3 that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such Transfer Restricted Security
shall have been satisfied in full.
The Liquidated Damages set forth above shall be the exclusive monetary
remedy available to the Holders of Transfer Restricted Securities for such
Registration Default.
4. REGISTRATION PROCEDURES.
(a) In connection with the Shelf Registration Statement, the Issuer
shall comply with all the provisions of Section 4(b) hereof and shall use its
best efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof, and pursuant thereto, shall as expeditiously as
possible prepare and file with the Commission a Shelf Registration Statement
relating to the registration on any appropriate form under the Securities Act.
5
(b) In connection with the Shelf Registration Statement and any
Prospectus required by this Agreement to permit the sale or resale of Transfer
Restricted Securities, the Issuer shall:
(i) Subject to any notice by the Issuer in accordance with this
Section 4(b) of the existence of any fact or event of the kind
described in Section 4(b)(iii)(D), use its best efforts to keep the
Shelf Registration Statement continuously effective during the
Effectiveness Period; upon the occurrence of any event that would cause
the Shelf Registration Statement or the Prospectus contained therein
(A) to contain a material misstatement or omission or (B) not be
effective and usable for resale of Transfer Restricted Securities
during the Effectiveness Period, the Issuer shall file promptly an
appropriate amendment to the Shelf Registration Statement or a report
filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B),
use its best efforts to cause such amendment to be declared effective
and the Shelf Registration Statement and the related Prospectus to
become usable for their intended purposes as soon as practicable
thereafter. Notwithstanding the foregoing, the Issuer may suspend the
effectiveness of the Shelf Registration Statement by written notice to
the Holders for a period not to exceed an aggregate of 45 days in any
90-day period (each such period, a "Suspension Period") if:
(x) an event occurs and is continuing as a result of
which the Shelf Registration Statement would, in the Issuer's
reasonable judgment, contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and
(y) the Issuer reasonably determines that the
disclosure of such event at such time would have a material
adverse effect on the business of the Issuer (and its
subsidiaries, if any, taken as a whole);
PROVIDED that in the event the disclosure relates to a previously undisclosed
proposed or pending material business transaction, the disclosure of which would
impede the Issuer's ability to consummate such transaction, the Issuer may
extend a Suspension Period from 45 days to 60 days; provided, however, that
Suspension Periods shall not exceed an aggregate of 90 days in any 360-day
period.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective during the
Effectiveness Period; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Securities
Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by the Shelf Registration Statement during the applicable
period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in the Shelf Registration
Statement or supplement to the Prospectus.
6
(iii) Advise the underwriter(s), if any, and selling Holders
promptly (but in any event within five Business Days) and, if requested
by such Persons, to confirm such advice in writing:
(A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Shelf Registration Statement or any post-effective amendment
thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Shelf
Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement
under the Securities Act or of the suspension by any state
securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes,
or
(D) of the existence of any fact or the happening of any event,
during the Effectiveness Period, that makes any statement of a
material fact made in the Shelf Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Shelf Registration
Statement or the Prospectus in order to make the statements therein
not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Shelf Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Issuer shall use its
reasonable best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(iv) Furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, a copy of
the Shelf Registration Statement and copies of any Prospectus included
therein or any amendments or supplements to the Shelf Registration
Statement or Prospectus (other than documents incorporated by reference
after the initial filing of the Shelf Registration Statement), which
documents will be subject to the review of such holders and
underwriter(s), if any, for a period of at least ten Business Days, and
the Issuer will not file any Shelf Registration Statement or Prospectus
or any amendment or supplement to the Shelf Registration Statement or
Prospectus (other than documents incorporated by reference) to which a
selling Holder of Transfer Restricted Securities covered by the Shelf
Registration Statement or the underwriter(s), if any, shall reasonably
object within five Business Days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably
objected to such filing if the Shelf Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission. Notwithstanding the
foregoing, the Issuer shall not be required to furnish the selling
Holders with any
7
amendment or supplement to the Shelf Registration Statement or
Prospectus filed solely to reflect changes to the amount of Notes held
by any particular Holder at the request of such Holder or immaterial
revisions to the information contained therein.
(v) Make available at reasonable times for inspection by one or
more representatives of the selling Holders, designated in writing by a
Majority of Holders whose Transfer Restricted Securities are included
in the Shelf Registration Statement, any underwriter participating in
any distribution pursuant to the Shelf Registration Statement, and any
attorney or accountant retained by such selling Holders or any of the
underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Issuer as shall be reasonably necessary
to enable them to exercise any applicable due diligence
responsibilities, and cause the Issuer's officers, directors, managers
and employees to supply all information reasonably requested by any
such representative or representatives of the selling Holders,
underwriter, attorney or accountant in connection with the Shelf
Registration Statement after the filing thereof and before its
effectiveness; provided, however, that any information designated by
the Company as confidential at the time of delivery of such information
shall be kept confidential by the recipient thereof.
(vi) If requested by any selling Holders or the underwriter(s), if
any, promptly incorporate in the Shelf Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders and underwriter(s),
if any, may reasonably request to have included therein, including,
without limitation: (1) information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, (2) information
with respect to the principal amount of Notes or number of shares of
Common Stock being sold to such underwriter(s), (3) the purchase price
being paid therefor and (4) any other terms of the offering of the
Transfer Restricted Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as reasonably practicable after the Issuer is
notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment. Notwithstanding the foregoing,
following the effective date of the Shelf Registration Statement, the
Issuer shall not be required to file more than one such supplement or
post-effective amendment to reflect changes in the amount of Notes held
by any particular Holder at the request of such Holder in any 30-day
period.
(vii) Furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Shelf Registration Statement, as first filed with the Commission,
and of each amendment thereto (and any documents incorporated by
reference therein or exhibits thereto (or exhibits incorporated in
such exhibits by reference) as such Person may request).
(viii) Deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; subject to
any notice by the Issuer in accordance with this Section 4(b) of the
existence of any fact or event of the kind described in Section
4(b)(iii)(D), the Issuer hereby consents to the use of the Prospectus
and any amendment or supplement thereto by each of the
8
selling Holders and each of the underwriter(s), if any, in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto.
(ix) If an underwriting agreement is entered into and the
registration is an Underwritten Registration, the Issuer shall:
(A) upon request, furnish to each selling Holder and each
underwriter, in such substance and scope as they may reasonably
request and as are customarily made by issuers to underwriters in
primary underwritten offerings, upon the date of closing of any
sale of Transfer Restricted Securities in an Underwritten
Registration:
(1) a certificate, dated the date of such closing, signed
by the Chief Financial Officer of the Issuer confirming, as of
the date thereof, the matters set forth in Section 5(g) of the
Purchase Agreement and such other matters as such parties may
reasonably request;
(2) opinions, each dated the date of such closing, of
counsel to the Issuer covering such of the matters set forth in
Sections 5(c) and 5(d) of the Purchase Agreement as are
customarily covered in legal opinions to underwriters in
connection with primary underwritten offerings of securities;
and
(3) customary comfort letters, dated the date of such
closing, from the Issuer's independent certified public
accountants (and from any other accountants whose report is
contained or incorporated by reference in the Shelf
Registration Statement), in the customary form and covering
matters of the type customarily covered in comfort letters to
underwriters in connection with primary underwritten offerings
of securities;
(B) set forth in full in the underwriting agreement, if any,
indemnification provisions and procedures which provide rights no
less protective than those set forth in Section 6 hereof with
respect to all parties to be indemnified; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
selling Holders pursuant to this clause (ix).
(x) Before any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and
their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling
Holders or underwriter(s), if any, may reasonably request and do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the Shelf Registration Statement; provided, however,
9
that the Issuer shall not be required (A) to register or qualify as a
foreign corporation or a dealer of securities where it is not now so
qualified or to take any action that would subject it to the service of
process in any jurisdiction where it is not now so subject or (B) to
subject themselves to taxation in any such jurisdiction if they are not
now so subject.
(xi) Cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing
any restrictive legends (unless required by applicable securities
laws); and enable such Transfer Restricted Securities to be in such
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two Business Days before
any sale of Transfer Restricted Securities made by such underwriter(s).
(xii) Use its best efforts to cause the Transfer Restricted
Securities covered by the Shelf Registration Statement to be registered
with or approved by such other U.S. governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
or the underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities.
(xiii) Subject to Section 4(b)(i) hereof, if any fact or event
contemplated by Section 4(b)(iii)(D) hereof shall exist or have
occurred, use its reasonable best efforts to prepare a supplement or
post-effective amendment to the Shelf Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(xiv) Provide CUSIP numbers for all Transfer Restricted Securities
not later than the effective date of the Shelf Registration Statement
and provide the Trustee under the Indenture with certificates for the
Notes that are in a form eligible for deposit with The Depository Trust
Company.
(xv) Cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by
any underwriter that is required to be retained in accordance with the
rules and regulations of the NASD.
(xvi) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and all reporting requirements
under the rules and regulations of the Exchange Act.
(xvii) Cause the Indenture to be qualified under the TIA not later
than the effective date of the Shelf Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the
trustee and the holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its best
efforts to cause the trustee thereunder to execute all documents that
may be required to effect such changes
10
and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely
manner.
(xviii) Cause all Transfer Restricted Securities covered by the
Shelf Registration Statement to be listed or quoted, as the case may
be, on each securities exchange or automated quotation system on which
similar securities issued by the Issuer are then listed or quoted.
(xix) Provide promptly to each Holder upon written request each
document filed with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act after the effective date
of the Shelf Registration Statement.
(xx) If requested by the underwriters, make appropriate officers of
the Issuer available to the underwriters for meetings with prospective
purchasers of the Transfer Restricted Securities and prepare and
present to potential investors customary "road show" material in a
manner consistent with other new issuances of other securities similar
to the Transfer Restricted Securities.
(c) Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Issuer of the existence of any fact of
the kind described in Section 4(b)(iii)(D) hereof, such Holder will, and will
use its reasonable best efforts to cause any underwriter(s) in an Underwritten
Offering to, forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the Shelf Registration Statement until:
(i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 4(b)(xiii) hereof; or
(ii) such Holder is advised in writing (the "Advice") by the Issuer
that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by
reference in the Prospectus.
If so directed by the Issuer, each Holder will deliver to the Issuer (at the
Issuer's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice of suspension.
(d) Each Holder who intends to be named as a selling Holder in the
Shelf Registration Statement shall furnish to the Issuer in writing, within 20
Business Days after receipt of a request therefor as set forth in a
questionnaire, such information regarding such Holder and the proposed
distribution by such Holder of its Transfer Restricted Securities as the Issuer
may reasonably request for use in connection with the Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. (The form of
the questionnaire is attached hereto as Exhibit A.) Holders that do not complete
the questionnaire and deliver it to the Issuer shall not be named as selling
securityholders in the Prospectus or preliminary Prospectus included in the
Shelf Registration Statement and therefore shall not be permitted to sell any
Transfer Restricted Securities pursuant to the Shelf Registration Statement.
Each Holder who intends to be named as a selling Holder in the Shelf
Registration Statement shall promptly furnish to the Issuer in writing such
other information as the Issuer may from time to time reasonably request in
writing.
11
(e) Upon the effectiveness of the Shelf Registration Statement, each
Holder shall notify the Issuer at least three Business Days prior to any
intended distribution of Transfer Restricted Securities pursuant to the Shelf
Registration Statement (a "Sale Notice"), which notice shall be effective for
five Business Days. Each Holder of this Security, by accepting the same, agrees
to hold any communication by the Company in response to a Sale Notice in
confidence.
5. REGISTRATION EXPENSES.
(a) All expenses incident to the Issuer's performance of or compliance
with this Agreement shall be borne by the Issuer regardless of whether a Shelf
Registration Statement becomes effective, including, without limitation:
(i) all registration and filing fees and expenses (including
filings made by any Initial Purchasers or Holders with the NASD);
(ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws;
(iii) all expenses of printing (including printing of Prospectuses
and certificates for the Common Stock to be issued upon conversion of
the Notes), messenger and delivery services and telephone;
(iv) all fees and disbursements of counsel to the Issuer and,
subject to Section 5(b) below, the Holders of Transfer Restricted
Securities;
(v) all application and filing fees in connection with listing (or
authorizing for quotation) the Common Stock on a national securities
exchange or automated quotation system pursuant to the requirements
hereof; and
(vi) all fees and disbursements of independent certified public
accountants of the Issuer (including the expenses of any special audit
and comfort letters required by or incident to such performance).
The Issuer shall bear its internal expenses (including, without
limitation, all salaries and expenses of their officers and employees performing
legal, accounting or other duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Issuer.
(b) In connection with the Shelf Registration Statement required by
this Agreement, the Issuer shall reimburse the Initial Purchasers and the
Holders of Transfer Restricted Securities being registered pursuant to the Shelf
Registration Statement, as applicable, for the reasonable fees and disbursements
of not more than one counsel, which shall be Brown & Wood LLP, or such other
counsel as may be chosen by a Majority of Holders for whose benefit the Shelf
Registration Statement is being prepared.
12
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Issuer shall indemnify and hold harmless each Holder, such
Holder's officers and employees and each person, if any, who controls such
Holder within the meaning of the Securities Act (each, an "Indemnified Holder"),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to resales of the Transfer Restricted
Securities), to which such Indemnified Holder may become subject, insofar as any
such loss, claim, damage, liability or action arises out of, or is based upon:
(i) any untrue statement or alleged untrue statement of a material
fact contained in (A) the Shelf Registration Statement or Prospectus or
any amendment or supplement thereto or (B) any blue sky application or
other document or any amendment or supplement thereto prepared or
executed by the Issuer (or based upon written information furnished by
or on behalf of the Issuer expressly for use in such blue sky
application or other document or amendment on supplement) filed in any
jurisdiction specifically for the purpose of qualifying any or all of
the Transfer Restricted Securities under the securities law of any
state or other jurisdiction (such application or document being
hereinafter called a "Blue Sky Application"); or
(ii) the omission or alleged omission to state therein any material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading,
and shall reimburse each Indemnified Holder promptly upon demand for any legal
or other expenses reasonably incurred by such Indemnified Holder in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Issuer shall not be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement or omission or alleged
omission made in the Shelf Registration Statement or Prospectus or amendment or
supplement thereto or Blue Sky Application in reliance upon and in conformity
with written information furnished to the Issuer by or on behalf of any Holder
(or its related Indemnified Holder) specifically for use therein. The foregoing
indemnity agreement is in addition to any liability which the Issuer may
otherwise have to any Indemnified Holder.
(b) Each Holder, severally and not jointly, shall indemnify and hold
harmless the Issuer, its officers and employees and each person, if any, who
controls the Issuer within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Issuer or any such officer, employee or controlling person
may become subject, insofar as any such loss, claim, damage or liability or
action arises out of, or is based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in the Shelf Registration Statement or
Prospectus or any amendment or supplement thereto or any Blue Sky
Application; or
13
(ii) the omission or the alleged omission to state therein any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Issuer by or on behalf of
such Holder (or its related Indemnified Holder) specifically for use therein,
and shall reimburse the Issuer and any such officer, employee or controlling
person promptly upon demand for any legal or other expenses reasonably incurred
by the Issuer or any such officer, employee or controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Holder may
otherwise have to the Issuer and any such officer, employee or controlling
person.
(c) Promptly after receipt by an indemnified party under this Section 6
of notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 6 except to the extent it has been materially
prejudiced by such failure and, provided, further, that the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under this Section 6. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that a
Majority of Holders shall have the right to employ a single counsel to represent
jointly a Majority of Holders and their respective officers, employees and
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by a Majority of Holders against the
Issuer under this Section 6, if a Majority of Holders shall have reasonably
concluded that there may be one or more legal defenses available to them and
their respective officers, employees and controlling persons that are different
from or additional to those available to the Issuer and its officers, employees
and controlling persons, the fees and expenses of a single separate counsel
shall be paid by the Issuer. No indemnifying party shall:
(i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld) settle or compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim
or action) unless such settlement, compromise or consent (1) includes
an unconditional release of each
14
indemnified party from all liability arising out of such claim, action,
suit or proceeding and (2) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of
any indemnified party, or
(ii) be liable for any settlement of any such action effected
without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from
and against any loss of liability by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 6 shall for any
reason be unavailable or insufficient to hold harmless an indemnified party
under Section 6(a) or 6(b) in respect of any loss, claim, damage or liability
(or action in respect thereof) referred to therein, each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim,
damage or liability (or action in respect thereof):
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Issuer from the offering and sale of the
Transfer Restricted Securities on the one hand and a Holder with
respect to the sale by such Holder of the Transfer Restricted
Securities on the other, or
(ii) if the allocation provided by clause (6)(d)(i) is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 6(d)(i)
but also the relative fault of the Issuer on the one hand and the
Holders on the other in connection with the statements or omissions or
alleged statements or alleged omissions that resulted in such loss,
claim, damage or liability (or action in respect thereof), as well as
any other relevant equitable considerations.
The relative benefits received by the Issuer on the one hand and a
Holder on the other with respect to such offering and such sale shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Notes purchased under the Purchase Agreement (before deducting expenses)
received by the Issuer as set forth in the table on the cover of the Offering
Memorandum, dated October 11, 2000, on the one hand, bear to the total proceeds
received by such Holder with respect to its sale if Transfer Restricted
Securities on the other.
The relative fault of the parties shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuer on the one hand or the Holders on the other, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Issuer and each Holder agree that it would not be just and
equitable if the amount of contribution pursuant to this Section 6(d) were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the first
sentence of this paragraph (d). The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this
15
Section 6 shall be deemed to include, for purposes of this Section 6, any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating, or defending or preparing to defend any such litigation,
investigation or proceeding by any governmental agency or body, or commenced or
threatened action or claim. Notwithstanding the provisions of this Section 6, no
Holder shall be required to contribute any amount in excess of the amount by
which the total price at which the Transfer Restricted Securities purchased by
it were resold exceeds the amount of any damages which such Holder has otherwise
been required to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute as provided in this Section 6(d) are several and not
joint.
7. RULE 144A. In the event the Issuer is not subject to Section 13 or
15(d) of the Exchange Act, the Issuer hereby agrees with each Holder, for so
long as any Transfer Restricted Securities remain outstanding, to make available
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Securities Act in order to permit resales
of such Transfer Restricted Securities pursuant to Rule 144A.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any Underwritten Registration hereunder unless such Holder:
(i) agrees to sell such Holder's Transfer Restricted Securities on
the basis provided in any underwriting arrangements approved by the
Persons entitled hereunder to approve such arrangements and
(ii) completes and executes all reasonable questionnaires, powers
of attorney, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting
arrangements.
9. SELECTION OF UNDERWRITERS. The Holders of Transfer Restricted
Securities covered by the Shelf Registration Statement who desire to do so may
sell such Transfer Restricted Securities in an Underwritten Offering. In any
such Underwritten Offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by a
Majority of Holders whose Transfer Restricted Securities are included in such
offering; provided, that such investment bankers and managers must be reasonably
satisfactory to the Issuer.
10. MISCELLANEOUS.
(a) REMEDIES. The Issuer acknowledges and agrees that any failure by
the Issuer to comply with its obligations under Section 2 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically
16
enforce the Issuer's obligations under Section 2 hereof. The
Issuer further agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) ADJUSTMENTS AFFECTING TRANSFER RESTRICTED SECURITIES. The Issuer
shall not, directly or indirectly, take any action with respect to the Transfer
Restricted Securities as a class that would adversely affect the ability of the
Holders of Transfer Restricted Securities to include such Transfer Restricted
Securities in a registration undertaken pursuant to this Agreement.
(c) NO INCONSISTENT AGREEMENTS. The Issuer will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. In addition, the Issuer shall
not grant to any of its security holders (other than the holders of Transfer
Restricted Securities in such capacity) the right to include any of its
securities in the Shelf Registration Statement provided for in this Agreement
other than the Transfer Restricted Securities. Other than the Stock Purchase
Agreement, dated January 18, 1995, between the Issuer and Pfizer, Inc., the
Stock Purchase Agreement, dated March 1, 1996, as amended, between the Issuer
and Baxter Healthcare Corporation and the Stock Issuance Agreement, dated
November 4, 1999, between the Issuer and Alliance Pharmaceutical Corp., the
Issuer has not previously entered into any agreement (which has not expired or
been terminated) granting any registration rights with respect to its securities
to any Person which rights conflict with the provisions hereof.
(d) AMENDMENTS AND WAIVERS. This Agreement may not be amended, modified
or supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Issuer has obtained the written consent of a
Majority of Holders.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
registrar under the Indenture or the transfer agent of the Common
Stock, as the case may be; and
(ii) if to the Issuer:
Inhale Therapeutic Systems, Inc.
150 Industrial Road
San Carlos, California 94070
Attention: Stephen L. Hurst, Esq.
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Mark P. Tanoury, Esq.
17
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
(i) this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign acquired Transfer Restricted Securities from such Holder and (ii) nothing
contained herein shall be deemed to permit any assignment, transfer or other
disposition of Transfer Restricted Securities in violation of the terms of the
Purchase Agreement or the Indenture. If any transferee of any Holder shall
acquire Transfer Restricted Securities, in any manner, whether by operation of
law or otherwise, such Transfer Restricted Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) SECURITIES HELD BY THE ISSUER OR THEIR AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Transfer Restricted
Securities is required hereunder, Transfer Restricted Securities held by the
Issuer or its "affiliates" (as such term is defined in Rule 405 under the
Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(i) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the law of the State of New York, without regard to conflict
of laws principles thereof.
(k) SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to
18
herein with respect to the registration rights granted by the Issuer with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INHALE THERAPEUTIC SYSTEMS, INC.
By
--------------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEUTSCHE BANK SECURITIES INC.
LEHMAN BROTHERS INC.
U.S. BANCORP PIPER JAFFRAY INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
--------------------------------------
Authorized Signatory
20
EXHIBIT A
INHALE THERAPEUTIC SYSTEMS, INC.
FORM OF SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial holder of 3 1/2% Convertible Subordinated
Notes due 2007 (the "Notes") of Inhale TherapeutIC Systems, Inc. (the "Issuer"),
or common stock, par value $0.0001 per share (the "Shares" and together with the
Notes, the "Transfer Restricted Securities") of the Issuer understands that the
Issuer has filed, or intends to file, with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Shelf Registration
Statement"), for the registration and resale under Rule 415 of the Securities
Act of 1933, as amended (the "Securities Act"), of the Transfer Restricted
Securities in accordance with the terms of the Registration Rights Agreement,
dated as of October 17, 2000 (the "Registration Rights Agreement") between the
Issuer and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers
Inc., Deutsche Bank Securities Inc. and U.S. Bancorp Piper Jaffray Inc. A copy
of the Registration Rights Agreement is available from the Issuer upon request
at the address set forth below. All capitalized terms not otherwise defined
herein have the meaning ascribed thereto in the Registration Rights Agreement.
Each beneficial owner of Transfer Restricted Securities is entitled to
the benefits of the Registration Rights Agreement. In order to sell or otherwise
dispose of any Transfer Restricted Securities pursuant to the Shelf Registration
Statement, a beneficial owner of Transfer Restricted Securities generally will
be required to be named as a selling securityholder in the related Prospectus,
deliver a Prospectus to purchasers of Transfer Restricted Securities and be
bound by those provisions of the Registration Rights Agreement applicable to
such beneficial owner (including certain indemnification provisions, as
described below). BENEFICIAL OWNERS THAT DO NOT COMPLETE THIS NOTICE AND
QUESTIONNAIRE WITHIN 20 BUSINESS DAYS OF RECEIPT HEREOF AND DELIVER IT TO THE
ISSUER AS PROVIDED BELOW WILL NOT BE NAMED AS SELLING SECURITYHOLDERS IN THE
PROSPECTUS AND THEREFORE WILL NOT BE PERMITTED TO SELL ANY TRANSFER RESTRICTED
SECURITIES PURSUANT TO THE SHELF REGISTRATION STATEMENT.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and the related Prospectus.
Accordingly, holders and beneficial owners of Transfer Restricted Securities are
advised to consult their own securities law counsel regarding the consequences
of being named or not being named as a selling securityholder in the Shelf
Registration Statement and the related Prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Transfer Restricted Securities hereby gives notice to the Issuer of its
intention to sell or otherwise dispose of Transfer Restricted Securities
beneficially owned by it and listed below in Item 3 (unless otherwise specified
under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by
signing and returning this Notice and Questionnaire, understands that it will be
1
bound by the terms and conditions of this Notice and Questionnaire and the
Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the undersigned has
agreed to indemnify and hold harmless the Issuer, the Issuer's directors, the
Issuer's officers who sign the Shelf Registration Statement and each person, if
any, who controls the Issuer within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against certain
losses arising in connection with statements concerning the undersigned made in
the Shelf Registration Statement or the related Prospectus in reliance upon the
information provided in this Notice and Questionnaire.
The undersigned hereby provides the following information to the Issuer
and represents and warrants that such information is accurate and complete:
QUESTIONNAIRE
1. (a) Full legal name of Selling Securityholder:
(b) Full legal name of registered holder (if not the same as (a)
above) through which Transfer Restricted Securities listed in
(3) below are held:
(c) Full legal name of DTC participant (if applicable and if not
the same as (b) above) through which Transfer Restricted
Securities listed in (3) are held:
2. Address for notices to Selling Securityholders:
Telephone:
Fax:
Contact Person:
3. Beneficial ownership of Transfer Restricted Securities:
(a) Type of Transfer Restricted Securities beneficially owned, and
principal amount of Notes or number of shares of Common Stock,
as the case may be, beneficially owned:
(b) CUSIP No(s). of such Transfer Restricted Securities
beneficially owned:
2
4. Beneficial ownership of the Issuer's securities owned by the Selling
Securityholder:
EXCEPT AS SET FORTH BELOW IN THIS ITEM (4), THE UNDERSIGNED IS NOT THE
BENEFICIAL OR REGISTERED OWNER OF ANY SECURITIES OF THE ISSUER OTHER
THAN THE TRANSFER RESTRICTED SECURITIES LISTED ABOVE IN ITEM (3)
("OTHER SECURITIES").
(a) Type and amount of Other Securities beneficially owned by the
Selling Securityholder:
(b) CUSIP No(s). of such Other Securities beneficially owned:
5. Relationship with the Issuer
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (5% or
more) has held any position or office or has had any other material
relationship with the Issuer (or their predecessors or affiliates)
during the past three years.
State any exceptions here:
6. Plan of Distribution
Except as set forth below, the undersigned (including its donees or
pledgees) intends to distribute the Transfer Restricted Securities
listed above in Item (3) pursuant to the Shelf Registration Statement
only as follows (if at all). Such Transfer Restricted Securities may be
sold from time to time directly by the undersigned or, alternatively,
through underwriters, broker-dealers or agents. If the Transfer
Restricted Securities are sold through underwriters or broker-dealers,
the Selling Securityholder will be responsible for underwriting
discounts or commissions or agent's commissions. Such Transfer
Restricted Securities may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale, or at negotiated prices. Such
sales may be effected in transactions (which may involve crosses or
block transactions):
(i) on any national securities exchange or quotation service on which
the Transfer Restricted Securities may be listed or quoted at the time of sale;
(ii) in the over-the-counter market;
(iii) in transactions otherwise than on such exchanges or services
or in the over-the-counter market; or
3
(iv) through the writing of options.
In connection with sales of the Transfer Restricted Securities or otherwise, the
undersigned may enter into hedging transactions with broker-dealers, which may
in turn engage in short sales of the Transfer Restricted Securities and deliver
Transfer Restricted Securities to close out such short positions, or loan or
pledge Transfer Restricted Securities to broker-dealers that in turn may sell
such securities.
State any exceptions here:
Note: In no event will such method(s) of distribution take the form of an
underwritten offering of the Transfer Restricted Securities without the prior
agreement of the Issuer.
The undersigned acknowledges that it understands its obligation to
comply with the provisions of the Exchange Act and the rules and regulations
promulgated thereunder relating to stock manipulation, particularly Regulation M
thereunder (or any successor rules or regulations), in connection with any
offering of Transfer Restricted Securities pursuant to the Shelf Registration
Statement. The undersigned agrees that neither it nor any person acting on its
behalf will engage in any transaction in violation of such provisions.
The Selling Securityholder hereby acknowledges its obligations under
the Registration Rights Agreement to indemnify and hold harmless certain persons
as set forth therein.
Pursuant to the Registration Rights Agreement, the Issuer has agreed
under certain circumstances to indemnify the Selling Securityholders against
certain liabilities.
In accordance with the undersigned's obligation under the Registration
Rights Agreement to provide such information as may be required by law for
inclusion in the Shelf Registration Statement, the undersigned agrees to
promptly notify the Issuer of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof at any time while
the Shelf Registration Statement remains effective. All notices hereunder and
pursuant to the Registration Rights Agreement shall be made in writing at the
address set forth below.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and the
related Prospectus. The undersigned understands that such information will be
relied upon by the Issuer in connection with the preparation or amendment of the
Shelf Registration Statement and the related Prospectus.
4
IN WITNESS WHEREOF, the undersigned, by authority duly given, has
caused this Notice and Questionnaire to be executed and delivered either in
person or by its duly authorized agent.
Dated:
Beneficial Owner
By:
--------------------------------------
Name:
Title:
Please return the completed and executed Notice and Questionnaire to Inhale
Therapeutic Systems, Inc. at:
Inhale Therapeutic Systems, Inc.
150 Industrial Road
San Carlos, California 94070
Attention: Stephen L. Hurst, Esq.
5
INDENTURE, dated as of October 17, 2000, between INHALE THERAPEUTIC
SYSTEMS, INC., a corporation duly organized and existing under the laws of the
State of Delaware, having its principal office at 150 Industrial Road, San
Carlos, California 94070 (the "Company"), and CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, a national banking association, as Trustee (the
"Trustee"), having its principal corporate trust office at 101 California
Street, Suite 2725, San Francisco, California 94111.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 3 1/2%
Convertible Subordinated Notes due 2007 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when the Securities are
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 DEFINITIONS.
For all purposes of this Indenture and the Securities, the following
terms are defined as follows:
"Act", when used with respect to any Holder of a Security, has
the meaning specified in Section 14.4(a) hereof.
"Adjusted Interest Rate" means, with respect to any Reset
Transaction, the rate per annum that is the arithmetic average of the
rates quoted by two Reference Dealers selected by the Company or its
successor as the rate at which interest on the Securities should accrue
so that the fair market value, expressed in dollars, of a Security
immediately after the later of:
(1) the public announcement of such Reset
Transaction; or
(2) the public announcement of a change in dividend
policy in connection with such Reset Transaction,
will equal the average Trading Price of a Security for the 20 Trading Days
preceding the date of public announcement of such Reset Transaction; provided
that the Adjusted Interest Rate shall not be less than 5% per annum.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of
this definition, "control", when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means either the board of directors of the
Company or any committee of that board empowered to act for it with
respect to this Indenture.
"Board Resolution" means a resolution duly adopted by the Board
of Directors, a copy of which, certified by the Secretary or an
Assistant Secretary of the Company to be in full force and effect on
the date of such certification, shall have been delivered to the
Trustee.
2
"Business Day", when used with respect to any Place of Payment
or Place of Conversion, means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in that
Place of Payment or Place of Conversion, as the case may be, are
authorized or obligated by law to close.
"Change of Control" means the occurrence of any of the
following after the original issuance of the Securities:
(1) the acquisition by any person, including any
syndicate or group deemed to be a "person" under Section 13(d)(3) of
the Exchange Act, of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series
of transactions, of shares of capital stock of the Company entitling
such person to exercise 50% or more of the total voting power of all
shares of capital stock of the Company entitled to vote generally in
elections of directors, other than any such acquisition by the Company,
any subsidiary of the Company or any employee benefit plan of the
Company; or
(2) any consolidation or merger of the Company with
or into any other person, any merger of another person into the
Company, or any conveyance, transfer, sale, lease or other disposition
of all or substantially all of the properties and assets of the Company
to another person, other than (a) any such transaction (x) that does
not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of capital stock of the Company and
(y) pursuant to which holders of capital stock of the Company
immediately prior to such transaction have the entitlement to exercise,
directly or indirectly, 50% or more of the total voting power of all
shares of capital stock of the Company entitled to vote generally in
the election of directors of the continuing or surviving person
immediately after such transaction and (b) any merger which is effected
solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding
shares of Common Stock solely into shares of common stock of the
surviving entity;
provided, however, that a Change of Control shall not be deemed to have occurred
if the closing sales price per share of the Common Stock for any five Trading
Days within the period of 10 consecutive Trading Days ending immediately after
the later of the Change of Control or the public announcement of the Change of
Control, in the case of a Change of Control under clause (1) above, or the
period of 10 consecutive Trading Days ending immediately before the Change of
Control, in the case of a Change of Control under clause (2) above, shall equal
or exceed 110% of the Conversion Price of the Securities in effect on each such
Trading Day. Beneficial ownership shall be determined in accordance with Rule
13d-3 promulgated by the SEC under the Exchange Act. The term "person" shall
include any syndicate or group which would be deemed to be a "person" under
Section 13(d)(3) of the Exchange Act.
"Chief Executive Officer" means any co-chief executive officer
of the Company.
"close of business" means 5:00 p.m., New York City time.
3
"Closing Date" means October 17, 2000 or such later date on
which the Securities may be delivered pursuant to the Purchase
Agreement.
"Closing Price" of any security on any date of determination
means:
(1) the closing sale price (or, if no closing sale
price is reported, the last reported sale price) of such security on
the New York Stock Exchange on such date;
(2) if such security is not listed for trading on the
New York Stock Exchange on any such date, the closing sale price as
reported in the composite transactions for the principal U.S.
securities exchange on which such security is so listed;
(3) if such security is not so listed on a U.S.
national or regional securities exchange, the closing sale price as
reported by the NASDAQ National Market;
(4) if such security is not so reported, the last
quoted bid price for such security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization; or
(5) if such bid price is not available, the average
of the mid-point of the last bid and ask prices of such security on
such date from at least three nationally recognized independent
investment banking firms retained for this purpose by the Company.
"Common Stock" means any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company and which is not subject to redemption by
the Company. However, subject to the provisions of Section 12.11
hereof, shares issuable on conversion of Securities shall include only
shares of the class designated as Common Stock, par value $0.0001 per
share, of the Company at the date of this Indenture or shares of any
class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and
which are not subject to redemption by the Company, provided that if at
any time there shall be more than one such resulting class, the shares
of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting
from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
"Company" means the corporation named as the "Company" in the
first paragraph of this instrument until a successor corporation shall
have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor
corporation.
"Company Notice" has the meaning specified in Section 11.3
hereof.
"Company Order" means a written order signed in the name of the
Company by both (1) the Chairman of the Board, the Chief Executive
Officer, the President or a Vice
4
President and (2) so long as not the same as the officer signing
pursuant to clause (1), the Chief Financial Officer, the Treasurer
or the Secretary of the Company, and delivered to the Trustee.
"Conversion Agent" means any Person authorized by the Company
to convert Securities in accordance with Article 12 hereof.
"Conversion Price" has the meaning specified in Section 12.1
hereof.
"Corporate Trust Office" means for purposes of presentation or
surrender of Securities for payment, registration, transfer, exchange
or conversion or for service of notices or demands upon the Company,
the office of the Trustee located in The City of New York at which at
any particular time its corporate trust business shall be administered
(which at the date of this Indenture is located at 55 Water Street,
Room 234, North Building, New York, New York 10041), and for all other
purposes, the office of the Trustee located in the City of San
Francisco (which at the date of this Indenture is located at 101
California Street, Suite 2725, San Francisco, CA 94111).
"Corporation" means corporations, associations, limited
liability companies, companies and business trusts.
"Current Market Price" has the meaning set forth in Section
12.4(g).
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event which is, or after notice or lapse of
time or both would be, an Event of Default.
"Default Exception" has the meaning specified in Section 4.1(d)
hereof.
"Defaulted Interest" has the meaning specified in Section 2.17
hereof.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
"Designated Senior Debt" means Senior Debt of the Company
which, 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, agreement or other
document evidencing or governing that Senior Debt as "Designated Senior
Debt" for purposes of this Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the
right of such Senior Debt to exercise the rights of Designated Senior
Debt).
"Dividend Yield" on any security for any period means the
dividends paid or proposed to be paid pursuant to an announced dividend
policy on such security for such period divided by, if with respect to
dividends paid on such security, the average Closing
5
Price of such security during such period and, if with respect to
dividends proposed to be paid on such security, the Closing Price of
such security on the effective date of the related Reset Transaction.
"Dollar," "U.S. Dollar" or "U.S. $" means a dollar or other
equivalent unit in such coin or currency of the United States as at
the time shall be legal tender for the payment of public and private
debts.
"DTC Participants" has the meaning specified in Section 2.8
hereof.
"Event of Default" has the meaning specified in Section 4.1
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expiration Time" has the meaning specified in Section 12.4(f)
hereof.
"Fair market value" has the meaning set forth in Section 12.4
(g) hereof.
"Global Security" has the meaning specified in Section 2.2
hereof.
"Guarantee" means any obligation, contingent or otherwise, of
any Person, directly or indirectly guaranteeing any Indebtedness of any
other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness of such other Person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or maintain financial statement conditions or otherwise);
or
(2) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, that the term "guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning.
"Holder", when used with respect to any Security, means the
Person in whose name the Security is registered in the Register.
"Indebtedness", when used with respect to any Person, and
without duplication means:
(1) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person for borrowed money
(including obligations of the Company in respect of overdrafts, foreign
exchange contracts, currency exchange agreements, Interest Rate
Protection Agreements, and any loans or advances from banks, whether or
not
6
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 such Person with respect to
letters of credit, bank guarantees, bankers' acceptances, surety bonds,
performance bonds or other guaranty of contractual performance;
(3) all obligations and liabilities (contingent or
otherwise) in respect of (a) leases of such Person required, in
conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on the balance sheet of
such Person and (b) any lease or related documents (including a
purchase agreement) in connection with the lease of real property which
provides that such Person is contractually obligated to purchase or
cause a third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property to the
landlord and the obligations of such Person under such lease or related
document to purchase or to cause a third party to purchase the leased
property;
(4) all obligations of such Person (contingent or
otherwise) with respect to an interest rate, currency or other swap,
cap, floor or collar agreement or other similar instrument or agreement
or foreign currency hedge, exchange, purchase or similar instrument or
agreement;
(5) all direct or indirect guaranties or similar
agreements by such Person in respect of, and obligations or liabilities
(contingent or otherwise) of such Person to purchase or otherwise
acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another Person of the kind
described in clauses (1) through (4);
(6) any indebtedness or other obligations described
in clauses (1) through (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).
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof.
7
"Initial Purchasers" mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Deutsche Bank Securities Inc., Lehman Brothers Inc. and
U.S. Bancorp Piper Jaffray Inc.
"Interest Payment Date" means each April 17 and October 17.
"Interest Rate" means, (a) if a Reset Transaction has not
occurred, 5% per annum, or (b) following the occurrence of a Reset
Transaction, the Adjusted Interest Rate related to such Reset
Transaction to, but not including the effective date of any succeeding
Reset Transaction.
"Interest Rate Protection Agreement" means, with respect to any
Person, any interest rate swap agreement, interest rate cap or collar
agreement or other financial agreement or arrangement designed to
protect such person against fluctuations in interest rates, as in
effect from time to time.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
"Liquidated Damages" means all liquidated damages, if any,
payable pursuant to Section 3 of the Registration Rights Agreement.
"Maturity" means the date on which the principal of such
Security becomes due and payable as therein or herein provided, whether
at the Stated Maturity or by acceleration, conversion, call for
redemption, exercise of a Repurchase Right or otherwise.
"Nasdaq National Market" means the National Association of
Securities Dealers Automated Quotation National Market or any successor
national securities exchange or automated over-the-counter trading
market in the United States.
"Non-Electing Share" has the meaning specified in Section 12.11
hereof.
"Officer" of the Company means the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Financial Officer,
the Treasurer, any Vice President or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by both (1)
the Chairman of the Board, the Chief Executive Officer, the President
or a Vice President and (2) so long as not the same as the officer
signing pursuant to clause (1), the Chief Financial Officer or the
Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel to the Company (and may include directors or employees
of the Company) and which opinion is acceptable to the Trustee which
acceptance shall not be unreasonably withheld.
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated
and delivered under this Indenture, except Securities:
8
(1) previously canceled by the Trustee or delivered
to the Trustee for cancellation;
(2) for the payment or redemption of which money in
the necessary amount has been previously deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities, provided that if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture; and
(3) which have been paid, in exchange for or in lieu
of which other Securities have been authenticated and delivered
pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide
purchaser in whose hands such Securities are valid obligations of the
Company.
"Paying Agent" has the meaning specified in Section 2.5 hereof.
"Payment Blockage Notice" has the meaning specified in Section
13.1(d) hereof.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, estate, unincorporated organization or government or any agency
or political subdivision thereof.
"Physical Securities" has the meaning specified in Section 2.2
hereof.
"Place of Conversion" means any city in which any Conversion
Agent is located.
"Place of Payment" means any city in which any Paying Agent is
located.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 2.12
hereof in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.
"Provisional Redemption" has the meaning specified in Section
10.1 hereof.
"Purchase Agreement" means the Purchase Agreement, dated
October 11, 2000, between the Company and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Quoted Price" of the Common Stock means the last reported sale
price of the Common Stock on the Nasdaq National Market, or, if the
Common Stock is listed on a national securities exchange, then on such
exchange, or if the Common Stock is not quoted on Nasdaq National
Market or listed on an exchange, the average of the last bid
9
and asked price on the National Association of Securities Dealers
Automated Quotation System.
"Record Date" means either a Regular Record Date or a Special
Record Date, as the case may be, provided that, for purposes of Section
12.4 hereof, Record Date has the meaning specified in 12.4(g) hereof.
"Redemption Date", when used with respect to any Security to be
redeemed, means the Optional Redemption Date in the event of an
Optional Redemption or the Provisional Redemption Date, in the event of
a Provisional Redemption, as the case may be.
"Redemption Price", means the Optional Redemption Price, in the
event of an Optional Redemption, or the Provisional Redemption Price,
in the event of a Provisional Redemption, as the case may be.
"Reference Dealer" means a dealer engaged in the trading of
convertible securities.
"Reference Period" has the meaning set forth in Section 12.4(d)
hereof.
"Register" has the meaning specified in Section 2.5 hereof.
"Registrar" has the meaning specified in Section 2.5 hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of October 17, 2000, between the Company and the
Initial Purchasers.
"Regular Record Date" for the interest on the Securities
(including Liquidated Damages, if any) payable means the April 2
(whether or not a Business Day) next preceding an April 17 Interest
Payment Date and the October 2 (whether or not a Business Day) next
preceding an October 17 Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 11.1
hereof.
"Repurchase Price" has the meaning specified in Section 11.1
hereof.
"Repurchase Right" has the meaning specified in Section 11.1
hereof.
"Reset Transaction" means a merger, consolidation or statutory
share exchange to which the entity that is the issuer of the shares of
common stock into which the Securities are then convertible into is a
party, a sale of all or substantially all the assets of that entity, a
recapitalization of those shares of common stock or a distribution
described in Section 12.4(d) hereof, after the effective date of which
transaction or distribution the Securities would be convertible into:
(1) 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 such transaction or
distribution that was more than 2.5% higher than the
10
Dividend Yield on the Common Stock (or other common stock then issuable
upon conversion of the Securities) for the four fiscal quarters
preceding the public announcement of such transaction or distribution,
or
(2) shares of an entity that announces a dividend
policy prior to the effective date of such transaction or distribution
which policy, if implemented, would result in a Dividend Yield on such
entity's common stock for the next four fiscal quarters that would
result in such a 2.5% basis point increase.
"Responsible Officer", when used with respect to the Trustee,
means any officer of the Trustee, including any vice president,
assistant vice president, secretary, assistant secretary, the
treasurer, any assistant treasurer, the managing director or any other
officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means,
with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Restricted Securities" means the Securities defined as such
in Section 2.3 hereof.
"Restricted Securities Legend" has the meaning set forth in
Section 2.3(a) hereof.
"Rule 144" means Rule 144 under the Securities Act (including
any successor rule thereof), as the same may be amended from time to
time.
"Rule 144A" means Rule 144A as promulgated under the Securities
Act (including any successor rule thereof), as the same may be amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning ascribed to it in the first
paragraph under the caption "Recitals of the Company".
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding)
and rent payable on or termination payment with respect to or in
connection with, and all fees, costs, expenses and other amounts
accrued or due on or in connection with, Indebtedness of the Company,
whether outstanding on the date of this Indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by the
Company (including all deferrals, renewals, extensions or refundings
of, or amendments, modifications or supplements to, the foregoing),
unless in the case of any particular Indebtedness the instrument
creating or evidencing the same or the assumption or guarantee thereof
expressly provides that such Indebtedness shall not be senior in right
of payment to the Securities or expressly provides that such
Indebtedness is PARI PASSU or junior to the Securities. The Securities
shall not be senior in right of payment to the outstanding 6 3/4 %
Convertible Subordinated Debentures due October 2006 (the "2006
11
Debentures") or the 5% Convertible Subordinated Notes due February 2007
(the "February 2007 Notes") and shall rank PARI PASSU with the 2006
Debentures and the February 2007 Notes. Neither the 2006 Debentures nor
the February 2007 Notes shall be Senior Debt, as that term is defined
herein. Notwithstanding the foregoing, the term "Senior Debt" shall
include, without limitation, all Designated Senior Debt, and shall not
include Indebtedness of the Company to any Subsidiary.
"Significant Subsidiary" means any Subsidiary which is a
"significant subsidiary" within the meaning of Rule 405 under the
Securities Act.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 2.17 hereof.
"Stated Maturity" means the date specified in any Security as
the fixed date for the payment of principal on such Security or on
which an installment of interest (including Liquidated Damages, if any)
on such Security is due and payable.
"Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the Company and
one or more other Subsidiaries. For the purposes of this definition
only, "voting stock" means stock which ordinarily has voting power for
the election of directors, whether at all times or only so long as no
senior class of stock has such voting power by reason of any
contingency.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Section 77aaa-77bbbb), as in effect on the date of this Indenture;
provided, however, that in the event the TIA is amended after such
date, "TIA" means, to the extent required by such amendment, the Trust
Indenture Act of 1939, as so amended, or any successor statute.
"Trading Day" means:
(1) if the applicable security is listed or admitted
for trading on the New York Stock Exchange or another national security
exchange, a day on which the New York Stock Exchange or such other
national security exchange is open for business;
(2) if the applicable security is quoted on the
Nasdaq National Market, a day on which trades may be made thereon; or
(3) if the applicable security is not so listed,
admitted for trading or quoted, any day other than a Saturday or Sunday
or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Trading Price" of a security on any date of determination
means:
(1) the closing sale price (or, if no closing sale
price is reported, the last reported sale price) of such security on
the New York Stock Exchange on such date;
12
(2) if such security is not listed for trading on the
New York Stock Exchange on any such date, the closing sale price as
reported in the composite transactions for the principal U.S.
securities exchange on which such security is so listed;
(3) if such security is not so listed on a U.S.
national or regional securities exchange, the closing sale price as
reported by the NASDAQ National Market;
(4) if such security is not so reported, the last
price quoted by Interactive Data Corporation for such security or, if
Interactive Data Corporation is not quoting such price, a similar
quotation service selected by the Company;
(5) if such security is not so quoted, the average of
the mid-point of the last bid and ask prices for such security from at
least two dealers recognized as market-makers for such security; or
(6) if such security is not so quoted, the average of
the last bid and ask prices for such security from a Reference Dealer.
"Transfer Agent" means any Person, which may be the Company,
authorized by the Company to exchange or register the transfer of
Securities.
"Trigger Event" has the meaning specified in Section 12.4(d)
hereof.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have
become such pursuant to the applicable provisions of this Indenture,
and thereafter "Trustee" shall mean such successor Trustee.
"U.S. Government Obligations" means: (1) direct obligations of
the United States of America for the payment of which the full faith
and credit of the United States of America is pledged or (2)
obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America, the payment
of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America and which in either case,
are non-callable at the option of the issuer thereof.
"Vice President", when used with respect to the Company, means
any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 1.2 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Holder;
13
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Securities means the Company and any other obligor on
the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.3 RULES OF CONSTRUCTION.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as
the singular;
(2) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with accounting principles
generally accepted in the United States prevailing at the time of any
relevant computation hereunder; and
(3) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
14
ARTICLE 2
THE SECURITIES
SECTION 2.1 TITLE AND TERMS.
The Securities shall be known and designated as the "3 1/2% Convertible
Subordinated Notes due 2007"of the Company. The aggregate principal amount of
Securities which may be authenticated and delivered under this Indenture is
limited to $200,000,000 (or $250,000,000 if the over-allotment option set forth
in Section 2 of the Purchase Agreement is exercised in full), except for
securities authenticated and delivered upon registration of, transfer of, or in
exchange for, or in lieu of other Securities pursuant to Section 2.7, 2.8, 2.9,
2.12, 7.5, 10.8, 11.1 or 12.2 hereof. The Securities shall be issuable in
denominations of $1,000 or integral multiples thereof.
The Securities shall mature on October 17, 2007.
Interest shall accrue from October 17, 2000 at the Interest Rate until
the principal thereof is paid or made available for payment. Interest shall be
payable semiannually in arrears on April 17 and October 17, in each year,
commencing April 17, 2001.
Interest on the Securities shall be computed (i) for any full
semiannual period for which a particular Interest Rate is applicable on the
basis of a 360-day year of twelve 30-day months and (ii) for any period for
which a particular Interest Rate is applicable shorter than a full semiannual
period for which interest is calculated, on the basis of a 30-day month and, for
such periods of less than a month, the actual number of days elapsed over a
30-day month. For purposes of determining the Interest Rate, the Trustee may
assume that a Reset Transaction has not occurred unless the Trustee has received
an Officers' Certificate stating that a Reset Transaction has occurred and
specifying the Adjusted Interest Rate then in effect.
A Holder of any Security at the close of business on a Regular Record
Date shall be entitled to receive interest (including Liquidated Damages, if
any) on such Security on the corresponding Interest Payment Date. A Holder of
any Security which is converted after the close of business on a Regular Record
Date and prior to the corresponding Interest Payment Date (other than any
Security whose Maturity is prior to such Interest Payment Date) shall be
entitled to receive interest (including Liquidated Damages, if any) on the
principal amount of such Security, notwithstanding the conversion of such
Security prior to such Interest Payment Date. However, any such Holder which
surrenders any such Security for conversion during the period between the close
of business on such Regular Record Date and ending with the opening of business
on the corresponding Interest Payment Date shall be required to pay the Company
an amount equal to the interest (including Liquidated Damages, if any) on the
principal amount of such Security so converted, which is payable by the Company
to such Holder on such Interest Payment Date, at the time such Holder surrenders
such Security for conversion. Notwithstanding the foregoing, any such Holder
which surrenders for conversion any Security which has been called for
redemption by the Company in a notice of redemption given by the Company
pursuant to Section 10.5 hereof shall be entitled to receive (and retain) such
interest (including Liquidated Damages, if any) and need not pay the Company an
amount equal to the
15
interest (including Liquidated Damages, if any) on the principal amount of
such Security so converted at the time such Holder surrenders such Security
for conversion.
Principal of, and premium, if any, and interest on, Global Securities
shall be payable to the Depositary in immediately available funds.
Principal and premium, if any, on Physical Securities shall be payable
at the office or agency of the Company maintained for such purpose, initially
the Corporate Trust Office of the Trustee. Interest on Physical Securities will
be payable by (i) U.S. Dollar check drawn on a bank in The City of New York
mailed to the address of the Person entitled thereto as such address shall
appear in the Register, or (ii) upon application to the Registrar not later than
the relevant Record Date by a Holder of an aggregate principal amount in excess
of $5,000,000, wire transfer in immediately available funds.
The Securities shall be redeemable at the option of the Company as
provided in Article 10 hereof.
The Securities shall have a Repurchase Right exercisable at the option
of Holders as provided in Article 11 hereof.
The Securities shall be convertible as provided in Article 12 hereof.
The Securities shall be subordinated in right of payment to Senior Debt
of the Company as provided in Article 13 hereof.
SECTION 2.2 FORM OF SECURITIES.
The Securities and the Trustee's certificate of authentication to be
borne by such Securities shall be substantially in the form annexed hereto as
Exhibit A, which is incorporated in and made a part of this Indenture. The terms
and provisions contained in the form of Security shall constitute, and are
hereby expressly made, a part of this Indenture and to the extent applicable,
the Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Any of the Securities may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Securities may be
listed or designated for issuance, or to conform to usage.
The Securities will be offered and sold only to QIBs in reliance on
Rule 144A and shall be issued initially only in the form of one or more
permanent Global Securities (each, a "Global Security") in registered form
without interest coupons. The Global Securities shall be:
(1) duly executed by the Company and authenticated by the
Trustee as hereinafter provided;
16
(2) registered in the name of the Depositary (or its nominee)
for credit to the respective accounts of the Holders at the
Depositary; and
(3) deposited with the Trustee, as custodian for the
Depositary.
The Global Securities shall be substantially in the form of Security
set forth in Exhibit A annexed hereto (including the text and schedule called
for by footnotes 1 and 2 thereto). The aggregate principal amount of the Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary (or its nominee),
in accordance with the instructions given by the Holder thereof, as hereinafter
provided.
Securities issued in exchange for interests in the Global Securities
pursuant to Section 2.8(d) hereof shall be issued in the form of permanent
definitive Securities (the "Physical Securities") in registered form without
interest coupons. The Physical Securities shall be substantially in the form set
forth in Exhibit A annexed hereto.
The Securities shall be typed, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the Officers executing such Securities, as
evidenced by their execution of such Securities.
SECTION 2.3 LEGENDS.
(a) RESTRICTED SECURITIES LEGENDS.
Each Security issued hereunder shall, upon issuance, bear the legend
set forth in Section 2.3(a)(i) or Section 2.3(a)(ii) (each, a "Restricted
Securities Legend"), as the case may be, and such legend shall not be removed
except as provided in Section 2.3(a)(iii). Each Security that bears or is
required to bear the Restricted Securities Legend set forth in Section 2.3(a)(i)
(together with any Common Stock issued upon conversion of the Securities and
required to bear the Restricted Securities Legend set forth in Section
2.3(a)(ii), collectively, the "Restricted Securities") shall be subject to the
restrictions on transfer set forth in this Section 2.3(a) (including the
Restricted Securities Legend set forth below), and the Holder of each such
Restricted Security, by such Holder's acceptance thereof, shall be deemed to
have agreed to be bound by all such restrictions on transfer.
As used in Section 2.3(a), the term "transfer" encompasses any sale,
pledge, transfer or other disposition whatsoever of any Restricted Security.
(i) Restricted Securities Legend for Securities.
Except as provided in Section 2.3(a)(iii), until two years after the
original issuance date of any Security, any certificate evidencing such Security
(and all securities issued in exchange therefor or substitution thereof, other
than Common Stock, if any, issued upon conversion thereof which shall bear the
legend set forth in Section 2.3(a)(ii), if applicable) shall bear a Restricted
Securities Legend in substantially the following form:
17
THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT; (2) AGREES THAT IT
WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY
RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE
COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT
AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY
EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 2(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH SECURITY (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE (2)(D) ABOVE), THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE (OR ANY
SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT
TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE
REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED
HEREBY PURSUANT TO CLAUSE (2)(D) ABOVE OR THE EXPIRATION OF TWO YEARS
FROM THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY. AS USED
HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
(ii) Restricted Securities Legend for Common Stock Issued Upon
Conversion of the Securities.
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Until two years after the original issuance date of any Security, any
stock certificate representing Common Stock issued upon conversion of such
Security shall bear a Restricted Securities Legend in substantially the
following form:
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT
UNTIL THE EXPIRATION OF TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE
SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY
WAS ISSUED, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO
THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (C) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT
AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; (2)
PRIOR TO ANY SUCH TRANSFER OTHER THAN A TRANSFER PURSUANT TO CLAUSE
1(C) ABOVE, IT WILL FURNISH TO SUCH TRANSFER AGENT (OR ANY SUCCESSOR
TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE
COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER
PURSUANT TO A CLAUSE (1)(C) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE (1)(C)
ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE
SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY
WAS ISSUED. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
(iii) Removal of the Restricted Securities Legends.
Each Security or share of Common Stock issued upon conversion of such
Security shall bear the Restricted Securities Legend set forth in Section
2.3(a)(i) or 2.3(a)(ii), as the case may be, until the earlier of:
(A) two years after the original issuance date of
such Security;
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(B) such Security or Common Stock has been sold
pursuant to a registration statement that has been
declared effective under the Securities Act (and which
continues to be effective at the time of such sale);
or
(C) such Common Stock has been issued upon
conversion of Securities that have been sold pursuant
to a registration statement that has been declared
effective under the Securities Act (and which
continues to be effective at the time of such sale).
The Holder must give notice thereof to the Trustee and any transfer agent for
the Common Stock, as applicable.
Notwithstanding the foregoing, the Restricted Securities Legend may be
removed if there is delivered to the Company such satisfactory evidence, which
may include an opinion of independent counsel, as may be reasonably required by
the Company that neither such legend nor the restrictions on transfer set forth
therein are required to ensure that transfers of such Security will not violate
the registration requirements of the Securities Act. Upon provision of such
satisfactory evidence, the Trustee, at the written direction of the Company,
shall authenticate and deliver in exchange for such Securities another Security
or Securities having an equal aggregate principal amount that does not bear such
legend. If the Restricted Securities Legend has been removed from a Security as
provided above, no other Security issued in exchange for all or any part of such
Security shall bear such legend, unless the Company has reasonable cause to
believe that such other Security is a "restricted security" within the meaning
of Rule 144 and instructs the Trustee in writing to cause a Restricted
Securities Legend to appear thereon.
Any Security (or security issued in exchange or substitution thereof)
as to which such restrictions on transfer shall have expired in accordance with
their terms or as to which the conditions for removal of the Restricted
Securities Legend set forth in Section 2.3(a)(i) as set forth therein have been
satisfied may, upon surrender of such Security for exchange to the Registrar in
accordance with the provisions of Section 2.7 hereof, be exchanged for a new
Security or Securities, of like tenor and aggregate principal amount, which
shall not bear the Restricted Securities Legend required by Section 2.3(a)(i).
Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms or as to which the conditions for
removal of the Restricted Securities Legend set forth in Section 2.3(a)(ii) as
set forth therein have been satisfied may, upon surrender of the certificates
representing such shares of Common Stock for exchange in accordance with the
procedures of the transfer agent for the Common Stock, be exchanged for a new
certificate or certificates for a like aggregate number of shares of Common
Stock, which shall not bear the Restricted Securities Legend required by Section
2.3(a)(ii).
(b) GLOBAL SECURITY LEGEND.
Each Global Security shall also bear the following legend on the face
thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO INHALE THERAPEUTIC
20
SYSTEMS, INC. (OR ITS SUCCESSOR) OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, CONVERSION OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
SECTION 2.4 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Two Officers shall execute the Securities on behalf of the Company by
manual or facsimile signature. If an Officer whose signature is on a Security no
longer holds that office at the time the Security is authenticated, the Security
shall be valid nevertheless.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture, or
be valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by or on behalf of the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
The Trustee may appoint an authenticating agent or agents reasonably
acceptable to the Company with respect to the Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent.
SECTION 2.5 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the "Registrar") and an
office or agency where Securities may be presented for payment (the "Paying
Agent"). The Registrar shall keep a register of the Securities (the "Register")
and of their transfer and exchange. The Company may appoint one or more
co-Registrars and one or more additional Paying Agents for the Securities. The
term "Paying Agent" includes any additional paying agent and the term
"Registrar" includes any additional registrar. The Company may change any Paying
Agent or Registrar without prior notice to any Holder.
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The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of and premium, if any, or interest (including Liquidated
Damages, if any) on Securities in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as provided in this Indenture;
(2) give the Trustee notice of any Default by the Company
in the making of any payment of principal and premium, if any, or
interest (including Liquidated Damages, if any); and
(3) at any time during the continuance of any such
Default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent.
The Company shall give prompt written notice to the Trustee of the name
and address of any Agent who is not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any Affiliate of the Company may act
as Paying Agent or Registrar; provided, however, that none of the Company, its
subsidiaries or the Affiliates of the foregoing shall act:
(i) as Paying Agent in connection with redemptions, offers to
purchase and discharges, as otherwise specified in this Indenture, and
(ii) as Paying Agent or Registrar if a Default or Event of
Default has occurred and is continuing.
The Company hereby initially appoints the Trustee as Registrar and
Paying Agent for the Securities.
SECTION 2.6 PAYING AGENT TO HOLD ASSETS IN TRUST.
Not later than 11:00 a.m. (New York City time) on each due date of the
principal, premium, if any, and interest (including Liquidated Damages, if any)
on any Securities, the Company shall deposit with one or more Paying Agents
money in immediately available funds sufficient to pay such principal, premium,
if any, and interest (including Liquidated Damages, if any) so becoming due. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than
the Company) shall have no further liability for the money so paid over to the
Trustee.
If the Company shall act as a Paying Agent, it shall, prior to or on
each due date of the principal of and premium, if any, or interest (including
Liquidated Damages, if any) on any of the Securities, segregate and hold in
trust for the benefit of the Holders a sum sufficient with monies held by all
other Paying Agents, to pay the principal and premium, if any, or interest
(including Liquidated Damages, if any) so becoming due until such sums shall be
paid to such
22
Persons or otherwise disposed of as provided in this Indenture, and
shall promptly notify the Trustee of its action or failure to act.
SECTION 2.7 GENERAL PROVISIONS RELATING TO TRANSFER AND EXCHANGE.
The Securities are issuable only in registered form. A Holder may
transfer a Security only by written application to the Registrar stating the
name of the proposed transferee and otherwise complying with the terms of this
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Registrar in the Register. Furthermore, any Holder of a
Global Security shall, by acceptance of such Global Security, agree that
transfers of beneficial interests in such Global Security may be effected only
through a book-entry system maintained by the Holder of such Global Security (or
its agent) and that ownership of a beneficial interest in the Security shall be
required to be reflected in a book-entry. Notwithstanding the foregoing, in the
case of a Restricted Security, a beneficial interest in a Global Security being
transferred in reliance on an exemption from the registration requirements of
the Securities Act other than in accordance with Rule 144 and Rule 144A may only
be transferred for a Physical Security.
When Securities are presented to the Registrar with a request to
register the transfer or to exchange them for an equal aggregate principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transactions are met (including that such Securities are duly endorsed or
accompanied by a written instrument of transfer duly executed by the Holder
thereof or by an attorney who is authorized in writing to act on behalf of the
Holder). Subject to Section 2.4 hereof, to permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange or redemption of the Securities, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer taxes or other similar governmental charge payable upon exchanges
pursuant to Section 2.14, 7.5 or 10.8 hereof).
Neither the Company nor the Registrar shall be required to exchange or
register a transfer of any Securities:
(1) for a period of 15 Business Days prior to the day of
any selection of Securities for redemption under Article 10 hereof;
(2) so selected for redemption or, if a portion of any
Security is selected for redemption, such portion thereof selected for
redemption; or
(3) surrendered for conversion or, if a portion of any
Security is surrendered for conversion, such portion thereof
surrendered for conversion.
SECTION 2.8 BOOK-ENTRY PROVISIONS FOR THE GLOBAL SECURITIES.
(a) The Global Securities initially shall:
(i) be registered in the name of the Depositary (or a nominee
thereof);
23
(ii) be delivered to the Trustee as custodian for such
Depositary; and
(iii) bear the Restricted Securities Legend as set forth in
Section 2.3(a)(i) hereof.
Members of, or participants in, the Depositary ("DTC Participants")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under such Global Security, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing contained herein shall prevent the Company, the Trustee or any agent of
the Company or Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or impair, as between the
Depositary and the DTC Participants, the operation of customary practices
governing the exercise of the rights of a Holder of any Security.
(b) The registered Holder of a Global Security may grant proxies and
otherwise authorize any Person, including DTC Participants and Persons that may
hold interests through DTC Participants, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
(c) A Global Security may not be transferred, in whole or in part, to
any Person other than the Depositary (or a nominee thereof), and no such
transfer to any such other Person may be registered. Beneficial interests in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 2.9 hereof.
(d) If at any time:
(i) the Depositary notifies the Company in writing that it is no
longer willing or able to continue to act as Depositary for the Global
Securities, or the Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary for the
Global Securities is not appointed by the Company within 90 days of
such notice or cessation;
(ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of the Securities in definitive
form under this Indenture in exchange for all or any part of the
Securities represented by a Global Security or Global Securities; or
(iii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depositary for the issuance
of Physical Securities in exchange for such Global Security or Global
Securities,
the Depositary shall surrender such Global Security or Global Securities to the
Trustee for cancellation and the Company shall execute, and the Trustee, upon
receipt of an Officers' Certificate and Company Order for the authentication and
delivery of Securities, shall authenticate and deliver in exchange for such
Global Security or Global Securities, Physical Securities of like tenor as that
of the Global Securities in an aggregate principal amount equal to the aggregate
principal amount of such Global Security or Global Securities. Such Physical
Securities shall be registered in such names as the Depositary shall identify in
writing as
24
the beneficial owners of the Securities represented by such Global
Security or Global Securities (or any nominee thereof).
Notwithstanding the foregoing, in connection with any transfer of
beneficial interests in a Global Security to beneficial owners pursuant to
Section 2.8(d) hereof, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such Global Security in an amount
equal to the principal amount of the beneficial interest in such Global Security
to be transferred.
SECTION 2.9 SPECIAL TRANSFER PROVISIONS.
Unless a Security is transferred after the time period referred to in
Rule 144(k) under the Securities Act or otherwise sold pursuant to a
registration statement that has been declared effective under the Securities Act
(and which continues to be effective at the time of such sale), the following
provisions shall apply.
With respect to the registration of any proposed transfer of Securities
to a QIB:
(i) If the Securities to be transferred consist of an interest in
the Global Securities, the transfer of such interest may be effected
only through the book-entry system maintained by the Depositary.
(ii) If the Securities to be transferred consist of Physical
Securities, the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided
for on the form of Security stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Security stating
or has otherwise advised the Company and the Registrar in writing that:
(A) it is purchasing the Securities for its own account or an
account with respect to which it exercises sole investment discretion,
in each case for investment and not with a view to distribution;
(B) it and any such account is a QIB within the meaning of
Rule 144A;
(C) it is aware that the sale to it is being made in reliance on
Rule 144A;
(D) it acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule 144A or has
determined not to request such information; and
(E) it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A.
25
In addition, the Registrar shall reflect on its books and records the
date and an increase in the principal amount of the Global Securities in an
amount equal to the principal amount of the Physical Securities to be
transferred, and the Trustee shall cancel the Physical Securities so
transferred.
By its acceptance of any Security bearing the Restricted Securities
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and agrees that it will transfer
such Security only as provided in this Indenture. The Registrar shall not
register a transfer of any Security unless such transfer complies with the
restrictions on transfer of such Security set forth in this Indenture. The
Registrar shall be entitled to receive and rely on written instructions from the
Company verifying that such transfer complies with such restrictions on
transfer. In connection with any transfer of Securities, each Holder agrees by
its acceptance of the Securities to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.8 hereof or this Section
2.9. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
SECTION 2.10 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with Section 312(a) of the TIA. If the
Trustee is not the Registrar, the Company shall furnish to the Trustee prior to
or on each Interest Payment Date and at such other times as the Trustee may
request in writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Holders relating to such
Interest Payment Date or request, as the case may be.
SECTION 2.11 PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the registered Holder of a Global Security as the absolute owner of
such Global Security for the purpose of receiving payment thereof or on account
thereof and for all other purposes whatsoever, whether or not such Security be
overdue, and notwithstanding any notice of ownership or writing thereon, or any
notice of previous loss or theft or other interest therein. The Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name any Security is registered as the owner of such Security for the
purpose of receiving payment of principal of and premium, if any, and interest
(including Liquidated Damages, if any) on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and
notwithstanding any notice of ownership or writing thereon, or any notice of
previous loss or theft or other interest therein.
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SECTION 2.12 MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there is delivered to the Company and the Trustee
(1) evidence to their satisfaction of the destruction, loss or
theft of any Security, and
(2) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the
absence of notice to the Company or the Trustee that such Security has
been acquired by a bona fide purchaser, the Company shall execute and,
upon request, the Trustee shall authenticate and deliver, in lieu of
any such destroyed, lost or stolen Security, a new Security of like
tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion, but
subject to any conversion rights, may, instead of issuing a new Security, pay
such Security, upon satisfaction of the condition set forth in the preceding
paragraph.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and such new
Security shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.13 TREASURY SECURITIES.
In determining whether the Holders of the requisite principal amount of
Outstanding Securities are present at a meeting of Holders for quorum purposes
or have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Securities owned by the Company or any Affiliate of the
Company shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
determination as to the presence of a quorum or upon any such request, demand,
authorization, direction, notice, consent or waiver, only such Securities of
which the Trustee has received written notice and are so owned shall be so
disregarded.
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SECTION 2.14 TEMPORARY SECURITIES.
Pending the preparation of Securities in definitive form, the Company
may execute and the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Securities (printed or lithographed).
Temporary Securities shall be issuable in any authorized denomination, and
substantially in the form of the Securities in definitive form but with such
omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Company. Every such temporary
Security shall be executed by the Company and authenticated by the Trustee upon
the same conditions and in substantially the same manner, and with the same
effect, as the Securities in definitive form. Without unreasonable delay, the
Company will execute and deliver to the Trustee Securities in definitive form
(other than in the case of Securities in global form) and thereupon any or all
temporary Securities (other than any such Securities in global form) may be
surrendered in exchange therefor, at each office or agency maintained by the
Company pursuant to Section 9.2 and the Trustee shall authenticate and deliver
in exchange for such temporary Securities an equal aggregate principal amount of
Securities in definitive form. Such exchange shall be made by the Company at its
own expense and without any charge therefor. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits and subject to
the same limitations under this Indenture as Securities in definitive form
authenticated and delivered hereunder.
SECTION 2.15 CANCELLATION.
All securities surrendered for payment, redemption, repurchase,
conversion, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered shall be canceled promptly by the Trustee, and no Securities shall be
issued in lieu thereof except as expressly permitted by any of the provisions of
this Indenture. Upon written instructions of the Company, the Trustee shall
destroy canceled Securities and, after such destruction, shall deliver a
certificate of such destruction to the Company. If the Company shall acquire any
of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities unless the same
are delivered to the Trustee for cancellation.
SECTION 2.16 CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and the Trustee shall use CUSIP numbers in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any such notice
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers. The Company shall promptly notify the Trustee of
any change in the CUSIP numbers.
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SECTION 2.17 DEFAULTED INTEREST.
If the Company fails to make a payment of interest (including
Liquidated Damages, if any) on any Security when due and payable ("Defaulted
Interest"), it shall pay such Defaulted Interest plus (to the extent lawful) any
interest payable on the Defaulted Interest, in any lawful manner. It may elect
to pay such Defaulted Interest, plus any such interest payable on it, to the
Persons who are Holders of such Securities on which the interest is due on a
subsequent Special Record Date. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each such Security.
The Company shall fix any such Special Record Date and payment date for such
payment. At least 15 days before any such Special Record Date, the Company shall
mail to Holders affected thereby a notice that states the Special Record Date,
the Interest Payment Date, and amount of such interest (and such Liquidated
Damages, if any) to be paid.
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ARTICLE 3
SATISFACTION AND DISCHARGE
SECTION 3.1 SATISFACTION AND DISCHARGE OF INDENTURE.
When:
(1) The Company shall deliver to the trustee for cancellation all
securities previously authenticated (other than any securities which
have been destroyed, lost or stolen and in lieu of, or in substitution
for which, other securities shall have been authenticated and
delivered) and not previously canceled, or
(2) (A) all the securities not previously canceled or delivered
to the trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to
be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption,
(B) the Company shall deposit with the Trustee, in trust,
cash in U.S. dollars and/or U.S. Government Obligations which through
the payment of interest and principal in respect thereof, in accordance
with their terms, will provide (and without reinvestment and assuming
no tax liability will be imposed on such Trustee), not later than one
day before the due date of any payment of money, an amount in cash,
sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay principal of, premium, if any,
or interest (including Liquidated Damages, if any) on all of the
Securities (other than any Securities which shall have been mutilated,
destroyed, lost or stolen and in lieu of or in substitution for which
other Securities shall have been authenticated and delivered) not
previously canceled or delivered to the Trustee for cancellation, on
the dates such payments of principal, premium, if any, or interest
(including Liquidated Damages, if any) are due to such date of
maturity or redemption, as the case may be, and
(C) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel to the effect that (x)
the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the date of execution of
this Indenture, there has been a change in the applicable federal
income tax law, in the case of either clause (x) or (y) to the effect
that, and based thereon such Opinion of Counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and discharge and will be subject
to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and
discharge had not occurred, and
if, in the case of either clause (1) or (2), the Company shall also pay or cause
to be paid all other sums payable hereunder by the Company, then this Indenture
shall cease to be of further effect (except as to:
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(i) remaining rights of registration of transfer, substitution
and exchange and conversion of Securities,
(ii) rights hereunder of Holders to receive payments of
principal of and premium, if any, and interest (including Liquidated
Damages, if any) on, the Securities and the other rights, duties and
obligations of Holders, as beneficiaries hereof with respect to the
amounts, if any, so deposited with the Trustee, and
(iii) the rights, obligations and immunities of the Trustee
hereunder),
and the Trustee, on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; provided, however, the Company shall reimburse
the Trustee for all amounts due the Trustee under Section 5.8 hereof and for
any costs or expenses thereafter reasonably and properly incurred by the
Trustee and to compensate the Trustee for any services thereafter reasonably
and properly rendered by the Trustee in connection with this Indenture or the
Securities.
SECTION 3.2 DEPOSITED MONIES TO BE HELD IN TRUST.
Subject to Section 3.3 hereof, all monies deposited with the Trustee
pursuant to Section 3.1 hereof shall be held in trust and applied by it to the
payment, notwithstanding the provisions of Article 13 hereof, either directly or
through any Paying Agent (including the Company if acting as its own Paying
Agent), to the Holders of the particular Securities for the payment or
redemption of which such monies have been deposited with the Trustee, of all
sums due and to become due thereon for principal, premium, if any, and interest
(including Liquidated Damages, if any). All monies deposited with the Trustee
pursuant to Section 3.1 hereof (and held by it or any Paying Agent) for the
payment of Securities subsequently converted shall be returned to the Company
upon request of the Company.
SECTION 3.3 RETURN OF UNCLAIMED MONIES.
The Trustee and the Paying Agent shall pay to the Company any money
held by them for the payment of principal or premium, if any, or interest
(including Liquidated Damages, if any) that remains unclaimed for two years
after the date upon which such payment shall have become due. After payment to
the Company, Holders entitled to the money must look to the Company for payment
as general creditors unless an applicable abandoned property law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
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ARTICLE 4
DEFAULTS AND REMEDIES
SECTION 4.1 EVENTS OF DEFAULT.
An "Event of Default" with respect to the Securities occurs when any of
the following occurs (whatever the reason for such Event of Default and whether
it shall be occasioned by the provisions of Article 13 hereof or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the Company defaults in the payment of the principal of or
premium, if any, on any of the Securities when it becomes due and payable at
Maturity, upon redemption or exercise of a Repurchase Right or otherwise,
whether or not such payment is prohibited by Article 13 hereof; or
(b) the Company defaults in the payment of interest (including
Liquidated Damages, if any) on any of the Securities when it becomes due and
payable and such default continues for a period of 30 days, whether or not
such payment is prohibited by Article 13 hereof; or
(c) the Company fails to perform or observe any other term, covenant
or agreement contained in the Securities or this Indenture and the default
continues for a period of 60 days after written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Outstanding Securities; or
(d) (i) the Company fails to make any payment by the end of the
applicable grace period, if any, after the maturity of any Indebtedness for
borrowed money in an amount in excess of $5,000,000 (provided that such
failure shall not constitute an Event of Default if (1) the Company
determines, in good faith, that a lessor under a lease described in clause
(3)(a) of the definition of Indebtedness breached a covenant under the lease
and the Company has given notice of the breach to the lessor and the Trustee
and (2) as a result of the breach, the Company withholds payment under the
lease) (a "Default Exception"), or (ii) there is an acceleration of any
Indebtedness for borrowed money in an amount in excess of $5,000,000 because
of a default with respect to such Indebtedness (other than a Default
Exception) without such Indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled, in the case of
either (i) or (ii) above, for a period of 30 days after written notice to the
Company by the Trustee or to the Company and the Trustee by Holders of at
least 25% in aggregate principal amount of the Outstanding Securities; or
(e) the entry by a court having jurisdiction in the premises of (i)
a decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable U.S. federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly filed
a petition seeking reorganization, arrangement, adjustment or composition of
or in respect of the Company under any applicable U.S. federal or state law,
or appointing a custodian, receiver, liquidator,
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assignee, trustee, sequestrator or other similar official of the Company or
of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or
(f) the commencement by the Company of a voluntary case or
proceeding under any applicable U.S. federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by the Company to the
entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable U.S. federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Company, or the filing by the Company of a petition or answer or consent
seeking reorganization or relief under any applicable U.S. federal or state
law, or the consent by the Company to the filing of such petition or to the
appointment of or the taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
of any substantial part of its property, or the making by the Company of an
assignment for the benefit of creditors, or the admission by the Company in
writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company expressly in furtherance of any
such action.
SECTION 4.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default with respect to Outstanding Securities (other
than an Event of Default specified in Section 4.1(e) or 4.1(f) hereof) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Outstanding Securities, by written notice to the
Company, may declare due and payable 100% of the principal amount of all
Outstanding Securities plus any accrued and unpaid interest to the date of
payment. Upon a declaration of acceleration, such principal and accrued and
unpaid interest to the date of payment shall be immediately due and payable.
If an Event of Default specified in Section 4.1(e) or 4.1(f) hereof
occurs, all unpaid principal and accrued and unpaid interest (including
Liquidated Damages, if any) on the Outstanding Securities shall become and be
immediately due and payable, without any declaration or other act on the part
of the Trustee or any Holder.
Any payments by the Company on the Securities following any such
acceleration will be subject to the subordination provisions of Article 13 to
the extent provided therein.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities by written notice to the Trustee and the Company may
rescind and annul an acceleration and waive such defaults and their
consequences if:
(1) all existing Events of Default, other than the nonpayment of
principal of or interest on the Securities which have become due
solely because of the acceleration, have been remedied, cured or
waived,
(2) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction, and
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(3) the principal of any Securities which has become due
otherwise than by such declaration of acceleration and any interest
thereon at the rate or rates prescribed therefor has been deposited
with the Trustee;
provided, however, that in the event such declaration of acceleration has
been made based on the existence of an Event of Default under Section 4.1(d)
hereof and such Event of Default has been remedied, cured or waived in
accordance with Section 4.1(d) hereof, then, without any further action by
the Holders, such declaration of acceleration shall be rescinded
automatically and the consequences of such declaration shall be annulled. No
such rescission or annulment shall affect any subsequent Default or impair
any right consequent thereon.
SECTION 4.3 OTHER REMEDIES.
If an Event of Default with respect to Outstanding Securities occurs
and is continuing, the Trustee may pursue any available remedy by proceeding
at law or in equity to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the Securities.
The Trustee may maintain a proceeding in which it may prosecute and
enforce all rights of action and claims under this Indenture or the
Securities, even if it does not possess any of the Securities or does not
produce any of them in the proceeding.
SECTION 4.4 WAIVER OF PAST DEFAULTS.
The Holders, either (a) through the written consent of not less than
a majority in aggregate principal amount of the Outstanding Securities, or
(b) by the adoption of a resolution, at a meeting of Holders of the
Outstanding Securities at which a quorum is present, by the Holders of at
least a majority in aggregate principal amount of the Outstanding Securities
represented at such meeting, may, on behalf of the Holders of all of the
Securities, waive an existing Default or Event of Default, except a Default
or Event of Default:
(1) in the payment of the principal of or premium, if any,
or interest (including Liquidated Damages, if any) on any Security
(provided, however, that subject to Section 4.7 hereof, the Holders
of a majority in aggregate principal amount of the Outstanding
Securities may rescind an acceleration and its consequences,
including any related payment default that resulted from such
acceleration); or
(2) in respect of a covenant or provision hereof which,
under Section 7.2 hereof, cannot be modified or amended without the
consent of the Holders of each Outstanding Security affected.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; provided, however, that no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
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SECTION 4.5 CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities (or such lesser amount as shall have acted as a meeting
pursuant to the provisions of this Indenture) shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that:
(1) conflicts with any law or with this Indenture;
(2) the Trustee determines may be unduly prejudicial to the
rights of the Holders not joining therein, or
(3) may expose the Trustee to personal liability.
The Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
SECTION 4.6 LIMITATION ON SUIT.
No Holder of any Security shall have any right to pursue any remedy with respect
to this indenture or the Securities (including, instituting any proceeding,
judicial or otherwise, with respect to this Indenture or for the appointment of
a receiver or trustee) unless:
(1) such Holder has previously given written notice to the
Trustee of an Event of Default that is continuing;
(2) the Holders of at least 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against any costs, expenses and liabilities
incurred in complying with such request;
(4) the Trustee has failed to comply with the request for 60
days after its receipt of such notice, request and offer of indemnity;
and
(5) during such 60-day period, no direction inconsistent with
such written request has been given to the Trustee by the Holders of a
majority in aggregate principal amount of the Outstanding Securities
(or such amount as shall have acted at a meeting pursuant to the
provisions of this Indenture);
provided, however, that no one or more of such Holders may use this Indenture to
prejudice the rights of another Holder or to obtain preference or priority over
another Holder.
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SECTION 4.7 UNCONDITIONAL RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO
CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and interest (including
Liquidated Damages, if any) on such Security on the Stated Maturity expressed in
such Security (or, in the case of redemption, on the Redemption Date, or in the
case of the exercise of a Repurchase Right, on the Repurchase Date) and to
convert such Security in accordance with Article 12, and to bring for the
enforcement of any such payment on or after such respective dates and right to
convert, and such rights shall not be impaired or affected without the consent
of such Holder.
SECTION 4.8 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
THE TRUSTEE.
The Company covenants that if:
(1) a Default or Event of Default is made in the payment
of any interest (including Liquidated Damages, if any) on any
Security when such interest (including Liquidated Damages, if any)
becomes due and payable and such Default or Event of Default
continues for a period of 30 days, or
(2) a Default or Event of Default is made in the payment
of the principal of or premium, if any, on any Security at the
Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable (as expressed
therein or as a result of any acceleration effected pursuant to Section 4.2
hereof) on such Securities for principal and premium, if any, and interest
(including Liquidated Damages, if any) and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and
premium, if any, and on any overdue interest (including Liquidated Damages, if
any), calculated using the Interest Rate, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company and collect the moneys adjudged or decreed to be payable in
the manner provided by law out of the property of the Company, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
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SECTION 4.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or the property of the Company or
its creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal or interest (including
Liquidated Damages, if any)) shall be entitled and empowered, by intervention in
such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal
and premium, if any, and interest (including Liquidated Damages, if
any) owing and unpaid in respect of the Securities and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders of Securities allowed in such
judicial proceeding, and
(2) to collect and receive any moneys or other property payable
or deliverable on any such claim and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceedings is hereby authorized by
each Holder of Securities to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders of Securities, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and any other amounts due the Trustee under Section 5.8.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept, or adopt on behalf of any Holder of a
Security, any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder of a Security in any such
proceeding.
SECTION 4.10 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder of a Security has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders of Securities shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 4.11 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 2.12, no right or remedy
37
conferred in this Indenture upon or reserved to the Trustee or to the Holders
of Securities is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 4.12 DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders of Securities may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders of
Securities, as the case may be.
SECTION 4.13 APPLICATION OF MONEY COLLECTED.
Subject to Article 13, any money collected by the Trustee pursuant to
this Article shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal or premium, if any, or interest (including Liquidated Damages, if
any), upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee;
SECOND: To the payment of the amounts then due and unpaid for
principal of and premium, if any, and interest (including Liquidated
Damages, if any) on the Securities and coupons in respect of which or
for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal and premium, if any,
and interest (including Liquidated Damages, if any), respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
SECTION 4.14 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security by
such Holder's acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in aggregate
principal amount of the Outstanding Securities, or to any suit instituted by any
Holder of any Security for the
38
enforcement of the payment of the principal of or premium, if any, or
interest (including Liquidated Damages, if any) on any Security on or after
the Stated Maturity expressed in such Security (or, in the case of redemption
or exercise of a Repurchase Right, on or after the Redemption Date) or for
the enforcement of the right to convert any Security in accordance with
Article 12.
SECTION 4.15 WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
to take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
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ARTICLE 5
THE TRUSTEE
SECTION 5.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) The Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture or the
TIA, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; provided, however, that in the case of any such
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall examine the certificates or opinions to determine whether or
not, on their face, they conform to the requirements to this
Indenture (but need not investigate or confirm the accuracy of any
facts stated therein).
(b) In case an Event of Default actually known to a Responsible
Officer of the Trustee has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(1) This paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section 5.1;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) The Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with a
direction received by it of the Holders of a majority in principal
amount of the Outstanding Securities (or such lesser amount as shall
have acted at a meeting pursuant to the provisions of this Indenture)
relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture.
40
(d) Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section 5.1.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers. The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity reasonably satisfactory to it
against any loss, liability, cost or expense (including, without limitation,
reasonable fees of counsel).
(f) The Trustee shall not be obligated to pay interest on any money
or other assets received by it unless otherwise agreed in writing with the
Company. Assets held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon, other evidence of indebtedness or other paper
or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney.
(h) The Trustee shall not be deemed to have notice or actual
knowledge of any Event of Default or a Registration Default (as such term is
defined in Section 3(a) of the Registration Rights Agreement) or the
obligation of the Company to pay Liquidated Damages unless a Responsible
Officer of the Trustee has actual knowledge thereof or unless written notice
of any event which is in fact a Default is received by the Trustee pursuant
to Section 14.2 hereof, and such notice references the Securities and this
Indenture.
(i) The rights, privileges, protections, immunities and benefits
given to the Trustee hereunder, including, without limitation, its right to
be indemnified, are extended to, and shall be enforceable by, the Trustee in
each of its capacities hereunder, and each Paying Agent, authenticating
agent, Conversion Agent or Registrar acting hereunder.
SECTION 5.2 CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 5.1 hereof and subject to Section
315(a) through (d) of the TIA:
(1) The Trustee may rely on any document reasonably
believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel, or
both. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on the Officers' Certificate
or Opinion of Counsel.
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(3) The Trustee may act through attorneys and agents and
shall not be responsible for the misconduct or negligence of any
attorney or agent appointed with due care.
(4) The Trustee shall not be liable for any action taken
or omitted to be taken by it in good faith which it believed to be
authorized or within the discretion or rights or powers conferred
upon it by this Indenture, unless the Trustee's conduct constitutes
negligence.
(5) The Trustee may consult with counsel of its selection
and the written advice of such counsel as to matters of law shall be
full and complete authorization and protection in respect of any
action taken, omitted or suffered by it hereunder in good faith and
in accordance with the advice or opinion of such counsel; provided,
however, that the provisions shall not protect the Trustee from
liability for its own gross negligence or willful misconduct.
(6) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the Company
shall be sufficient if signed by an Officer of the Company.
(7) The permissive rights of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty unless
so specified herein.
SECTION 5.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as such term is defined in Section 310(b) of the TIA), it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee (to the extent permitted under Section 310(b) of the TIA) or
resign. Any agent may do the same with like rights and duties. The Trustee is
also subject to Sections 5.11 and 5.12 hereof.
Subject to the limitations imposed by the Trustee Indenture Act,
nothing in this Indenture shall prohibit the Trustee from becoming and acting as
trustee under other indentures under which other securities, or certificates of
interest of participation in other securities, of the Company are outstanding in
the same manner as if it were not Trustee hereunder.
SECTION 5.4 MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise expressly agreed with the Company.
SECTION 5.5 TRUSTEE'S DISCLAIMER.
The recitals contained herein and in the Securities (except for those
in the certificate of authentication) shall be taken as the statements of the
Company, and the Trustee assumes no
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responsibility for their correctness. The Trustee makes no representations as
to the validity, sufficiency or priority of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application
by the Company of Securities or the proceeds thereof.
SECTION 5.6 NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default or Event of
Default hereunder of which the Trustee has received written notice, the
Trustee shall give notice to Holders pursuant to Section 14.2 hereof, unless
such Default or Event of Default shall have been cured or waived; provided,
however, that, except in the case of a Default or Event of Default in the
payment of the principal of or premium, if any, or interest (including
Liquidated Damages, if any), or in the payment of any redemption or
repurchase obligation on any Security, the Trustee shall be protected in
withholding such notice if and so long as Responsible Officers of the Trustee
in good faith determine that the withholding of such notice is in the
interest of the Holders.
SECTION 5.7 REPORTS BY TRUSTEE TO HOLDERS.
The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required by Section
313 of the TIA at the times and in the manner provided by the TIA.
A copy of each report at the time of its mailing to Holders shall be
filed with the SEC, if required, and each stock exchange, if any, on which
the Securities are listed. The Company shall promptly notify the Trustee when
the Securities become listed on any stock exchange.
SECTION 5.8 COMPENSATION AND INDEMNIFICATION.
The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of
a trustee of an express trust) and the Company covenants and agrees to pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all agents and other persons not regularly in its employ), except to the
extent that any such expense, disbursement or advance is due to its
negligence or bad faith. When the Trustee incurs expenses or renders services
in connection with an Event of Default specified in Section 4.1 hereof, the
expenses (including the reasonable charges and expenses of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any bankruptcy law. The Company also covenants to
indemnify the Trustee and its officers, directors, employees and agents for,
and to hold such Persons harmless against, any loss, liability or expense
incurred by them, arising out of or in connection with the acceptance or
administration of this Indenture or the trusts hereunder or the performance
of their duties hereunder, including the costs and expenses of defending
themselves against or investigating any claim of liability in the premises,
except to the extent that any such loss, liability or expense was due to the
negligence or willful misconduct of such Persons. The obligations of the
Company under this Section 5.8 to compensate and indemnify the Trustee and
its officers, directors, employees and agents and to pay or reimburse such
Persons for expenses,
43
disbursements and advances shall constitute additional indebtedness hereunder
and shall survive the satisfaction and discharge of this Indenture or the
earlier resignation or removal of the Trustee. Such additional indebtedness
shall be a senior claim to that of the Securities upon all property and funds
held or collected by the Trustee as such, except funds held in trust for the
benefit of the Holders of particular Securities, and the Securities are
hereby subordinated to such senior claim. "Trustee" for purposes of this
Section 5.8 shall include any predecessor Trustee, but the negligence or
willful misconduct of any Trustee shall not affect the indemnification of any
other Trustee.
SECTION 5.9 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 5.9.
The Trustee may resign and be discharged from the trust hereby
created by so notifying the Company in writing. The Holders of at least a
majority in aggregate principal amount of Outstanding Securities may remove
the Trustee by so notifying the Trustee and the Company in writing. The
Company must remove the Trustee if:
(i) the Trustee fails to comply with Section 5.11 hereof or
Section 310 of the TIA;
(ii) the Trustee becomes incapable of acting.
(iii) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law; or
(iv) a Custodian or public officer takes charge of the Trustee
or its property.
If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason, the Company shall promptly appoint a
successor Trustee. The Trustee shall be entitled to payment of its fees and
reimbursement of its expenses while acting as Trustee. Within one year after the
successor Trustee takes office, the Holders of at least a majority in aggregate
principal amount of Outstanding Securities may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.
In the event the Trustee fails to comply with Section 5.11 hereof, (a)
the Company may remove the Trustee or (b) any Holder may, on behalf of himself
or herself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation or removal, the resigning or removed Trustee, as the case may be,
may petition, at the expense of the Company, any court of competent jurisdiction
for the appointment of a successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The Company shall mail a notice of the successor Trustee's
succession to the Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee. Notwithstanding
replacement of the Trustee pursuant to this Section 5.9, the Company's
obligations under Section 5.8 hereof shall continue for the benefit of the
retiring Trustee with respect to expenses, losses and liabilities incurred by it
prior to such replacement.
SECTION 5.10 SUCCESSOR TRUSTEE BY MERGER, ETC.
Subject to Section 5.11 hereof, if the Trustee consolidates with,
merges or converts into, or transfers or sells all or substantially all of its
corporate trust business to, another corporation or national banking
association, the successor entity without any further act shall be the successor
Trustee as to the Securities.
SECTION 5.11 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
The Trustee shall at all times satisfy the requirements of Section
310(a)(1), (2) and (5) of the TIA. The Trustee shall at all times have (or, in
the case of a corporation included in a bank holding company system, the related
bank holding company shall at all times have), a combined capital and surplus of
at least $100 million as set forth in its (or its related bank holding
company's) most recent published annual report of condition. The Trustee is
subject to Section 310(b) of the TIA.
SECTION 5.12 COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to Section 311(a) of the TIA, excluding any
creditor relationship listed in Section 311(b) of the TIA. A Trustee who has
resigned or been removed shall be subject to Section 311(a) of the TIA to the
extent indicated therein.
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ARTICLE 6
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 6.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:
(1) in the event that the Company shall consolidate with
or merge into another Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person,
the Person formed by such consolidation or into which the Company is
merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially
as an entirety shall be a corporation, limited liability company,
partnership or trust organized and validly existing under the laws
of the United States of America, any State thereof or the District
of Columbia and, if the entity surviving such transaction or
transferee entity is not the Company, then such surviving or
transferee entity shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of and premium, if any and interest (including Liquidated
Damages, if any), on all the Securities and the performance of every
covenant of this Indenture on the party of the Company to be
performed or observed and shall have provided for conversion rights
in accordance with Section 12.11 hereof;
(2) at the time of consummation of such transaction, no
Event of Default, and no event which, after notice or lapse of time
or both, would become an Event of Default, shall have happened and
be continuing; and
(3) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 6.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger by the Company with or into any other
corporation or any conveyance, transfer or lease of the properties and assets of
the Company substantially as an entirety to any Person, in accordance with
Section 6.1 hereof, the successor corporation formed by such consolidation or
into which the Company is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein, and thereafter,
except in the case of a lease
46
to another Person, the predecessor corporation shall be relieved of all
obligations and covenants under this Indenture and the Securities.
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ARTICLE 7
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 7.1 WITHOUT CONSENT OF HOLDERS OF SECURITIES.
Without the consent of any Holders of Securities, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may amend this Indenture and the Securities to:
(a) add to the covenants of the Company for the benefit of
the Holders of Securities;
(b) surrender any right or power herein conferred upon the
Company;
(c) make provision with respect to the conversion rights of
Holders of Securities pursuant to Section 12.11 hereof;
(d) provide for the assumption of the Company's obligations
to the Holders of Securities in the case of a merger, consolidation,
conveyance, transfer or lease pursuant to Article 6 hereof;
(e) reduce the Conversion Price; provided, that such
reduction in the Conversion Price shall not adversely affect the interest of
the Holders of Securities (after taking into account tax and other
consequences of such reduction) in any material respect;
(f) comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(g) make any changes or modifications to this Indenture
necessary in connection with the registration of any Securities under the
Securities Act as contemplated in the Registration Rights Agreement,
provided, that such action pursuant to this clause (g) does not adversely
affect the interests of the Holders of Securities in any material respect;
(h) cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision herein or
which is otherwise defective, or to make any other provisions with respect to
matters or questions arising under this Indenture which the Company and the
Trustee may deem necessary or desirable and which shall not be inconsistent
with the provisions of this Indenture, provided, that such action pursuant to
this clause (h) does not adversely affect the interests of the Holders of
Securities in any material respect;
(i) add or modify any other provisions with respect to
matters or questions arising under this Indenture which the Company and the
Trustee may deem necessary or desirable and which shall not be inconsistent
with the provisions of this Indenture, provided, that such action pursuant to
this clause (i) does not adversely affect the interests of the Holders of
Securities in any material respect; or
(j) make provision for the establishment of a book-entry
system, in which Holders would have the option to participate, for the
clearance and settlement of transactions in Securities originally issued in
definitive form.
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SECTION 7.2 WITH CONSENT OF HOLDERS OF SECURITIES.
Except as provided below in this Section 7.2, this Indenture or the
Securities may be amended or supplemented, and noncompliance in any particular
instance with any provision of this Indenture or the Securities may be waived,
in each case (i) with the written consent of the Holders of at least a majority
in aggregate principal amount of the Outstanding Securities or (ii) by the
adoption of a resolution, at a meeting of Holders of the Outstanding Securities
at which a quorum is present, by the Holders of a majority in aggregate
principal amount of the Outstanding Securities represented at such meeting.
Without the written consent or the affirmative vote of each Holder of
Securities, an amendment or waiver under this Section 7.2 may not:
(a) change the Stated Maturity of the principal of, or any
installment of interest (including Liquidated Damages, if any) on, any
Security;
(b) reduce the principal amount of, or premium, if any, on any
Security;
(c) reduce the Interest Rate or interest (including Liquidated
Damages, if any) on any Security;
(d) change the currency of payment of principal of, premium, if
any, or interest (including Liquidated Damages, if any) on any
Security;
(e) impair the right of any Holder to institute suit for the
enforcement of any payment in or with respect to any Security;
(f) modify the obligation of the Company to maintain an office
or agency in The City of New York pursuant to Section 9.2 hereof;
(g) except as permitted by Section 12.11 hereof, adversely
affect the Repurchase Right or the right to convert any Security as
provided in Article 12 hereof;
(h) modify the subordination provisions of the Securities in a
manner adverse to the Holders of Securities,
(i) modify any of the provisions of this Section, Section 4.4 or
Section 14.11, except to increase any percentage contained herein or
therein or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; or
(j) reduce the requirements of Section 8.4 hereof for quorum or
voting, or reduce the percentage in aggregate principal amount of the
Outstanding Securities the consent of whose Holders is required for
any such supplemental indenture or the consent of whose Holders is
required for any waiver provided for in this Indenture.
49
It shall not be necessary for any Act of Holders of Securities under
this Section to approve the particular form of any proposal supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 7.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture or the Securities shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
SECTION 7.4 REVOCATION OF CONSENTS AND EFFECT OF CONSENTS OR VOTES.
Until an amendment, supplement or waiver becomes effective, a written
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security; provided, however, that unless a record date shall have
been established, any such Holder or subsequent Holder may revoke the consent as
to its Security or portion of a Security if the Trustee receives written notice
of revocation before the date the amendment, supplement or waiver becomes
effective.
An amendment, supplement or waiver becomes effective on receipt by the
Trustee of written consents from or affirmative votes by, as the case may be,
the Holders of the requisite percentage of aggregate principal amount of the
Outstanding Securities, and thereafter shall bind every Holder of Securities;
provided, however, if the amendment, supplement or waiver makes a change
described in any of the clauses (a) through (j) of Section 7.2 hereof, the
amendment, supplement or waiver shall bind only each Holder of a Security which
has consented to it or voted for it, as the case may be, and every subsequent
Holder of a Security or portion of a Security that evidences the same
indebtedness as the Security of the consenting or affirmatively voting, as the
case may be, Holder.
SECTION 7.5 NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security:
(a) the Trustee may require the Holder of a Security to deliver such
Securities to the Trustee, the Trustee may place an appropriate notation on
the Security about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Security thereafter
authenticated; or
(b) if the Company or the Trustee so determines, the Company in
exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
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SECTION 7.6 TRUSTEE TO SIGN AMENDMENT, ETC.
The Trustee shall sign any amendment authorized pursuant to this
Article 7 if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee in any material respects. If the
amendment does adversely affect the rights, duties, liabilities or immunities of
the Trustee, the Trustee may but need not sign it. In signing or refusing to
sign such amendment, the Trustee shall be entitled to receive and shall be fully
protected in relying upon an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that such amendment is authorized or permitted by this
Indenture.
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ARTICLE 8
MEETING OF HOLDERS OF SECURITIES
SECTION 8.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities may be called at any time and from
time to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities.
SECTION 8.2 CALL NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities for any purpose specified in Section 8.1 hereof, to be held at
such time and at such place in The City of New York. Notice of every meeting
of Holders of Securities, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be given, in the manner provided in Section 14.2 hereof, not less than
21 nor more than 180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 10% in principal amount of the Outstanding
Securities shall have requested the Trustee to call a meeting of the Holders
of Securities for any purpose specified in Section 8.1 hereof, by written
request setting forth in reasonable detail the action proposed to be taken at
the meeting, and the Trustee shall not have made the first publication of the
notice of such meeting within 21 days after receipt of such request or shall
not thereafter proceed to cause the meeting to be held as provided herein,
then the Company or the Holders of Securities in the amount specified, as the
case may be, may determine the time and the place in The City of New York for
such meeting and may call such meeting for such purposes by giving notice
thereof as provided in paragraph (a) of this Section.
SECTION 8.3 PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities, a
Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a
Person appointed by an instrument in writing as proxy for a Holder or Holders of
one or more Outstanding Securities by such Holder or Holders. The only Persons
who shall be entitled to be present or to speak at any meeting of Holders shall
be the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 8.4 QUORUM; ACTION.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the
52
absence of a quorum at any such adjourned meeting, such adjourned meeting may
be further adjourned for a period of not less than 10 days as determined by
the chairman of the meeting prior to the adjournment of such adjourned
meeting. Notice of the reconvening of any adjourned meeting shall be given as
provided in Section 8.2(a) hereof, except that such notice need be given only
once and not less than five days prior to the date on which the meeting is
scheduled to be reconvened. Notice of the reconvening of an adjourned meeting
shall state expressly the percentage of the principal amount of the
Outstanding Securities which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned
for a lack of a quorum, the Persons entitled to vote 25% in principal amount of
the Outstanding Securities at the time shall constitute a quorum for the taking
of any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid, any resolution and all matters (except as
limited by the proviso to Section 7.2 hereof) shall be effectively passed and
decided if passed or decided by the Persons entitled to vote not less than a
majority in principal amount of Outstanding Securities represented and voting at
such meeting.
Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not present or represented at the meeting.
SECTION 8.5 DETERMINATION OF VOTING RIGHTS; CONDUCT AND
ADJOURNMENT OF MEETINGS.
(a) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders of Securities in regard to proof of the holding of
Securities and of the appointment of proxies and in regard to the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate. Except as
otherwise permitted or required by any such regulations, the holding of
Securities shall be proved in the manner specified in Section 2.2 hereof and
the appointment of any proxy shall be proved in the manner specified in
Section 2.2 hereof. Such regulations may provide that written instruments
appointing proxies, regular on their face, may be presumed valid and genuine
without the proof specified in Section 2.2 hereof or other proof.
(b) The Trustee shall, by an instrument in writing, appoint a
temporary chairman (which may be the Trustee) of the meeting, unless the
meeting shall have been called by the Company or by Holders of Securities as
provided in Section 8.2(b) hereof, in which case the Company or the Holders
of Securities calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary
of the meeting shall be elected by vote of the Persons entitled to vote a
majority in principal amount of the Outstanding Securities represented at the
meeting.
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(c) At any meeting each Holder of a Security or proxy shall be
entitled to one vote for each $1,000 principal amount of Securities held or
represented by him; provided, however, that no vote shall be cast or counted
at any meeting in respect of any Security challenged as not Outstanding and
ruled by the chairman of the meeting to be not Outstanding. The chairman of
the meeting shall have no right to vote, except as a Holder of a Security or
proxy.
(d) Any meeting of Holders of Securities duly called pursuant to
Section 8.2 hereof at which a quorum is present may be adjourned from time to
time by Persons entitled to vote a majority in principal amount of the
Outstanding Securities represented at the meeting, and the meeting may be
held as so adjourned without further notice.
SECTION 8.6 COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy
and the principal amounts and serial numbers of the Outstanding Securities
held or represented by them. The permanent chairman of the meeting shall
appoint two inspectors of votes who shall count all votes cast at the meeting
for or against any resolution and who shall make and file with the secretary
of the meeting their verified written reports in duplicate of all votes cast
at the meeting. A record, at least in duplicate, of the proceedings of each
meeting of Holders of Securities shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more Persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was given as provided in
Section 8.2 hereof and, if applicable, Section 8.4 hereof. Each copy shall be
signed and verified by the affidavits of the permanent chairman and secretary
of the meeting and one such copy shall be delivered to the Company and
another to the Trustee to be preserved by the Trustee, the latter to have
attached thereto the ballots voted at the meeting. Any record so signed and
verified shall be conclusive evidence of the matters therein stated.
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ARTICLE 9
COVENANTS
SECTION 9.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of and
premium, if any, and interest (including Liquidated Damages, if any) in
respect of the Securities in accordance with the terms of the Securities and
this Indenture. The Company will deposit or cause to be deposited with the
Trustee as directed by the Trustee, no later than the day of the Stated
Maturity of any Security or installment of interest (including Liquidated
Damages, if any), all payments so due.
SECTION 9.2 MAINTENANCE OF OFFICES OR AGENCIES.
The Company hereby appoints the Trustee's Corporate Trust Office as
its office in The City of New York, where Securities may be:
(i) presented or surrendered for payment;
(ii) surrendered for registration of transfer or exchange;
(iii) surrendered for conversion;
and where notices and demands to or upon the Company in respect of the
Securities and this Indenture maybe served.
The Company may at any time and from time to time vary or terminate
the appointment of any such office or appoint any additional offices for any
or all of such purposes; provided, however, that until all of the Securities
have been delivered to the Trustee for cancellation, or moneys sufficient to
pay the principal of and premium, if any, and interest (including Liquidated
Damages, if any) on the Securities have been made available for payment and
either paid or returned to the Company pursuant to the provisions of Section
9.3 hereof, the Company will maintain in The City of New York, an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange, where
Securities may be surrendered for conversion and where notices and demands to
or upon the Company in respect of the Securities and this Indenture may be
served. The Company will give prompt written notice to the Trustee, and
notice to the Holders in accordance with Section 14.2 hereof, of the
appointment or termination of any such agents and of the location and any
change in the location of any such office or agency.
If at any time the Company shall fail to maintain any such required
office or agency in The City of New York, or shall fail to furnish the
Trustee with the address thereof, presentations and surrenders may be made
at, and notices and demands may be served on, the Corporate Trust Office of
the Trustee.
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SECTION 9.3 CORPORATE EXISTENCE.
Subject to Article 6 hereof, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Company determines that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the
loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 9.4 MAINTENANCE OF PROPERTIES.
The Company will maintain and keep its properties and every part
thereof in such repair, working order and condition, and make or cause to be
made all such needful and proper repairs, renewals and replacements thereto,
as in the judgment of the Company are necessary in the interests of the
Company; provided, however, that nothing contained in this Section shall
prevent the Company from selling, abandoning or otherwise disposing of any of
its properties or discontinuing a part of its business from time to time if,
in the judgment of the Company, such sale, abandonment, disposition or
discontinuance is advisable and does not materially adversely affect the
interests or business of the Company.
SECTION 9.5 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will, and will cause any Significant Subsidiary to,
promptly pay and discharge or cause to be paid and discharged all material
taxes, assessments and governmental charges or levies lawfully imposed upon
it or upon its income or profits or upon any of its property, real or
personal, or upon any part thereof, as well as all material claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon its property; provided, however, that neither the Company nor any
Significant Subsidiary shall be required to pay or discharge or cause to be
paid or discharged any such tax, assessment, charge, levy, or claim if the
amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings and if the Company or such Significant
Subsidiary, as the case may be, shall have set aside on its books reserves
deemed by it adequate with respect thereto.
SECTION 9.6 REPORTS.
(a) The Company shall deliver to the Trustee within 15 days after it
files them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act; provided, however, the Company shall not be required to
deliver to the Trustee any materials for which the Company has sought and
received confidential treatment by the SEC. The Company also shall comply
with the other provisions of Section 314(a) of the TIA.
(b) If at any time the Company is not subject to Section 13 or 15(d)
of the Exchange Act, upon the request of a Holder of a Security, the Company
will promptly furnish or cause to be furnished to such Holder or to a
prospective purchaser of such Security designated by such Holder, as the case
may be, the information, if any, required to be delivered by it pursuant to
Rule 144A(d)(4) under the Securities Act to permit compliance with Rule 144A
in connection
56
with the resale of such Security; provided, however, that the Company shall
not be required to furnish such information in connection with any request
made on or after the date which is two years from the later of the date such
security was last acquired from the Company or an "affiliate" of the Company.
SECTION 9.7 COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that
in the course of the performance by the signers of their duties as Officers
of the Company, they would normally have knowledge of any failure by the
Company to comply with all conditions, or Default by the Company with respect
to any covenants, under this Indenture, and further stating whether or not
they have knowledge of any such failure or default and, if so, specifying
each such failure or Default and the nature thereof. In the event an Officer
of the Company comes to have actual knowledge of a Default, regardless of the
date, the Company shall deliver an Officers' Certificate to the Trustee
specifying such Default and the nature and status thereof.
SECTION 9.8 RESALE OF CERTAIN SECURITIES.
During the period of two years after the last date of original
issuance of any Securities, the Company shall not, and shall not permit any
of its "affiliates" (as defined under Rule 144 under the Securities Act) to,
resell any Securities, or shares of Common Stock issuable upon conversion of
the Securities, which constitute "restricted securities" under Rule 144, that
are acquired by any of them within the United States or to "U.S. persons" (as
defined in Regulation S) except pursuant to an effective registration
statement under the Securities Act or an applicable exemption therefrom. The
Trustee shall have no responsibility or liability in respect of the Company's
performance of its agreement in the preceding sentence.
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ARTICLE 10
REDEMPTION OF SECURITIES
SECTION 10.1 PROVISIONAL REDEMPTION.
Any time prior to October 17, 2003, the Company may, at its option,
redeem the Securities in whole or in part on any date from time to time, upon
notice as set forth in Section 10.5, at a redemption price equal to $1,000
per $1,000 principal amount of the Securities redeemed (such amount, together
with the Make-Whole Payment described below, the "Provisional Redemption
Price"), on the date of redemption (the "Provisional Redemption Date") if (i)
the Closing Price of the Common Stock has exceeded 150% of the Conversion
Price (as defined in Article 12 and as such may be adjusted from time to
time) then in effect for at least 20 Trading Days in any consecutive
30-Trading Day period ending on the Trading Day prior to the date of mailing
of the provisional notice of redemption pursuant to Section 10.5 (the "Notice
Date"), and (ii) a registration statement covering resales of the Securities
and the Common Stock issuable upon conversion thereof is effective and
available for use and is expected to remain effective for the 30 days
following the Provisional Redemption Date (such redemption, a "Provisional
Redemption").
Upon any such Provisional Redemption, the Company shall make an
additional payment (the "Make-Whole Payment") with respect to the Securities
called for redemption to Holders on the Notice Date in an amount equal to
$105.00 per $1,000 principal amount of the Securities, less the amount of any
interest actually paid on such Securities prior to the Provisional Redemption
Date. The Company shall make the Make-Whole Payment on all Securities called
for Provisional Redemption, including those Securities converted into Common
Stock between the Notice Date and the Provisional Redemption Date.
The Company may elect to pay the Make-Whole Payment or any portion
thereof (i) in cash or, (ii) subject to the fulfillment by the Company of the
conditions set forth in the following paragraph, by delivering the number of
shares of Common Stock equal to (x) the Make-Whole Payment (or any portion
thereof that the Company elects to pay in shares of Common Stock) divided by
(y) 97% of the average of the Closing Prices per share of Common Stock for
the five consecutive Trading Days immediately preceding and including the
first Trading Day prior to the Provisional Redemption Date.
The following shall constitute the conditions to any election by the
Company pursuant to this Section 10.1 to pay the Make-Whole Payment (or any
portion thereof) in shares of Common Stock:
(a) The shares of Common Stock to be issued in payment of the
Make-Whole Payment (or any portion thereof) hereunder shall not require
registration under any federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under
the Securities Act, or, if registration is required, such registration shall
be completed and shall become effective prior to the Provisional Redemption
Date (and the Company shall state in the notice of Provisional Redemption
that the Company expects that such registration shall remain effective for at
least 30 days following the Provisional Redemption Date);
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(b) The shares of Common Stock to be issued in payment of the
Make-Whole Payment (or any portion thereof) hereunder shall not require
registration with, or approval of, any governmental authority under any state
law or any other federal law before such shares may be validly issued or
delivered or if such registration is required or such approval must be
obtained, such registration shall be completed or such approval shall be
obtained prior to the Provisional Redemption Date;
(c) The shares of Common Stock to be issued upon payment of the
Make-Whole Payment (or any portion thereof) hereunder are, or shall have
been, approved for listing on the Nasdaq National Market or the New York
Stock Exchange or listed on another national securities exchange, in any
case, prior to the Provisional Redemption Date;
(d) All shares of Common Stock which may be issued upon payment of
the Make-Whole Payment (or any portion thereof) will be issued out of the
Company's authorized but unissued Common Stock and will, upon issue, be duly
and validly issued and fully paid and nonassessable and free of any
preemptive or similar rights; and
(e) If any of the conditions set forth in clauses (a) through (d) of
this paragraph are not satisfied in accordance with the terms thereof, the
Make-Whole Payment shall be paid by the Company only in cash.
SECTION 10.2 OPTIONAL REDEMPTION.
Except as set forth under Section 10.1, the Securities are not
redeemable prior to October 17, 2003 (the "Optional Redemption Date"). On or
after October 17, 2003, the Company may, at its option, redeem the Securities
in whole at any time or in part from time to time, on any date prior to
maturity, upon notice as set forth in Section 10.5, at the redemption price
(expressed as percentages of the principal amount) set forth below if
redeemed during the 12-month period beginning October 17 of the years
indicated and ending October 16 of the following year:
During the Twelve
Months Commencing Redemption Price
----------------- ----------------
2003.............................. 102.00%
2004.............................. 101.50%
2005.............................. 101.00%
2006.............................. 100.50%
("the Optional Redemption Price"), plus any interest accrued but not paid
prior to the Optional Redemption Date, only if the Closing Price of the
Common Stock has exceeded 120% of the Conversion Price (as defined in Article
12 and as such may be adjusted from time to time) then in effect for at least
20 Trading Days in any consecutive 30 Trading Day period ending on the
Trading Day immediately prior to the date of mailing of the notice of
optional redemption pursuant to Section 10.5.
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SECTION 10.3 NOTICE TO TRUSTEE.
If the Company elects to redeem Securities pursuant to the
redemption provisions of Section 10.1 or Section 10.2 hereof, it shall notify
the Trustee at least 30 days prior to the Redemption Date of such intended
Redemption Date, the principal amount of Securities to be redeemed, the CUSIP
numbers of the Securities to be redeemed and, in the case of a Provisional
Redemption, of whether the Make-Whole Payment shall be paid by the Company
(x) in cash, (y) by delivery of shares of Common Stock or (z) in a
combination of cash and delivery of shares of Common Stock, in which case,
the portion of the Make-Whole Payment that will be paid in cash and the
portion that will be paid in shares of Common Stock.
SECTION 10.4 SELECTION OF SECURITIES TO BE REDEEMED.
If fewer than all the Securities are to be redeemed, the Trustee
shall select the particular Securities to be redeemed from the Outstanding
Securities by a method that complies with the requirements of any exchange on
which the Securities are listed, or, if the Securities are not listed on an
exchange, on a pro rata basis or by lot or in accordance with any other
method the Trustee considers fair and appropriate. Securities and portions
thereof that the Trustee selects shall be in amounts equal to the minimum
authorized denominations for Securities to be redeemed or any integral
multiple thereof.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed
to be the portion selected for redemption (provided, however, that the Holder
of such Security so converted and deemed redeemed shall not be entitled to
any additional interest payment as a result of such deemed redemption than
such Holder would have otherwise been entitled to receive upon conversion of
such Security). Securities which have been converted during a selection of
Securities to be redeemed may be treated by the Trustee as Outstanding for
the purpose of such selection.
The Trustee shall promptly notify the Company and the Registrar in
writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to
be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has
been or is to be redeemed.
SECTION 10.5 NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in
Section 14.2 hereof to the Holders of Securities to be redeemed. Such notice
shall be given not less than 20 nor more than 60 days prior to the Redemption
Date.
All notices of redemption shall state:
(1) the Redemption Date;
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(2) the Redemption Price and interest accrued and
unpaid to the Redemption Date, if any;
(3) with respect to a Provisional Redemption, whether
the Make-Whole Payment shall be paid by the Company (x) in cash, (y) by
delivery of shares of Common Stock or (z) in a combination of cash and
delivery of shares of Common Stock, in which case, the portion of the
Make-Whole Payment that will be paid in cash and the portion that will
be paid in shares of Common Stock;
(4) if fewer than all the Outstanding Securities are
to be redeemed, the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities which will be
outstanding after such partial redemption;
(5) that on the Redemption Date the Redemption Price
and interest accrued and unpaid to the Redemption Date, if any, will
become due and payable upon each such Security to be redeemed, and that
interest thereon shall cease to accrue on and after such date;
(6) the Conversion Price, the date on which the right
to convert the principal of the Securities to be redeemed will
terminate and the places where such Securities may be surrendered for
conversion;
(7) the place or places where such Securities are to
be surrendered for payment of the Redemption Price and accrued and
unpaid interest, if any;
and
(8) the CUSIP number of the Securities.
The notice given shall specify the last date on which exchanges or
transfers of Securities may be made pursuant to Section 2.1 hereof, and shall
specify the serial numbers of Securities and the portions thereof called for
redemption.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name of and at the expense of the Company.
SECTION 10.6 EFFECT OF NOTICE OF REDEMPTION.
Notice of redemption having been given as provided in Section 10.5
hereof, the Securities so to be redeemed shall, on the Redemption Date, become
due and payable at the Redemption Price therein specified and from and after
such date (unless the Company shall default in the payment of the Redemption
Price and accrued and unpaid interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
such notice, such Security shall be paid by the Company at the Redemption Price;
provided, however, the installments of interest on Securities whose Stated
Maturity is prior to or on the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such on
the relevant Record Date according to their terms and the provisions of Section
2.1 hereof.
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If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the Interest Rate.
SECTION 10.7 DEPOSIT OF REDEMPTION PRICE.
Prior to or on any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent an amount of money sufficient to pay the
Redemption Price of all the Securities to be redeemed on that Redemption Date,
other than any Securities called for redemption on that date which have been
converted prior to the date of such deposit, and accrued and unpaid interest, if
any, on such Securities.
If any Security called for redemption is converted, any money deposited
with the Trustee or with a Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
fourth to last paragraph of Section 2.1 hereof) be paid to the Company at the
Company's request or, if then held by the Company, shall be discharged from such
trust.
SECTION 10.8 SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 9.2 hereof (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or the Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities of any authorized denomination as
requested by such Holder in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.
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ARTICLE 11
REPURCHASE AT THE OPTION OF A HOLDER
UPON A CHANGE OF CONTROL
SECTION 11.1 REPURCHASE RIGHT.
In the event that a Change in Control shall occur, each Holder shall
have the right (the "Repurchase Right"), at the Holder's option, but subject to
the provisions of Section 11.2 hereof, to require the Company to repurchase, and
upon the exercise of such right the Company shall repurchase, all of such
Holder's Securities not theretofore called for redemption, or any portion of the
principal amount thereof that is equal to $1,000 or any integral multiple
thereof (provided that no single Security may be repurchased in part unless the
portion of the principal amount of such Security to be Outstanding after such
repurchase is equal to $1,000 or integral multiples thereof), on the date (the
"Repurchase Date") that is 45 days after the date of the Company Notice (as
defined in Section 11.3) at a purchase price equal to 100% of the principal
amount of the Securities to be repurchased (the "Repurchase Price"), plus
interest accrued and unpaid to, but excluding, the Repurchase Date; provided,
however, that installments of interest on Securities whose Stated Maturity is
prior to or on the Repurchase Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such on the
relevant Record Date according to their terms and the provisions of Section 2.1
hereof.
Subject to the fulfillment by the Company of the conditions set forth
in Section 11.2 hereof, the Company may elect to pay the Repurchase Price by
delivering the number of shares of Common Stock equal to (i) the Repurchase
Price divided by (ii) 95% of the average of the Closing Prices per share of
Common Stock for the five consecutive Trading Days immediately preceding and
including the third Trading Day prior to the Repurchase Date.
Whenever in this Indenture (including Sections 2.2, 4.1(a) and 4.7
hereof) or Exhibit A annexed hereto there is a reference, in any context, to the
principal of any Security as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in respect to such Security to
the extent that such Repurchase Price is, was or would be so payable at such
time, and express mention of the Repurchase Price in any provision of this
Indenture shall not be construed as excluding the Repurchase Price in those
provisions of this Indenture when such express mention is not made; provided,
however, that, for the purposes of Article 13 hereof, such reference shall be
deemed to include reference to the Repurchase Price only to the extent the
Repurchase Price is payable in cash.
SECTION 11.2 CONDITIONS TO THE COMPANY'S ELECTION TO PAY THE REPURCHASE
PRICE IN COMMON STOCK.
(a) The shares of Common Stock to be issued upon repurchase of
Securities hereunder:
(i) shall not require registration under any federal securities
law before such shares may be freely transferable without being subject
to any transfer restrictions under the Securities Act upon repurchase
or, if such registration is required, such registration shall be
completed and shall become effective prior to the Repurchase Date; and
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(ii) shall not require registration with, or approval of, any
governmental authority under any state law or any other federal law
before shares may be validly issued or delivered upon repurchase or if
such registration is required or such approval must be obtained, such
registration shall be completed or such approval shall be obtained prior
to the Repurchase Date.
(b) The shares of Common Stock to be listed upon repurchase of
Securities hereunder are, or shall have been, approved for listing on the
Nasdaq National Market or the New York Stock Exchange or listed on another
national securities exchange, in any case, prior to the Repurchase Date.
(c) All shares of Common Stock which may be issued upon repurchase of
Securities will be issued out of the Company's authorized but unissued Common
Stock and will, upon issue, be duly and validly issued and fully paid and
nonassessable and free of any preemptive or similar rights.
(d) If any of the conditions set forth in clauses (a) through (c) of
this Section 11.2 are not satisfied in accordance with the terms thereof, the
Repurchase Price shall be paid by the Company only in cash.
SECTION 11.3 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.
(a) Unless the Company shall have theretofore called for redemption all
of the Outstanding Securities, prior to or on the 30th day after the occurrence
of a Change in Control, the Company, or, at the written request and expense of
the Company prior to or on the 30th day after such occurrence, the Trustee,
shall give to all Holders of Securities notice, in the manner provided in
Section 14.2 hereof, of the occurrence of the Change of Control and of the
Repurchase Right set forth herein arising as a result thereof (the "Company
Notice"). The Company shall also deliver a copy of such notice of a Repurchase
Right to the Trustee. Each notice of a Repurchase Right shall state:
(1) the Repurchase Date;
(2) the date by which the Repurchase Right must
exercised;
(3) the Repurchase Price and accrued and unpaid
interest, if any, and whether the Repurchase Price shall be paid by the
Company in cash or by delivery of shares of Common Stock;
(4) a description of the procedure which a Holder must
follow to exercise a Repurchase Right, and the place or places where
such Securities, are to be surrendered for payment of the Repurchase
Price and accrued and unpaid interest, if any;
(5) that on the Repurchase Date the Repurchase Price
and accrued and unpaid interest, if any, will become due and payable
upon each such Security designated by the Holder to be repurchased, and
that interest thereon shall cease to accrue on and after said date;
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(6) the Conversion Rate then in effect, the date on
which the right to convert the principal amount of the Securities to be
repurchased will terminate and the place where such Securities may be
surrendered for conversion, and
(7) the place or places where such Securities,
together with the Option to Elect Repayment Upon a Change of Control
certificate included in Exhibit A annexed hereto are to be delivered
for payment of the Repurchase Price and accrued and unpaid interest,
if any.
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a Repurchase Right or affect
the validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article
11 are inconsistent with applicable law, such law shall govern.
(b) To exercise a Repurchase Right, a Holder shall deliver to the
Trustee prior to or on the 30th day after the date of the Company Notice:
(1) written notice of the Holder's exercise of such
right, which notice shall set forth the name of the Holder, the
principal amount of the Securities to be repurchased (and, if any
Security is to be repurchased in part, the serial number thereof, the
portion of the principal amount thereof to be repurchased) and a
statement that an election to exercise the Repurchase Right is being
made thereby, and, in the event that the Repurchase Price shall be paid
in shares of Common Stock, the name or names (with addresses) in which
the certificate or certificates for shares of Common Stock shall be
issued, and
(2) the Securities with respect to which the
Repurchase Right is being exercised.
Such written notice shall be irrevocable, except that the right of the Holder to
convert the Securities with respect to which the Repurchase Right is being
exercised shall continue until the close of business on the Business Day
immediately preceding the Repurchase Date.
(c) In the event a Repurchase Right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the Trustee
the Repurchase Price in cash or shares of Common Stock, as provided above, for
payment to the Holder on the Repurchase Date or, if shares of Common Stock are
to be paid, as promptly after the Repurchase Date as practicable, together with
accrued and unpaid interest to the Repurchase Date payable in cash with respect
to the Securities as to which the Repurchase Right has been exercised; provided,
however, that installments of interest that mature prior to or on the Repurchase
Date shall be payable in cash to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Regular Record Date.
(d) If any Security (or portion thereof) surrendered for
repurchase shall not be so paid on the Repurchase Date, the principal amount of
such Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase
66
Date at the Interest Rate, and each Security shall remain convertible into
Common Stock until the principal of such Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Security so surrendered.
(f) Any issuance of shares of Common Stock in respect of the Repurchase
Price shall be deemed to have been effected immediately prior to the close of
business on the Repurchase Date and the Person or Persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such repurchase shall be deemed to have become on the Repurchase Date the
holder or holders of record of the shares represented thereby; provided,
however, that any surrender for repurchase on a date when the stock transfer
books of the Company shall be closed shall constitute the Person or Persons in
whose name or names the certificate or certificates for such shares are to be
issued as the record holder or holders thereof for all purposes at the opening
of business on the next succeeding day on which such stock transfer books are
open. No payment or adjustment shall be made for dividends or distributions on
any Common Stock issued upon repurchase of any Security declared prior to the
Repurchase Date.
(g) No fractions of shares of Common Stock shall be issued upon
repurchase of any Security or Securities. If more than one Security shall be
repurchased from the same Holder and the Repurchase Price shall be payable in
shares of Common Stock, the number of full shares which shall be issued upon
such repurchase shall be computed on the basis of the aggregate principal amount
of the Securities (or specified portions thereof) to be so repurchased. Instead
of any fractional share of Common Stock which would otherwise be issued on the
repurchase of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fraction (calculated to
the nearest one-100th of a share) in an amount equal to the same fraction of the
Quoted Price of the Common Stock as of the Trading Day preceding the Repurchase
Date.
(h) Any issuance and delivery of certificates for shares of Common
Stock on repurchase of Securities shall be made without charge to the Holder
of Securities being repurchased for such certificates or for any tax or duty
in respect of the issuance or delivery of such certificates or the Securities
represented thereby; provided, however, that the Company shall not be required
to pay any tax or duty which may be payable in respect of (i) income of the
Holder or (ii) any transfer involved in the issuance or delivery of certificates
for shares of Common Stock in a name other than that of the Holder of the
Securities being repurchased, and no such issuance or delivery shall be made
unless the Persons requesting such issuance or delivery has paid to the Company
the amount of any such tax or duty or has established, to the satisfaction of
the Company, that such tax or duty has been paid.
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(i) All Securities delivered for repurchase shall be delivered to the
Trustee to be canceled at the direction of the Trustee, which shall dispose of
the same as provided in Section 2.15 hereof.
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ARTICLE 12
CONVERSION OF SECURITIES
SECTION 12.1 CONVERSION RIGHT AND CONVERSION PRICE.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000 may be
converted at the principal amount thereof, or of such portion thereof, into duly
authorized, fully paid and nonassessable shares of Common Stock, at the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. Such conversion right shall expire at the close of business on
October 17, 2007.
In case a Security or portion thereof is called for redemption, such
conversion right in respect of the Security or the portion so called, shall
expire at the close of business on the second Business Day preceding the
Redemption Date, unless the Company defaults in making the payment due upon
redemption. In the case of a Change of Control for which the Holder exercises
its Repurchase Right with respect to a Security or portion thereof, such
conversion right in respect of the Security or portion thereof shall expire at
the close of business on the Business Day immediately preceding the Repurchase
Date.
The price at which shares of Common Stock shall be delivered upon
conversion (the "Conversion Price") shall be initially equal to $50.46 per share
of Common Stock. The Conversion Price shall be adjusted in certain instances as
provided in paragraphs (a), (b), (c), (d), (e), (f), (h) and (i) of Section 12.4
hereof.
SECTION 12.2 EXERCISE OF CONVERSION RIGHT.
To exercise the conversion right, the Holder of any Security to be
converted shall surrender such Security duly endorsed or assigned to the Company
or in blank, at the office of any Conversion Agent, accompanied by a duly signed
conversion notice substantially in the form attached to the Security to the
Company stating that the Holder elects to convert such Security or, if less than
the entire principal amount thereof is to be converted, the portion thereof to
be converted.
Securities surrendered for conversion during the period from the close
of business on any Regular Record Date to the opening of business on the next
succeeding Interest Payment Date (except in the case of any Security whose
Maturity is prior to such Interest Payment Date) shall be accompanied by payment
in New York Clearing House funds or other funds acceptable to the Company of an
amount equal to the interest to be received on such Interest Payment Date on the
principal amount of Securities being surrendered for conversion.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
68
shall cause to be issued and delivered to such Conversion Agent a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share as provided
in Section 12.3 hereof.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Securities.
If shares of Common Stock to be issued upon conversion of a Restricted
Security, or Securities to be issued upon conversion of a Restricted Security in
part only, are to be registered in a name other than that of the Holder of such
Restricted Security, such Holder must deliver to the Conversion Agent a
certificate in substantially the form set forth in the form of Security set
forth in Exhibit A annexed hereto, dated the date of surrender of such
Restricted Security and signed by such Holder, as to compliance with the
restrictions on transfer applicable to such Restricted Security. Neither the
Trustee nor any Conversion Agent, Registrar or Transfer Agent shall be required
to register in a name other than that of the Holder shares of Common Stock or
Securities issued upon conversion of any such Restricted Security not so
accompanied by a properly completed certificate.
The Company hereby initially appoints the Trustee as the Conversion
Agent.
SECTION 12.3 FRACTIONS OF SHARES.
No fractional shares of Common Stock shall be issued upon conversion of
any Security or Securities. If more than one Security shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issued upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issued upon conversion of any Security or Securities (or specified
portions thereof), the Company shall pay a cash adjustment in respect of such
fraction (calculated to the nearest one-100th of a share) in an amount equal to
the same fraction of the Quoted Price of the Common Stock as of the Trading Day
preceding the date of conversion.
SECTION 12.4 ADJUSTMENT OF CONVERSION PRICE.
The Conversion Price shall be subject to adjustments, calculated by the
Company, from time to time as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction:
(i) the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the
Record Date (as defined in Section 12.4(g)) fixed for such
determination, and
69
(ii) the denominator of which shall be the sum of
such number of shares and the total number of shares constituting such
dividend or other distribution.
Such reduction shall become effective immediately after the opening of business
on the day following the Record Date. If any dividend or distribution of the
type described in this Section 12.4(a) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
(b) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(c) In case the Company shall issue rights or warrants (other than any
rights or warrants referred to in Section 12.4(d)) to all holders of its
outstanding shares of Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock) at a price
per share (or having a conversion price per share) less than the Current Market
Price (as defined in Section 12.4(g)) on the Record Date fixed for the
determination of stockholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction:
(i) the numerator of which shall be the number of shares of
Common Stock outstanding at the close of business on the Record Date
plus the number of shares which the aggregate offering price of the
total number of shares so offered for subscription or purchase (or the
aggregate conversion price of the convertible securities so offered)
would purchase at such Current Market Price, and
(ii) the denominator of which shall be the number of shares of
Common Stock outstanding on the close of business on the Record Date
plus the total number of additional shares of Common Stock so offered
for subscription or purchase (or into which the convertible securities
so offered are convertible).
Such adjustment shall become effective immediately after the opening of business
on the day following the Record Date fixed for determination of stockholders
entitled to receive such rights or warrants. To the extent that shares of Common
Stock (or securities convertible into Common Stock) are not delivered pursuant
to such rights or warrants, upon the expiration or termination of such rights or
warrants the Conversion Price shall be readjusted to the Conversion Price which
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made on the basis of the delivery of only the number of
shares of Common Stock (or
70
securities convertible into Common Stock) actually delivered. In the event
that such rights or warrants are not so issued, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such date fixed for the determination of stockholders entitled to receive
such rights or warrants had not been fixed. In determining whether any rights
or warrants entitle the holders to subscribe for or purchase shares of Common
Stock at less than such Current Market Price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such rights or warrants, the
value of such consideration if other than cash, to be determined by the Board
of Directors.
(d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any class of capital stock of
the Company (other than any dividends or distributions to which Section
12.4(a) applies) or evidences of its indebtedness, cash or other assets,
including securities, but excluding (1) any rights or warrants referred to in
Section 12.4(c), (2) any stock, securities or other property or assets
(including cash) distributed in connection with a reclassification, change,
merger, consolidation, statutory share exchange, combination, sale or
conveyance to which Section 12.11 hereof applies and (3) dividends and
distributions paid exclusively in cash (the securities described in foregoing
clauses (1), (2) and (3) hereinafter in this Section 12.4(d) called the
"securities"), then, in each such case, subject to the second succeeding
paragraph of this Section 12.4(d), the Conversion Price shall be reduced so
that the same shall be equal to the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on the
Record Date (as defined in Section 12.4(g)) with respect to such distribution
by a fraction:
(i) the numerator of which shall be the Current Market Price
(determined as provided in Section 12.4(g)) on such date less the fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive and set forth in a Board Resolution)
on such date of the portion of the securities so distributed applicable
to one share of Common Stock (determined on the basis of the number of
shares of the Common Stock outstanding on the Record Date), and
(ii) the denominator of which shall be such Current Market
Price.
Such reduction shall become effective immediately prior to the opening of
business on the day following the Record Date. However, in the event that the
then fair market value (as so determined) of the portion of the securities so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Holder shall have the
right to receive upon conversion of a Security (or any portion thereof) the
amount of securities such Holder would have received had such Holder converted
such Security (or portion thereof) immediately prior to such Record Date. In the
event that such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such dividend or distribution had not been declared.
If the Board of Directors determines the fair market value of any
distribution for purposes of this Section 12.4(d) by reference to the actual or
when issued trading market for any securities
71
comprising all or part of such distribution, it must in doing so consider the
prices in such market over the same period (the "Reference Period") used in
computing the Current Market Price pursuant to Section 12.4(g) to the extent
possible, unless the Board of Directors in a Board Resolution determines in good
faith that determining the fair market value during the Reference Period would
not be in the best interest of the Holder.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"):
(i) are deemed to be transferred with such shares of Common
Stock;
(ii) are not exercisable; and
(iii) are also issued in respect of future issuances of Common
Stock,
shall be deemed not to have been distributed for purposes of this Section
12.4(d) (and no adjustment to the Conversion Price under this Section 12.4(d)
will be required) until the occurrence of the earliest Trigger Event. If such
right or warrant is subject to subsequent events, upon the occurrence of which
such right or warrant shall become exercisable to purchase different securities,
evidences of indebtedness or other assets or entitle the holder to purchase a
different number or amount of the foregoing or to purchase any of the foregoing
at a different purchase price, then the occurrence of each such event shall be
deemed to be the date of issuance and record date with respect to a new right or
warrant (and a termination or expiration of the existing right or warrant
without exercise by the holder thereof). In addition, in the event of any
distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding sentence) with
respect thereto, that resulted in an adjustment to the Conversion Price under
this Section 12.4(d):
(1) in the case of any such rights or warrants which
shall all have been redeemed or repurchased without exercise
by any holders thereof, the Conversion Price shall be
readjusted upon such final redemption or repurchase to give
effect to such distribution or Trigger Event, as the case may
be, as though it were a cash distribution, equal to the per
share redemption or repurchase price received by a holder of
Common Stock with respect to such rights or warrant (assuming
such holder had retained such rights or warrants), made to all
holders of Common Stock as of the date of such redemption or
repurchase, and
(2) in the case of such rights or warrants all of
which shall have expired or been terminated without exercise,
the Conversion Price shall be readjusted as if such rights and
warrants had never been issued.
For purposes of this Section 12.4(d) and Sections 12.4(a), 12.4(b) and
12.4(c), any dividend or distribution to which this Section 12.4(d) is
applicable that also includes shares of Common Stock, a subdivision or
combination of Common Stock to which Section 12.4(b) applies, or rights or
warrants to subscribe for or purchase shares of Common Stock to which Section
12.4(c) applies (or any combination thereof), shall be deemed instead to be:
72
(3) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or
warrants other than such shares of Common Stock, such
subdivision or combination or such rights or warrants to which
Sections 12.4(a), 12.4(b) and 12.4(c) apply, respectively (and
any Conversion Price reduction required by this Section
12.4(d) with respect to such dividend or distribution shall
then be made), immediately followed by
(4) a dividend or distribution of such shares of
Common Stock, such subdivision or combination or such rights
or warrants (and any further Conversion Price reduction
required by Sections 12.4(a), 12.4(b) and 12.4(c) with respect
to such dividend or distribution shall then be made), except:
(A) the Record Date of such dividend or
distribution shall be substituted as (x) "the date
fixed for the determination of stockholders entitled
to receive such dividend or other distribution",
"Record Date fixed for such determinations" and
"Record Date" within the meaning of Section 12.4(a),
(y) "the day upon which such subdivision becomes
effective" and "the day upon which such combination
becomes effective" within the meaning of Section
12.4(b), and (z) as "the date fixed for the
determination of stockholders entitled to receive
such rights or warrants", "the Record Date fixed for
the determination of the stockholders entitled to
receive such rights or warrants" and such "Record
Date" within the meaning of Section 12.4(c), and
(B) any shares of Common Stock included in
such dividend or distribution shall not be deemed
"outstanding at the close of business on the date
fixed for such determination" within the meaning of
Section 12.4(a) and any reduction or increase in the
number of shares of Common Stock resulting from such
subdivision or combination shall be disregarded in
connection with such dividend or distribution.
(e) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed
upon a reclassification, change, merger, consolidation, statutory share
exchange, combination, sale or conveyance to which Section 12.11 hereof applies
or as part of a distribution referred to in Section 12.4(d) hereof), in an
aggregate amount that, combined together with:
(1) the aggregate amount of any other such
distributions to all holders of Common Stock made exclusively
in cash within the 12 months preceding the date of payment of
such distribution, and in respect of which no adjustment
pursuant to this Section 12.4(e) has been made, and
(2) the aggregate of any cash plus the fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive and set forth in a Board
Resolution) of consideration payable in respect of any tender
offer by the Company or any of its subsidiaries for all or any
portion of the Common Stock concluded within the 12 months
preceding the date of such distribution, and in respect of
which no adjustment pursuant to Section 12.4(f) hereof has
been made,
73
exceeds 10% of the product of the Current Market Price (determined as provided
in Section 12.4(g)) on the Record Date with respect to such distribution times
the number of shares of Common Stock outstanding on such date, then and in each
such case, immediately after the close of business on such date, the Conversion
Price shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on such Record Date by a fraction:
(i) the numerator of which shall be equal to the Current
Market Price on the Record Date less an amount equal to the quotient of
(x) the excess of such combined amount over such 10% and (y) the number
of shares of Common Stock outstanding on the Record Date, and
(ii) the denominator of which shall be equal to the Current
Market Price on such date.
However, in the event that the then fair market value (as so determined) of the
portion of the securities so distributed applicable to one share of Common Stock
is equal to or greater than the Current Market Price on the Record Date, in lieu
of the foregoing adjustment, adequate provision shall be made so that each
Holder shall have the right to receive upon conversion of a Security (or any
portion thereof) the amount of cash such Holder would have received had such
Holder converted such Security (or portion thereof) immediately prior to such
Record Date. In the event that such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared.
(f) In case a tender offer made by the Company or any of its
subsidiaries for all or any portion of the Common Stock shall expire and such
tender offer (as amended upon the expiration thereof) shall require the payment
to stockholders (based on the acceptance (up to any maximum specified in the
terms of the tender offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and set forth in a Board
Resolution) that combined together with:
(1) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive and set forth in a Board
Resolution), as of the expiration of such tender offer, of
consideration payable in respect of any other tender offers,
by the Company or any of its subsidiaries for all or any
portion of the Common Stock expiring within the 12 months
preceding the expiration of such tender offer and in respect
of which no adjustment pursuant to this Section 12.4(f) has
been made, and
(2) the aggregate amount of any distributions to all
holders of the Company's Common Stock made exclusively in cash
within 12 months preceding the expiration of such tender offer
and in respect of which no adjustment pursuant to Section
12.4(e) has been made, exceeds 10% of the product of the
Current Market Price (determined as provided in Section
12.4(g)) as of the last time (the "Expiration Time") tenders
could have been made pursuant to such tender offer
74
(as it may be amended) times the number of shares of Common
Stock outstanding (including any tendered shares) on the
Expiration Time, then, and in each such case, immediately
prior to the opening of business on the day after the date of
the Expiration Time, the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to close of
business on the date of the Expiration Time by a fraction:
(i)the numerator of which shall be the number of
shares of Common Stock outstanding (including any tendered
shares) at the Expiration Time multiplied by the Current
Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time, and
(ii) the denominator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance
(up to any maximum specified in the terms of the tender offer)
of all shares validly tendered and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y)
the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) on the Expiration Time
and the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time.
Such reduction (if any) shall become effective immediately prior to the opening
of business on the day following the Expiration Time. In the event that the
Company is obligated to purchase shares pursuant to any such tender offer, but
the Company is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if such
tender offer had not been made. If the application of this Section 12.4(f) to
any tender offer would result in an increase in the Conversion Price, no
adjustment shall be made for such tender offer under this Section 12.4(f).
(g) For purposes of this Section 12.4, the following terms shall have
the meanings indicated:
(1) "Current Market Price" shall mean the average of the daily
Closing Prices per share of Common Stock for the ten consecutive
Trading Days immediately prior to the date in question; provided,
however, that if:
(i) the "ex" date (as hereinafter defined) for any
event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion
Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f)
occurs during such ten consecutive Trading Days, the Closing
Price for each Trading Day prior to the "ex" date for such
other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the Conversion Price is so
required to be adjusted as a result of such other event;
75
(ii) the "ex" date for any event (other than the
issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to
Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or after
the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the
Conversion Price is so required to be adjusted as a result of
such other event; and
(iii) the "ex" date for the issuance or distribution
requiring such computation is prior to the day in question,
after taking into account any adjustment required pursuant to
clause (i) or (ii) of this proviso, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market
value (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes
of Section 12.4(d) or (f), whose determination shall be
conclusive and set forth in a Board Resolution) of the
evidences of indebtedness, shares of capital stock or assets
being distributed applicable to one share of Common Stock as
of the close of business on the day before such "ex" date.
For purposes of any computation under Section 12.4(f), the Current Market Price
of the Common Stock on any date shall be deemed to be the average of the daily
Closing Prices per share of Common Stock for such day and the next two
succeeding Trading Days; provided, however, that if the "ex" date for any event
(other than the tender offer requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d),
(e) or (f) occurs on or after the Expiration Time for the tender or exchange
offer requiring such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which the Conversion Price is so required to be adjusted as a result of such
other event. For purposes of this paragraph, the term "ex" date, when used:
(A) with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the Closing Price was
obtained without the right to receive such issuance or distribution;
(B) with respect to any subdivision or combination of shares
of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective, and
(C) with respect to any tender or exchange offer, means the
first date on which the Common Stock trades regular way on such
exchange or in such market after the Expiration Time of such offer.
76
Notwithstanding the foregoing, whenever successive adjustments to the
Conversion Price are called for pursuant to this Section 12.4, such
adjustments shall be made to the Current Market Price as may be
necessary or appropriate to effectuate the intent of this Section 12.4
and to avoid unjust or inequitable results as determined in good faith
by the Board of Directors.
(2) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length
transaction.
(3) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which
the holders of Common Stock have the right to receive any
cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of stockholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(h) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 12.4(a), (b), (c), (d), (e) or (f), as
the Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time if the
period is at least 20 days and the reduction is irrevocable during the period
and the Board of Directors determines in good faith that such reduction would be
in the best interests of the Company, which determination shall be conclusive
and set forth in a Board Resolution. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Company shall mail to the Trustee and
each Holder at the address of such Holder as it appears in the Register a notice
of the reduction at least 15 days prior to the date the reduced Conversion Price
takes effect, and such notice shall state the reduced Conversion Price and the
period during which it will be in effect.
(i) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 12.4(i)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article 12 shall be made
by the Company and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be. No adjustment need be made for a
change in the par value or no par value of the Common Stock.
(j) In any case in which this Section 12.4 provides that an adjustment
shall become effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event (i) issuing to the Holder of any
Security converted after such Record Date and before the occurrence of such
event the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the
77
Common Stock issuable upon such conversion before giving effect to such
adjustment and (ii) paying to such holder any amount in cash in lieu of any
fraction pursuant to Section 12.3 hereof.
(k) For purposes of this Section 12.4, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(l) If the distribution date for the rights provided in the Company's
rights agreement, if any, occurs prior to the date a Security is converted, the
Holder of the Security who converts such Security after the distribution date is
not entitled to receive the rights that would otherwise be attached (but for the
date of conversion) to the shares of Common Stock received upon such conversion;
provided, however, that an adjustment shall be made to the Conversion Price
pursuant to clause 12.4(b) as if the rights were being distributed to the common
stockholders of the Company immediately prior to such conversion. If such an
adjustment is made and the rights are later redeemed, invalidated or terminated,
then a corresponding reversing adjustment shall be made to the Conversion Price,
on an equitable basis, to take account of such event.
SECTION 12.5 NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the Conversion Price is adjusted as herein provided (other
than in the case of an adjustment pursuant to the second paragraph of Section
12.4(h) for which the notice required by such paragraph has been provided), the
Company shall promptly file with the Trustee and any Conversion Agent other than
the Trustee an Officers' Certificate setting forth the adjusted Conversion Price
and showing in reasonable detail the facts upon which such adjustment is based.
Promptly after delivery of such Officers' Certificate, the Company shall prepare
a notice stating that the Conversion Price has been adjusted and setting forth
the adjusted Conversion Price and the date on which each adjustment becomes
effective, and shall mail such notice to each Holder at the address of such
Holder as it appears in the Register within 20 days of the effective date of
such adjustment. Failure to deliver such notice shall not effect the legality or
validity of any such adjustment.
SECTION 12.6 NOTICE PRIOR TO CERTAIN ACTIONS.
In case at any time after the date hereof:
(1) the Company shall declare a dividend (or any
other distribution) on its Common Stock payable otherwise than in cash
out of its capital surplus or its consolidated retained earnings;
(2) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class (or of securities
convertible into shares of capital stock of any class) or of any other
rights;
(3) there shall occur any reclassification of the
Common Stock of the Company (other than a subdivision or combination of
its outstanding Common Stock, a
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change in par value, a change from par value to no par value or a
change from no par value to par value), or any merger, consolidation,
statutory share exchange or combination to which the Company is a party
and for which approval of any shareholders of the Company is required,
or the sale, transfer or conveyance of all or substantially all of the
assets of the Company; or
(4) there shall occur the voluntary or involuntary
dissolution, liquidation or winding up of the Company;
the Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of securities pursuant to Section 9.2 hereof, and shall
cause to be provided to the Trustee and all Holders in accordance with Section
14.2 hereof, at least 20 days (or 10 days in any case specified in clause (1) or
(2) above) prior to the applicable record or effective date hereinafter
specified, a notice stating:
(A) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights
or warrants, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be
determined, or
(B) the date on which such reclassification,
merger, consolidation, statutory share exchange, combination,
sale, transfer, conveyance, dissolution, liquidation or
winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such
reclassification, merger, consolidation, statutory share
exchange, sale, transfer, dissolution, liquidation or winding
up.
Neither the failure to give such notice nor any defect therein shall
affect the legality or validity of the proceedings or actions described in
clauses (1) through (4) of this Section 12.6.
SECTION 12.7 COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times use its best efforts to reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of Securities, the
full number of shares of fully paid and nonassessable Common Stock then issuable
upon the conversion of all Outstanding Securities.
SECTION 12.8 TAXES ON CONVERSIONS.
Except as provided in the next sentence, the Company will pay any and
all taxes (other than taxes on income) and duties that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. A Holder delivering a Security for conversion shall be liable
for and will be required to pay any tax or duty which may be payable in respect
of any transfer involved in the issue and delivery of shares of Common Stock in
a name other than that of the Holder of the Security or Securities to be
converted, and no such issue or delivery shall be made unless the Person
requesting such issue has paid to the Company
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the amount of any such tax or duty, or has established to the satisfaction of
the Company that such tax or duty has been paid.
SECTION 12.9 COVENANT AS TO COMMON STOCK.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
nonassessable and, except as provided in Section 12.8, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
SECTION 12.10 CANCELLATION OF CONVERTED SECURITIES.
All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 2.9.
SECTION 12.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE.
If any of following events occur, namely:
(i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination),
(ii) any merger, consolidation, statutory
share exchange or combination of the Company with another
corporation as a result of which holders of Common Stock shall
be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for
such Common Stock or
(iii) any sale or conveyance of the
properties and assets of the Company as, or substantially as,
an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock,
the Company or the successor or purchasing corporation, as the case may be,
shall execute with the Trustee a supplemental indenture (which shall comply
with the TIA as in force at the date of execution of such supplemental
indenture if such supplemental indenture is then required to so comply)
providing that such Security shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
which such Holder would have been entitled to receive upon such
reclassification, change, merger, consolidation, statutory share exchange,
combination, sale or conveyance had such Securities been converted into
Common Stock immediately prior to such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance
assuming such holder of Common Stock did not exercise its rights of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon such reclassification, change, merger, consolidation,
statutory share exchange, combination, sale or conveyance (provided that, if
the kind or amount of securities, cash or other
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property receivable upon such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance is
not the same for each share of Common Stock in respect of which such rights
of election shall not have been exercised ("Non-Electing Share"), then for
the purposes of this Section 12.11 the kind and amount of securities, cash or
other property receivable upon such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance for
each Non-Electing Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-Electing Shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article 12. If, in the case of any such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance, the
stock or other securities and assets receivable thereupon by a holder of
shares of Common Stock includes shares of stock or other securities and
assets of a corporation other than the successor or purchasing corporation,
as the case may be, in such reclassification, change, merger, consolidation,
statutory share exchange, combination, sale or conveyance, then such
supplemental indenture shall also be executed by such other corporation and
shall contain such additional provisions to protect the interests of the
Holders of the Securities as the Board of Directors shall reasonably consider
necessary by reason of the foregoing, including to the extent practicable the
provisions providing for the Repurchase Rights set forth in Article 11 hereof.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder, at the address of such Holder as it
appears on the Register, within 20 days after execution thereof. Failure to
deliver such notice shall not affect the legality or validity of such
supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, mergers, consolidations, statutory share
exchanges, combinations, sales and conveyances.
If this Section 12.11 applies to any event or occurrence, Section 12.4
hereof shall not apply.
SECTION 12.12 RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.
The Trustee, subject to the provisions of Section 5.1 hereof, and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Price, or with respect to the nature or intent
of any such adjustments when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in making the
same. Neither the Trustee, subject to the provisions of Section 5.1 hereof, nor
any Conversion Agent shall be accountable with respect to the validity or value
(of the kind or amount) of any Common Stock, or of any other securities or
property, which may at any time be issued or delivered upon the conversion of
any Security; and it or they do not make any representation with respect
thereto. Neither the Trustee, subject to the provisions of Section 5.1 hereof,
nor any Conversion Agent shall be responsible for any failure of the Company to
make any cash payment or to issue, transfer or deliver any shares of stock or
share certificates or other securities or property upon the surrender of any
Security for the purpose of conversion; and the Trustee, subject to the
provisions of Section 5.1 hereof, and any Conversion Agent shall not be
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responsible or liable for any failure of the Company to comply with any of the
covenants of the Company contained in this Article.
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ARTICLE 13
SUBORDINATION
SECTION 13.1 SECURITIES SUBORDINATED TO SENIOR DEBT.
The Company covenants and agrees, and each Holder of Securities, by
such Holder's acceptance thereof, likewise covenants and agrees, that the
Indebtedness represented by the Securities and the payment of the principal of
and premium, if any, and interest (including Liquidated Damages, if any) on each
and all of the Securities is hereby expressly subordinated and junior, to the
extent and in the manner set forth and as set forth in this Section 13.1, in
right of payment to the prior payment in full of all Senior Debt.
(a) In the event of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company or otherwise, the holders of all Senior Debt
shall first be entitled to receive payment of the full amount due thereon in
respect of all such Senior Debt and all other amounts due or provision shall be
made for such amount in cash, or other payments satisfactory to the holders of
Senior Debt, before the Holders of any of the Securities are entitled to receive
any payment or distribution of any character, whether in cash, securities or
other property, on account of the principal of or premium, if any, or interest
(including Liquidated Damages, if any) on the Indebtedness evidenced by the
Securities.
(b) In the event of any acceleration of Maturity of the Securities
because of an Event of Default, unless the full amount due in respect of all
Senior Debt is paid in cash or other form of payment satisfactory to the
holders of Senior Debt, no payment shall be made by the Company with respect
to the principal of, premium, if any, or interest (including Liquidated
Damages, if any) on the Securities or to acquire any of the Securities
(including any redemption, conversion or cash repurchase pursuant to the
exercise of the Repurchase Right), and the Company shall give prompt written
notice of such acceleration to such holders of Senior Debt.
(c) In the event of and during the continuance of any default in
payment of the principal of or premium, if any, or interest on, rent or other
payment obligation in respect of, any Senior Debt, unless all such payments
due in respect of such Senior Debt have been paid in full in cash or other
payments satisfactory to the holders of Senior Debt, no payment shall be made
by the Company with respect to the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Securities or to acquire any of
the Securities (including any redemption, conversion or cash repurchase
pursuant to the exercise of the Repurchase Right). The Company shall give
prompt written notice to the Trustee of any default under any Senior Debt or
under any agreement pursuant to which Senior Debt may have been issued.
(d) During the continuance of any event of default with respect to
any Designated Senior Debt, as such event of default is defined under any
such Designated Senior Debt or in any agreement pursuant to which any
Designated Senior Debt has been issued (other than a default in payment of
the principal of or premium, if any, or interest on, rent or other payment
obligation in respect of any Designated Senior Debt), permitting the holder
or holders of such Designated
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Senior Debt to accelerate the maturity thereof (or in the case of any lease,
permitting the landlord either to terminate the lease or to require the
Company to make an irrevocable offer to terminate the lease following an
event of default thereunder), no payment shall be made by the Company,
directly or indirectly, with respect to principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Securities for 179
days following notice in writing (a "Payment Blockage Notice") to the
Company, from any holder or holders of such Designated Senior Debt or their
representative or representatives or the trustee or trustees under any
indenture or under which any instrument evidencing any such Designated Senior
Debt may have been issued, that such an event of default has occurred and is
continuing, unless such event of default has been cured or waived or such
Designated Senior Debt has been paid in full; provided, however, if the
maturity of such Designated Senior Debt is accelerated (or in the case of any
lease, as a result of such event of default, the landlord under the lease has
given the Company notice of its intention to terminate the lease or to
require the Company to make an irrevocable offer to terminate the lease), no
payment may be made on the Securities until such Designated Senior Debt has
been paid in full in cash or other payment satisfactory to the holders of
such Designated Senior Debt or such acceleration (or termination, in the case
of a lease) has been cured or waived.
For purposes of this Section 13.1(d), such Payment Blockage Notice
shall be deemed to include notice of all other events of default under such
indenture or instrument which are continuing at the time of the event of default
specified in such Payment Blockage Notice. The provisions of this Section
13.1(d) shall apply only to one such Payment Blockage Notice given in any period
of 365 days with respect to any issue of Designated Senior Debt, and no such
continuing event of default that existed or was continuing on the date of
delivery of any Payment Blockage Notice shall be, or shall be made, the basis
for a subsequent Payment Blockage Notice.
(e) In the event that, notwithstanding the foregoing provisions of
Sections 13.1(a), 13.1(b), 13.1(c) and 13.1(d), any payment on account of
principal, premium, if any, or interest (including Liquidated Damages, if
any) on the Securities shall be made by or on behalf of the Company and
received by the Trustee, by any Holder or by any Paying Agent (or, if the
Company is acting as its own Paying Agent, money for any such payment shall
be segregated and held in trust):
(i) after the occurrence of an event specified in
Section 13.1(a) or 13.1(b), then, unless all Senior Debt is paid in
full in cash, or provision shall be made therefor,
(ii) after the happening of an event of default of the
type specified in Section 13.1(c) above, then, unless the amount of
such Senior Debt then due shall have been paid in full, or provision
made therefor or such event of default shall have been cured or
waived, or
(iii) after the happening of an event of default of the
type specified in Section 13.1(d) above and delivery of a Payment
Blockage Notice, then, unless such event of default shall have been
cured or waived or the 179-day period specified in Section 13.1(d)
shall have expired,
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such payment (subject, in each case, to the provisions of Section 13.7 hereof)
shall be held in trust for the benefit of, and shall be immediately paid over
to, the holders of Designated Senior Debt (unless an event described in Section
13.1(a), (b) or (c) has occurred, in which case the payment shall be held in
trust for the benefit of, and shall be immediately paid over to all holders of
Senior Debt) or their representative or representatives or the trustee or
trustees under any indenture under which any instruments evidencing any of the
Designated Senior Debt or Senior Debt, as the case may be, may have been issued,
as their interests may appear.
SECTION 13.2 SUBROGATION.
Subject to the payment in full of all Senior Debt to which the
Indebtedness evidenced by the Securities is in the circumstances subordinated as
provided in Section 13.1 hereof, the Holders of the Securities shall be
subrogated to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Company applicable to
such Senior Debt until all amounts owing on the Securities shall be paid in
full, and, as between the Company, its creditors other than holders of such
Senior Debt, and the Holders of the Securities, no such payment or distribution
made to the holders of Senior Debt by virtue of this Article which otherwise
would have been made to the holders of the Securities shall be deemed to be a
payment by the Company on account of such Senior Debt, provided that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of Senior Debt, on the other hand.
SECTION 13.3 OBLIGATION OF THE COMPANY IS ABSOLUTE AND
UNCONDITIONAL.
Nothing contained in this Article or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Debt, and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and premium, if any,
and interest (including Liquidated Damages, if any) on the Securities as and
when the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holders of the Securities
and creditors of the Company other than the holders of Senior Debt, nor shall
anything contained herein or therein prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of Senior Debt in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.
SECTION 13.4 MATURITY OF OR DEFAULT ON SENIOR DEBT.
Upon the maturity of any Senior Debt by lapse of time, acceleration or
otherwise, all principal of or premium, if any, or interest on, rent or other
payment obligations in respect of all such matured Senior Debt shall first be
paid in full, or such payment shall have been duly provided for, before any
payment on account of principal, or premium, if any, or interest (including
Liquidated Damages, if any) is made upon the Securities.
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SECTION 13.5 PAYMENTS ON SECURITIES PERMITTED.
Except as expressly provided in this Article, nothing contained in this
Article shall affect the obligation of the Company to make, or prevent the
Company from making, payments of the principal of, or premium, if any, or
interest (including Liquidated Damages, if any) on the Securities in accordance
with the provisions hereof and thereof, or shall prevent the Trustee or any
Paying Agent from applying any moneys deposited with it hereunder to the payment
of the principal of, or premium, if any, or interest (including Liquidated
Damages, if any) on the Securities.
SECTION 13.6 EFFECTUATION OF SUBORDINATION BY TRUSTEE.
Each Holder of Securities, by such Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee such Holder's attorney-in-fact for any and
all such purposes.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee and the Holders of the Securities shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which any such dissolution, winding up, liquidation or reorganization proceeding
affecting the affairs of the Company is pending or upon a certificate of the
trustee in bankruptcy, receiver, assignee for the benefit of creditors,
liquidating trustee or agent or other Person making any payment or distribution,
delivered to the Trustee or to the Holders of the Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, and as to other facts pertinent to the right of such Persons under
this Article, and if such evidence is not furnished, the Trustee may defer any
payment to such Persons pending judicial determination as to the right of such
Persons to receive such payment.
SECTION 13.7 KNOWLEDGE OF TRUSTEE.
Notwithstanding the provision of this Article or any other provisions
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any Senior Debt, of any default in payment of principal of,
premium, if any, or interest on, rent or other payment obligation in respect of
any Senior Debt, or of any facts which would prohibit the making of any payment
of moneys to or by the Trustee, or the taking of any other action by the
Trustee, unless a Responsible Officer of the Trustee having responsibility for
the administration of the trust established by this Indenture shall have
received written notice thereof from the Company, any Holder of Securities, any
Paying or Conversion Agent of the Company or the holder or representative of any
class of Senior Debt, and, prior to the receipt of any such written notice, the
Trustee shall be entitled in all respects to assume that no such default or
facts exist; provided, however, that unless on the third Business Day prior to
the date upon which by the terms hereof any such moneys may become payable for
any purpose the Trustee shall have received the notice provided for in this
Section 13.7, then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such moneys and apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such date.
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SECTION 13.8 TRUSTEE'S RELATION TO SENIOR DEBT.
The Trustee shall be entitled to all the rights set forth in this
Article with respect to any Senior Debt at the time held by it, to the same
extent as any other holder of Senior Debt and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Nothing contained in this Article shall apply to claims of or payments
to the Trustee under or pursuant to Section 5.8 hereof.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Debt shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Debt and the Trustee shall not be liable to any holder
of Senior Debt if it shall pay over or deliver to Holders, the Company or any
other Person moneys or assets to which any holder of Senior Debt shall be
entitled by virtue of this Article or otherwise.
SECTION 13.9 RIGHTS OF HOLDERS OF SENIOR DEBT NOT IMPAIRED.
No right of any present or future holder of any Senior Debt to enforce
the subordination herein shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
SECTION 13.10 MODIFICATION OF TERMS OF SENIOR DEBT.
Any renewal or extension of the time of payment of any Senior Debt or
the exercise by the holders of Senior Debt of any of their rights under any
instrument creating or evidencing Senior Debt, including without limitation the
waiver of default thereunder, may be made or done all without notice to or
assent from the Holders of the Securities or the Trustee.
No compromise, alteration, amendment, modification, extension, renewal
or other change of, or waiver, consent or other action in respect of, any
liability or obligation under or in respect of, or of any of the terms,
covenants or conditions of any indenture or other instrument under which any
Senior Debt is outstanding or of such Senior Debt, whether or not such release
is in accordance with the provisions or any applicable document, shall in any
way alter or affect any of the provisions of this Article or of the Securities
relating to the subordination thereof.
SECTION 13.11 CERTAIN CONVERSIONS NOT DEEMED PAYMENT.
For the purposes of this Article 13 only:
(1) the issuance and delivery of junior securities upon
conversion of Securities in accordance with Article 12 hereof shall
not be deemed to constitute a payment or distribution on account
of the principal of, premium, if any, or interest (including
Liquidated Damages, if any) on Securities or on account of the
purchase or other acquisition of Securities, and
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(2) the payment, issuance or delivery of cash (except in
satisfaction of fractional shares pursuant to Section 12.3 hereof),
property or securities (other than junior securities) upon conversion
of a Security shall be deemed to constitute payment on account of the
principal of, premium, if any, or interest (including Liquidated
Damages, if any) on such Security.
For the purposes of this Section 13.11, the term "junior securities" means:
(a) shares of any common stock of the Company or
(b) other securities of the Company that are subordinated in right of
payment to all Senior Debt that may be outstanding at the time of issuance
or delivery of such securities to substantially the same extent as, or to a
greater extent that, the Securities are so subordinated as provided in this
Article.
Nothing contained in this Article 13 or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its creditors
(other than holders of Senior Debt) and the Holders of Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article 12 hereof.
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ARTICLE 14
OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 14.1 TRUST INDENTURE ACT CONTROLS.
This Indenture is subject to the provisions of the TIA which are
required to be part of this Indenture, and shall, to the extent applicable, be
governed by such provisions.
SECTION 14.2 NOTICES.
Any notice or communication to the Company or the Trustee is duly given
if in writing and delivered in person or mailed by first-class mail to the
address set forth below:
(a) if to the Company:
Inhale Therapeutic Systems, Inc.
150 Industrial Road
San Carlos, California
Attention: Stephen L. Hurst, Esq.
with a copy to:
Cooley Godward LLP
3000 Sand Hill Road
Building #3, Suite 230
Menlo Park, California 94025
Attention: Mark P. Tanoury, Esq.
(b) if to the Trustee:
Chase Manhattan Bank and Trust Company, National Association
101 California Street
Suite 2725
San Francisco, California 94111
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication to a Holder shall be mailed by first-class
mail to his address shown on the Register kept by the Registrar. Failure to mail
a notice or communication to a Holder or any defect in such notice or
communication shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed or sent in the manner provided
above within the time prescribed, it is duly given as of the date it is mailed,
whether or not the addressee receives it, except that notice to the Trustee
shall only be effective upon receipt thereof by the Trustee.
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If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee at the same time.
SECTION 14.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to Section 312(b) of the TIA with
other Holders with respect to their rights under the Securities or this
Indenture. The Company, the Trustee, the Registrar and anyone else shall have
the protection of Section 312(c) of the TIA.
SECTION 14.4 ACTS OF HOLDERS OF SECURITIES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders of Securities may be embodied in and evidenced by:
(1) one or more instruments of substantially similar tenor
signed by such Holders in person or by agent or proxy duly appointed in
writing;
(2) the record of Holders of Securities voting in favor
thereof, either in person or by proxies duly appointed in writing, at
any meeting of Holders of Securities duly called and held in accordance
with the provisions of Article 8; or
(3) a combination of such instruments and any such record.
Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments or record or both are delivered to
the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments and record (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
of Securities signing such instrument or instruments and so voting at such
meeting. Proof of execution of any such instrument or of a writing appointing
any such agent or proxy, or of the holding by any Person of a Security, shall be
sufficient for any purpose of this Indenture and (subject to Section 5.1 hereof)
conclusive in favor of the Trustee and the Company if made in the manner
provided in this Section. The record of any meeting of Holders of Securities
shall be proved in the manner provided in Section 8.6 hereof.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be provided in any manner which the Trustee
reasonably deems sufficient.
(c) The principal amount and serial numbers of Securities held by
any Person, and the date of such Person holding the same, shall be proved by
the Register.
(d) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of the Holders of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued
upon the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
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SECTION 14.5 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
Opinion of Counsel with respect to the matters upon which such certificate or
opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar
as it relates to factual matters, upon a certificate or representations by, an
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
Counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
SECTION 14.6 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such
certificate or opinion on behalf of the Company has read such covenant
or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
91
(4) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
SECTION 14.7 EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 14.8 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 14.9 SEPARABILITY CLAUSE.
In case any provision in this Indenture or the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 14.10 BENEFITS OF INDENTURE.
Nothing contained in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Debt and the Holders of Securities,
any benefit or legal or equitable right, remedy or claim under this Indenture.
SECTION 14.11 GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 14.12 COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original but all such
counterparts shall together constitute but one and the same instrument.
SECTION 14.13 LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last day on which a Holder of a Security has a
right to convert such Security shall not be a Business Day at any Place of
Payment or Place of Conversion, then (notwithstanding any other provision of
this Indenture or of the Securities) payment of interest (including Liquidated
Damages, if any) or principal or premium, if any, or conversion of the
Securities, need not be made at such Place of Payment or Place of Conversion on
such day, but may be made on the next succeeding Business Day at such Place of
Payment or Place of Conversion with the same force and effect as if made on the
Interest Payment Date or Redemption Date or at the Stated Maturity or on such
last day for conversion, provided, that in the case that payment is
92
made on such succeeding Business Day, no interest shall accrue on the amount
so payable for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be.
SECTION 14.14 RECOURSE AGAINST OTHERS.
No recourse for the payment of the principal of or premium, if any, or
interest (including Liquidated Damages, if any) on any Security, or for any
claim based thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance thereof and as
part of the consideration for the issue thereof, expressly waived and released.
93
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
INHALE THERAPEUTIC SYSTEMS, INC.
By:
---------------------------------------
Name:
Title:
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
By:
---------------------------------------
Name:
Title:
94
EXHIBIT A
FORM OF SECURITY
[FACE OF SECURITY]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO INHALE THERAPEUTIC SYSTEMS, INC. (OR ITS
SUCCESSOR) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, CONVERSION OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1)
THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT; (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH
SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED
HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(D) ABOVE) A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF SUCH SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (2)(D)
ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED
TRANSFER IS PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS
- ------------------------------
(1) This legend should be included only if the Security is issued in global
form.
APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO
CLAUSE (2)(D) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE
OF THE SECURITY EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
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INHALE THERAPEUTIC SYSTEMS, INC.
3 1/2% Convertible Subordinated Note due 2007
CUSIP NO. 457191 AG 9
No.________ $___________
INHALE THERAPEUTIC SYSTEMS, INC., a Delaware corporation
(the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to
pay to ___________________, or its registered assigns, the principal sum of
_________________ U.S. Dollars ($______ ) on October 17, 2007.
Interest Payment Dates: April 17 and October 17, commencing
April 17, 2001
Regular Record Dates: April 2 and October 2
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
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IN WITNESS WHEREOF, the Company has caused this Security to be
duly executed manually or by facsimile by its duly authorized officers.
Dated: October 17, 2000 INHALE THERAPEUTIC SYSTEMS, INC.
By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
Trustee's Certificate of Authentication
This is one of the 3 1/2% Convertible Subordinated
Notes due 2007 described in the within-named Indenture.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Authorized Signatory
Dated: , 2000
---------------
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[REVERSE OF SECURITY]
INHALE THERAPEUTIC SYSTEMS, INC.
3 1/2% Convertible Subordinated Note due 2007
Capitalized terms used herein but not defined shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. Principal and Interest.
Inhale Therapeutic Systems, Inc., a Delaware corporation (the
"Company") promises to pay interest on the principal amount of this Security at
the Interest Rate from the date of issuance until repayment at Maturity,
redemption or repurchase. The Company will pay interest on this Security
semiannually in arrears on April 17 and October 17 of each year (each an
"Interest Payment Date"), commencing April 17, 2001.
Interest on the Securities shall be computed (i) for any full
semiannual period for which a particular Interest Rate is applicable on the
basis of a 360-day year of twelve 30-day months and (ii) for any period for
which a particular Interest Rate is applicable shorter than a full semiannual
period for which interest is calculated, on the basis of a 30-day month and, for
such periods of less than a month, the actual number of days elapsed over a
30-day month.
A Holder of any Security at the close of business on a Regular Record
Date shall be entitled to receive interest on such Security on the corresponding
Interest Payment Date. A Holder of any Security which is converted after the
close of business on a Regular Record Date and prior to the corresponding
Interest Payment Date (other than any Security whose Maturity is prior to such
Interest Payment Date) shall be entitled to receive interest on the principal
amount of such Security, notwithstanding the conversion of such Security prior
to such Interest Payment Date. However, any such Holder which surrenders any
such Security for conversion during the period between the close of business on
such Regular Record Date and ending with the opening of business on the
corresponding Interest Payment Date shall be required to pay the Company an
amount equal to the interest on the principal amount of such Security so
converted, which is payable by the Company to such Holder on such Interest
Payment Date, at the time such Holder surrenders such Security for conversion.
Notwithstanding the foregoing, any such Holder which surrenders for conversion
any Security which has been called for redemption by the Company in a notice of
redemption given by the Company pursuant to Section 10.5 of the Indenture shall
be entitled to receive (and retain) such interest and need not pay the Company
an amount equal to the interest on the principal amount of such Security so
converted at the time such Holder surrenders such Security for conversion.
In accordance with the terms of the Resale Registration Rights
Agreement, dated October 17, 2000, between the Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., Lehman
Brothers Inc. and U.S. Bancorp Piper Jaffray Inc., during the first 90 days
following a Registration Default (as defined in the Resale Registration Rights
Agreement), the Interest Rate borne by the Securities shall be increased by
0.25% on:
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(A) January 17, 2001, if the shelf registration statement (the
"Shelf Registration Statement") is not filed prior to or on January 16,
2001;
(B) April 18, 2001, if the Shelf Registration Statement is not
declared effective by the Securities and Exchange Commission prior to
or on April 17, 2001;
(C) the day after the fifth Business Day after the Shelf
Registration Statement, previously declared effective, ceases to be
effective or fails to be usable, if a post-effective amendment (or
report filed pursuant to the Exchange Act) that cures the Shelf
Registration Statement is not filed with the Securities and Exchange
Commission during such five Business Day period; or
(D) the day following the 45th or 60th day, as the case may
be, of any period that the prospectus contained in the Shelf
Registration Statement has been suspended, if such suspension has not
been terminated.
From and after the 91st day following such Registration Default, the Interest
Rate borne by the Securities shall be increased by 0.50%. In no event shall the
Interest Rate borne by the Securities be increased by more than 0.50%.
Any amount of additional interest will be payable in cash semiannually,
in arrears, on each Interest Payment Date and will cease to accrue on the date
the Registration Default is cured. The Holder of this Security is entitled to
the benefits of the Resale Registration Rights Agreement.
2. Method of Payment.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Principal of, and premium, if any, and interest on, Global Securities
will be payable to the Depositary in immediately available funds.
Principal and premium, if any, on Physical Securities will be payable
at the office or agency of the Company maintained for such purpose, initially
the Corporate Trust Office of the Trustee. Interest on Physical Securities will
be payable by (i) U.S. Dollar check drawn on a bank in The City of New York
mailed to the address of the Person entitled thereto as such address shall
appear in the Register, or (ii) upon application to the Registrar not later than
the relevant Record Date by a Holder of an aggregate principal amount in excess
of $5,000,000, wire transfer in immediately available funds.
3. Paying Agent and Registrar.
Initially, Chase Manhattan Bank and Trust Company, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change the Paying Agent or Registrar without notice
to any Holder.
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4. Indenture.
The Company issued this Security under an Indenture, dated as of
October 17, 2000 (the "Indenture"), between the Company and Chase Manhattan Bank
and Trust Company, National Association, as trustee (the "Trustee"). The terms
of the Security include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended ("TIA").
This Security is subject to all such terms, and Holders are referred to the
Indenture and the TIA for a statement of all such terms. To the extent permitted
by applicable law, in the event of any inconsistency between the terms of this
Security and the terms of the Indenture, the terms of the Indenture shall
control.
5. Provisional Redemption.
The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part or any date, at any time prior to October 17,
2003 (a "Provisional Redemption"), at a Redemption Price equal to $1,000 per
$1,000 principal amount of the Securities, on the date of redemption (the
"Provisional Redemption Date") if (i) the Closing Price of the Common Stock has
exceeded 150% of the Conversion Price (as may be adjusted from time to time)
then in effect for at least 20 Trading Days in any consecutive 30 Trading Day
period ending on the Trading Day prior to the date of mailing of the provisional
notice of redemption upon not less than 20 nor more than 60 days notice (the
"Notice Date'), and (ii) a registration statement covering resales of the
Securities and Common Stock issuable upon the conversion thereof is effective
and available for use and is expected to remain effective for the 30 days
following the Provisional Redemption Date.
Upon any such Provisional Redemption, the Company shall make an
additional payment (the "Make-Whole Payment") with respect to the Securities
called for redemption to Holders on the Notice Date in an amount equal to
$105.00 per $1,000 principal amount of the Securities, less the amount of any
interest actually paid on such Securities prior to the Provisional Redemption
Date. The Company shall make the Make-Whole Payment on all Securities called for
Provisional Redemption, including those Securities converted into Common Stock
between the Notice Date and the Provisional Redemption Date.
The Company may elect to pay the Make-Whole Payment or any portion
thereof (i) in cash or, (ii) subject to the fulfillment by the Company of the
conditions set forth in Section 10.1 of the Indenture, by delivering the number
of shares of Common Stock equal to (x) the Make-Whole Payment (or any portion
thereof that the Company elects to pay in shares of Common Stock) divided by (y)
97% of the average of the Closing Prices per share of Common Stock for the five
consecutive Trading Days immediately preceding and including the first Trading
Day prior to the Provisional Redemption Date.
6. Optional Redemption.
Except as provided above, this Security is not redeemable prior to
October 17, 2003. This Security may be redeemed in whole or in part, upon not
less than 20 nor more than 60 days' notice, at any time on or after October 17,
2003, at the option of the Company, at the Redemption Prices (expressed as
percentages of the principal amount) set forth below if
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redeemed during the 12-month period beginning October 17 of the years
indicated and ending October 16 of the following years, plus any interest
accrued but not paid prior to the Optional Redemption Date, if the Closing
Price of the Common Stock has exceeded 120% of the Conversion Price (as
defined in Article 12 of the Indenture and as such may be adjusted from time
to time) then in effect for at least 20 Trading Days in any consecutive 30
Trading Day period ending on the Trading Day immediately prior to the date of
mailing of the notice of optional redemption pursuant to Section 10.5 of the
Indenture, plus any interest accrued but unpaid to the Redemption Date.
DURING THE TWELVE MONTHS
COMMENCING REDEMPTION PRICES
------------------------ -----------------
October 17, 2003.............................................. 102.00%
October 17, 2004.............................................. 101.50%
October 17, 2005.............................................. 101.00%
October 17, 2006.............................................. 100.50%
Securities in original denominations larger than $1,000 may be redeemed
in part. If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed to
be the portion selected for redemption (provided, however, that the Holder of
such Security so converted and deemed redeemed shall not be entitled to any
additional interest payment as a result of such deemed redemption than such
Holder would have otherwise been entitled to receive upon conversion of such
Security). Securities which have been converted during a selection of Securities
to be redeemed may be treated by the Trustee as Outstanding for the purpose of
such selection.
On and after the Redemption Date, interest ceases to accrue on
Securities or portions of Securities called for redemption, unless the Company
defaults in the payment of the Redemption Price and accrued and unpaid interest.
Notice of redemption will be given by the Company to the Holders as
provided in the Indenture.
7. Repurchase Right Upon a Change of Control.
If a Change in Control occurs, the Holder of Securities, at the
Holder's option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase the Securities (or any portion
of the principal amount hereof that is at least $1,000 or an integral multiple
thereof, provided that the portion of the principal amount of this Security to
be Outstanding after such repurchase is at least equal to $1,000) at the
Repurchase Price in cash, plus any interest accrued and unpaid to the Repurchase
Date.
A-8
Subject to the conditions provided in the Indenture, the Company may
elect to pay the Repurchase Price by delivering a number of shares of Common
Stock equal to (i) the Repurchase Price divided by (ii) 95% of the average of
the Closing Prices per share for the five consecutive Trading Days immediately
preceding and including the third Trading Day prior to the Repurchase Date.
No fractional shares of Common Stock will be issued upon repurchase of
any Securities. Instead of any fractional share of Common Stock which would
otherwise be issued upon conversion of such Securities, the Company shall pay a
cash adjustment as provided in the Indenture.
A Company Notice will be given by the Company to the Holders as
provided in the Indenture. To exercise a repurchase right, a Holder must deliver
to the Trustee a written notice as provided in the Indenture.
8. Conversion Rights.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of Securities is entitled, at such Holder's option, at any time
before the close of business on October 17, 2007, to convert the Holder's
Securities (or any portion of the principal amount hereof which is $1,000 or an
integral multiple thereof), at the principal amount thereof or of such portion,
into duly authorized, fully paid and nonassessable shares of Common Stock of the
Company at the Conversion Price in effect at the time of conversion.
In the case of a Security (or a portion thereof) called for redemption,
such conversion right in respect of the Security (or such portion thereof) so
called, shall expire at the close of business on the second Business Day
preceding the Redemption Date, unless the Company defaults in making the payment
due upon redemption. In the case of a Change of Control for which the Holder
exercises its Repurchase Right with respect to a Security (or a portion
thereof), such conversion right in respect of the Security (or portion thereof)
shall expire at the close of business on the Business Day preceding the
Repurchase Date.
The Conversion Price shall be initially equal to $50.46 per share of
Common Stock. The Conversion Price shall be adjusted under certain circumstances
as provided in the Indenture.
To exercise the conversion right, the Holder must surrender the
Security (or portion thereof) duly endorsed or assigned to the Company or in
blank, at the office of the Conversion Agent, accompanied by a duly signed
conversion notice to the Company. Any Security surrendered for conversion during
the period from the close of business on any Regular Record Date to the opening
of business on the corresponding Interest Payment Date (other than any Security
whose Maturity is prior to such Interest Payment Date), shall also be
accompanied by payment in New York Clearing House funds or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of the Securities being
surrendered for conversion.
No fractional shares of Common Stock will be issued upon conversion of
any Securities. Instead of any fractional share of Common Stock which would
otherwise be issued upon conversion of such Securities, the Company shall pay a
cash adjustment as provided in the Indenture.
9. Subordination.
The Indebtedness evidenced by this Security is, to the extent and in
the manner provided in the Indenture, subordinated and subject in right of
payment to the prior payment in full of all
A-9
amounts then due on all Senior Debt of the Company, and this Security is
issued subject to such provisions of the Indenture with respect thereto. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be
bound by such provisions, (b) authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee such
Holder's attorney-in-fact for any and all such purposes.
10. Denominations; Transfer; Exchange.
The Securities are issuable in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000 in excess thereof. A
Holder may register the transfer or exchange of Securities in accordance with
the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture.
In the event of a redemption in part, the Company will not be required
(a) to register the transfer of, or exchange, Securities for a period of 15 days
immediately preceding the date notice is given identifying the serial numbers of
the Securities called for such redemption, or (b) to register the transfer of,
or exchange, any such Securities, or portion thereof, called for redemption.
In the event of redemption, conversion or repurchase of the Securities
in part only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased portion thereof will be issued in the name of the Holder hereof.
11. Persons Deemed Owners.
The registered Holder of this Security shall be treated as its owner
for all purposes.
12. Unclaimed Money.
The Trustee and the Paying Agent shall pay to the Company any money
held by them for the payment of principal, premium, if any, or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due. After payment to the Company, Holders entitled to the money
must look to the Company for payment as general creditors unless an applicable
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity.
Subject to certain conditions contained in the Indenture, the Company
may discharge its obligations under the Securities and the Indenture if (1) (a)
all of the Outstanding Securities shall become due and payable at their
scheduled Maturity within one year or (b) all of the Outstanding Securities are
scheduled for redemption within one year, and (2) the Company shall have
deposited with the Trustee money and/or U.S. Government Obligations sufficient
to pay the principal of, and premium, if any, and interest on, all of the
Outstanding Securities on the date of Maturity or redemption, as the case may
be.
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14. Amendment; Supplement; Waiver.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Outstanding Securities (or such
lesser amount as shall have acted at a meeting pursuant to the provisions of the
Indenture). The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued upon
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security or
such other Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest (including Liquidated Damages, if any) on this Security at the times,
places and rate, and in the coin or currency, herein prescribed or to convert
this Security (or pay cash in lieu of conversion) as provided in the Indenture.
15. Defaults and Remedies.
The Indenture provides that an Event of Default with respect to the
Securities occurs when any of the following occurs:
(a) the Company defaults in the payment of the principal of or
premium, if any, on any of the Securities when it becomes due and
payable at Maturity, upon redemption or exercise of a Repurchase Right
or otherwise, whether or not such payment is prohibited by the
subordination provisions of Article 13 of the Indenture;
(b) the Company defaults in the payment of interest on any of
the Securities when it becomes due and payable and such default
continues for a period of 30 days, whether or not such payment is
prohibited by the subordination provisions of Article 13 of the
Indenture;
(c) the Company fails to perform or observe any other term,
covenant or agreement contained in the Securities or the Indenture and
such default continues for a period of 60 days after written notice of
such failure is given as specified in the Indenture;
(d) (i) the Company fails to make any payment by the end of
the applicable grace period, if any, after the maturity of any
Indebtedness for borrowed money in an amount in excess of $5,000,000
(provided that such failure shall not constitute an Event of Default if
(1) the Company determines, in good faith, that a lessor under a lease
described in clause (3)(a) of the definition of Indebtedness set forth
in the Indenture breached a covenant under the lease and the Company
has given notice of the
A-11
breach to the lessor and the Trustee and (2) as a result of the breach,
the Company withholds payment under the lease) (a "Default Exception"),
or (ii) there is an acceleration of any Indebtedness for borrowed money
in an amount in excess of $5,000,000 because of a default with respect
to such Indebtedness (other than a Default Exception) without such
Indebtedness having been discharged or such acceleration having been
cured, waived, rescinded or annulled, in the case of either clause (i)
or (ii) above, for a period of 30 days after written notice is given to
the Company as specified in the Indenture; and
(e) there are certain events of bankruptcy, insolvency or
reorganization of the Company.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
16. Authentication.
This Security shall not be valid until the Trustee (or authenticating
agent) executes the certificate of authentication on the other side of this
Security.
17. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. Additional Rights of Holders of Transfer Restricted Securities.
In addition to the rights provided to Holders under the Indenture,
Holders of Transfer Restricted Securities shall have all the rights set forth in
the Registration Rights Agreement.
19. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on this Security and the Trustee may use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on this Security or as contained in
any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
20. Governing Law.
The Indenture and this Security shall be governed by, and construed in
accordance with, the law of the State of New York.
A-12
21. Successor Corporation.
In the event a successor corporation assumes all the obligations of the
Company under this Security, pursuant to the terms hereof and of the Indenture,
the Company will be released from all such obligations.
A-13
ASSIGNMENT FORM
To assign this Security, fill in the form below and have your signature
guaranteed: (I) or (we) assign and transfer this Security to:
_______________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated:_________________ Your Name:___________________________________________
(Print your name exactly as it appears on the face
of this Security)
Your Signature:______________________________________
(Sign exactly as your name appears on the face of
this Security)
Signature Guarantee*:________________________________
* PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM (OR
OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE).
A-14
In connection with any transfer of this Security occurring prior to the date
which is the earlier of the end of the period referred to in Rule 144(k) under
the Securities Act, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by Rule 144A
thereunder.
or
[ ] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the conditions of
transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Security in the name of any Person other than
the Holder hereof unless the conditions to any such transfer of registration set
forth herein and in Sections 2.7, 2.8 and 2.9 of the Indenture shall have been
satisfied.
Dated:______________ ________________________________________________________
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the
within-mentioned instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee:
________________________________________________________
Signature must be guaranteed by a
participant in a recognized
signature guaranty medallion program
or other signature guarantor
acceptable to the Trustee.
A-15
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion, in each case for investment and not with a view to
distribution, and that it and any such account is a "Qualified Institutional
Buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:______________ ________________________________________________________
NOTICE: To be executed by an executive officer
A-16
CONVERSION NOTICE
TO: INHALE THERAPEUTIC SYSTEMS, INC.
150 Industrial Road
San Carlos, California 94070
The undersigned registered owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred to
in this Security, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Securities representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Security not converted are to
be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto. Any amount required to
be paid to the undersigned on account of interest (including Liquidated Damages,
if any) accompanies this Security.
Dated: Your Name:
------------------- -----------------------------------
(Print your name exactly as it appears
on the face of this Security)
Your Signature:
------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee*:
------------------------
Social Security or other Taxpayer
Identification Number:
----------------------
Principal amount to be converted (if less than all): $
* PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM (OR
OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE).
A-17
Fill in for registration of shares (if to be issued) and Securities (if to be
delivered) other than to and in the name of the registered holder:
------------------------------------------------------
(Name)
------------------------------------------------------
(Street Address)
------------------------------------------------------
(City, State and Zip Code)
A-18
NOTICE OF EXERCISE OF REPURCHASE RIGHT
TO: INHALE THERAPEUTIC SYSTEMS, INC.
150 Industrial Road
San Carlos, California 94070
The undersigned registered owner of this Security hereby irrevocably
acknowledges receipt of a notice from Inhale Therapeutic Systems, Inc. (the
"Company") as to the occurrence of a Change of Control with respect to the
Company and requests and instructs the Company to repay the entire principal
amount of this Security, or the portion thereof (which is $1,000 principal
amount or an integral multiple thereof) below designated, in accordance with the
terms of the Indenture referred to in this Security, together with interest
(including Liquidated Damages, if any) accrued and unpaid to, but excluding,
such date, to the registered holder hereof, in cash or by delivery of shares of
Common Stock as specified in the Company's notice.
Dated: Your Name:
------------------- -----------------------------------
(Print your name exactly as it appears
on the face of this Security)
Your Signature:
------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee*:
------------------------
Social Security or other Taxpayer
Identification Number:
----------------------
Principal amount to be repaid (if less than all): $
* PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM (OR
OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE).
A-19
SCHEDULE OF EXCHANGES FOR PHYSICAL SECURITIES(2)
The following exchanges of a part of this Global Security for
Physical Securities have been made:
Principal Amount of
Amount of decrease this Global Security
in Principal Amount Amount of increase in following such Signature of
of this Global Principal Amount of decrease (or authorized officer
Date of Exchange Security this Global Security increase) of Trustee
- --------------------- -------------------- --------------------- --------------------- -------------------
- --------------------
(2) This schedule should be included only if the Security is issued in global
form.
A-20
===============================================================================
INDENTURE
BETWEEN
INHALE THERAPEUTIC SYSTEMS, INC.,
AS ISSUER
AND
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
AS TRUSTEE
3 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2007
DATED AS OF OCTOBER 17, 2000
===============================================================================
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
Act Section Section
- ---------------- ----------
310(a)(1)......................................................................................................5.11
(a)(2)................................................................................................5.11
(a)(3).................................................................................................n/a
(a)(4).................................................................................................n/a
(a)(5)................................................................................................5.11
(b)..............................................................................................5.3; 5.11
(c)....................................................................................................n/a
311(a) 5.12
(b)...................................................................................................5.12
(c)....................................................................................................n/a
312(a) 2.10
(b) ..................................................................................................14.3
(c)...................................................................................................14.3
313(a) 5.7
(b)(1).................................................................................................n/a
(b)(2).................................................................................................5.7
(c)..............................................................................................5.7; 14.2
(d)....................................................................................................5.7
314(a)(1), (2), (3).......................................................................................9.6; 14.6
(a)(4)......................................................................................9.6; 9.7; 14.6
(b)....................................................................................................n/a
(c)(1)................................................................................................14.5
(c)(2)................................................................................................14.5
(c)(3).................................................................................................n/a
(d)....................................................................................................n/a
(e)...................................................................................................14.6
(f)....................................................................................................n/a
315(a) ....................................................................................................5.1(a)
(b)..............................................................................................5.6; 14.2
(c).................................................................................................5.1(b)
(d).................................................................................................5.1(c)
(e)...................................................................................................4.14
316(a)(last sentence)..........................................................................................2.13
(a)(1)(A)..............................................................................................4.5
(a)(1)(B)..............................................................................................4.4
(a)(2).................................................................................................n/a
(b)....................................................................................................4.7
i.
(c)....................................................................................................7.4
317(a)(1).......................................................................................................4.8
(a)(2).................................................................................................4.9
(b)....................................................................................................2.5
318(a) 14.1
(b)....................................................................................................n/a
(c)...................................................................................................14.1
- --------------------------------
"n/a" means not applicable.
*This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
ii.
TABLE OF CONTENTS
PAGE
Table of Contents
Page
----
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.....................................................................................2
Section 1.2. Incorporation by Reference of Trust Indenture Act..............................................13
Section 1.3. Rules of Construction..........................................................................14
ARTICLE 2 THE SECURITIES
Section 2.1. Title and Terms................................................................................15
Section 2.2. Form of Securities.............................................................................16
Section 2.3. Legends........................................................................................17
Section 2.4. Execution, Authentication, Delivery and Dating.................................................22
Section 2.5. Registrar and Paying Agent.....................................................................22
Section 2.6. Paying Agent to Hold Assets in Trust...........................................................23
Section 2.7. General Provisions Relating to Transfer and Exchange...........................................23
Section 2.8. Book-Entry Provisions for the Global Securities................................................24
Section 2.9. Special Transfer Provisions....................................................................25
Section 2.10. Holder Lists...................................................................................27
Section 2.11. Persons Deemed Owners..........................................................................28
Section 2.12. Mutilated, Destroyed, Lost or Stolen Securities................................................28
Section 2.13. Treasury Securities............................................................................29
Section 2.14. Temporary Securities...........................................................................29
Section 2.15. Cancellation...................................................................................29
Section 2.16. CUSIP Numbers..................................................................................30
Section 2.17. Defaulted Interest.............................................................................30
ARTICLE 3 SATISFACTION AND DISCHARGE
Section 3.1. Satisfaction and Discharge of Indenture........................................................31
Section 3.2. Deposited Monies to be Held in Trust...........................................................32
Section 3.3. Return of Unclaimed Monies.....................................................................32
ARTICLE 4 DEFAULTS AND REMEDIES
Section 4.1. Events of Default..............................................................................33
Section 4.2. Acceleration of Maturity; Rescission and Annulment.............................................34
Section 4.3. Other Remedies.................................................................................35
Section 4.4. Waiver of Past Defaults........................................................................35
Section 4.5. Control by Majority............................................................................35
Section 4.6. Limitation on Suit.............................................................................36
Section 4.7. Unconditional Rights of Holders to Receive Payment and to Convert..............................36
Section 4.8. Collection of Indebtedness and Suits for Enforcement by the Trustee............................37
iii.
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 4.9. Trustee May File Proofs of Claim...............................................................37
Section 4.10. Restoration of Rights and Remedies.............................................................38
Section 4.11. Rights and Remedies Cumulative.................................................................38
Section 4.12. Delay or Omission Not Waiver...................................................................38
Section 4.13. Application of Money Collected.................................................................39
Section 4.14. Undertaking for Costs..........................................................................39
Section 4.15. Waiver of Stay or Extension Laws...............................................................39
ARTICLE 5 THE TRUSTEE
Section 5.1. Certain Duties and Responsibilities............................................................41
Section 5.2. Certain Rights of Trustee......................................................................42
Section 5.3. Individual Rights of Trustee...................................................................43
Section 5.4. Money Held in Trust............................................................................43
Section 5.5. Trustee's Disclaimer...........................................................................43
Section 5.6. Notice of Defaults.............................................................................44
Section 5.7. Reports by Trustee to Holders..................................................................44
Section 5.8. Compensation and Indemnification...............................................................44
Section 5.9. Replacement of Trustee.........................................................................45
Section 5.10. Successor Trustee by Merger, Etc...............................................................46
Section 5.11. Corporate Trustee Required; Eligibility........................................................46
Section 5.12. Collection of Claims Against the Company.......................................................46
ARTICLE 6 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 6.1. Company May Consolidate, Etc...................................................................47
Section 6.2. Successor Corporation Substituted..............................................................47
ARTICLE 7 AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 7.1. Without Consent of Holders of Securities.......................................................49
Section 7.2. With Consent of Holders of Securities..........................................................50
Section 7.3. Compliance with Trust Indenture Act............................................................51
Section 7.4. Revocation of Consents and Effect of Consents or Votes.........................................51
Section 7.5. Notation on or Exchange of Securities..........................................................51
Section 7.6. Trustee to Sign Amendment, Etc.................................................................52
ARTICLE 8 MEETING OF HOLDERS OF SECURITIES
Section 8.1. Purposes for Which Meetings May Be Called......................................................53
Section 8.2. Call Notice and Place of Meetings..............................................................53
Section 8.3. Persons Entitled to Vote at Meetings...........................................................53
Section 8.4. Quorum; Action.................................................................................53
Section 8.5. Determination of Voting Rights; Conduct and Adjournment of Meetings............................54
Section 8.6. Counting Votes and Recording Action of Meetings................................................55
iv.
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 9 COVENANTS
Section 9.1. Payment of Principal, Premium and Interest.....................................................56
Section 9.2. Maintenance of Offices or Agencies.............................................................56
Section 9.3. Corporate Existence............................................................................57
Section 9.4. Maintenance of Properties......................................................................57
Section 9.5. Payment of Taxes and Other Claims..............................................................57
Section 9.6. Reports........................................................................................57
Section 9.7. Compliance Certificate.........................................................................58
Section 9.8. Resale of Certain Securities...................................................................58
ARTICLE 10 REDEMPTION OF SECURITIES
Section 10.1. Provisional Redemption.........................................................................59
Section 10.2. Optional Redemption............................................................................59
Section 10.3. Notice to Trustee..............................................................................60
Section 10.4. Selection of Securities to Be Redeemed.........................................................60
Section 10.5. Notice of Redemption...........................................................................60
Section 10.6. Effect of Notice of Redemption.................................................................61
Section 10.7. Deposit of Redemption Price....................................................................61
Section 10.8. Securities Redeemed in Part....................................................................62
ARTICLE 11 REPURCHASE AT THE OPTION OF A HOLDER UPON A CHANGE OF CONTROL
Section 11.1. Repurchase Right...............................................................................63
Section 11.2. Conditions to the Company's Election to Pay the Repurchase Price in Common Stock...............63
Section 11.3. Notices; Method of Exercising Repurchase Right, Etc............................................64
ARTICLE 12 CONVERSION OF SECURITIES
Section 12.1. Conversion Right and Conversion Price..........................................................68
Section 12.2. Exercise of Conversion Right...................................................................68
Section 12.3. Fractions of Shares............................................................................69
Section 12.4. Adjustment of Conversion Price.................................................................69
Section 12.5. Notice of Adjustments of Conversion Price......................................................78
Section 12.6. Notice Prior to Certain Actions................................................................78
Section 12.7. Company to Reserve Common Stock................................................................79
Section 12.8. Taxes on Conversions...........................................................................79
Section 12.9. Covenant as to Common Stock....................................................................80
Section 12.10. Cancellation of Converted Securities...........................................................80
Section 12.11. Effect of Reclassification, Consolidation, Merger or Sale......................................80
Section 12.12. Responsibility of Trustee for Conversion Provisions............................................81
v.
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 13 SUBORDINATION
Section 13.1. Securities Subordinated to Senior Debt.........................................................83
Section 13.2. Subrogation....................................................................................85
Section 13.3. Obligation of the Company is Absolute and Unconditional........................................85
Section 13.4. Maturity of or Default on Senior Debt..........................................................85
Section 13.5. Payments on Securities Permitted...............................................................86
Section 13.6. Effectuation of Subordination by Trustee.......................................................86
Section 13.7. Knowledge of Trustee...........................................................................86
Section 13.8. Trustee's Relation to Senior Debt..............................................................87
Section 13.9. Rights of Holders of Senior Debt Not Impaired..................................................87
Section 13.10. Modification of Terms of Senior Debt...........................................................87
Section 13.11. Certain Conversions Not Deemed Payment.........................................................87
ARTICLE 14 OTHER PROVISIONS OF GENERAL APPLICATION
Section 14.1. Trust Indenture Act Controls...................................................................89
Section 14.2. Notices........................................................................................89
Section 14.3. Communication by Holders with Other Holders....................................................90
Section 14.4. Acts of Holders of Securities..................................................................90
Section 14.5. Certificate and Opinion as to Conditions Precedent.............................................91
Section 14.6. Statements Required in Certificate or Opinion..................................................91
Section 14.7. Effect of Headings and Table of Contents.......................................................92
Section 14.8. Successors and Assigns.........................................................................92
Section 14.9. Separability Clause............................................................................92
Section 14.10. Benefits of Indenture..........................................................................92
Section 14.11. Governing Law..................................................................................92
Section 14.12. Counterparts...................................................................................92
Section 14.13. Legal Holidays.................................................................................92
Section 14.14. Recourse Against Others........................................................................93
vi.
TABLE OF CONTENTS
(CONTINUED)
PAGE
EXHIBITS
EXHIBIT A: Form of Security A-1
vii.
EXHIBIT 5.1
[Cooley Godward LLP Letterhead]
January 12, 2001
Inhale Therapeutic Systems, Inc.
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 January 12, 2001 (the
"Registration Statement") with the Securities and Exchange Commission covering
the offering of up to $230,000,000 aggregate principal amount of 3.5%
Convertible Subordinated Notes due October 17, 2007 (the "Notes") and 4,558,065
shares of the Company's Common Stock, $.0001 par value issuable upon conversion
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
Registration Statement (Form S-3) and related Prospectus of Inhale Therapeutic
Systems, Inc. for the registration of 4,558,065 shares of its common stock and
$230,000,000 of its 3.5% Convertible Subordinated Notes due October 17, 2007,
and to the incorporation by reference therein 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), as amended, for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
January 12, 2001
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-3) and
related Prospectus of Inhale Therapeutic Systems, Inc. for the registration of
4,558,065 shares of its common stock and $230,000,000 of its 3.5% Convertible
Subordinated Notes due October 17, 2007, of our report dated January 5, 2001
with respect to the financial statements of Bradford Particle Design plc
included in Inhale Therapeutic Systems, Inc.'s Current Report on Form 8-K filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
January 12, 2001
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(B)(2)__________
-----------
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4655078
(I.R.S. Employer Identification No.)
101 CALIFORNIA STREET SUITE #2725
SAN FRANCISCO, CALIFORNIA
(Address of principal executive offices)
94111
(Zip Code)
----------
Inhale Therapeutic Systems, Inc.
(Exact name of Obligor as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
94-3134940
(I.R.S. Employer Identification No.)
150 INDUSTRIAL ROAD
SAN CARLOS, CALIFORNIA
(Address of principal executive offices)
94070-6256
(ZIP CODE)
-----------
3.5% CONVERTIBLE SUBORDINATED NOTES DUE 2007(Title of Indenture securities)
GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C. Board of
Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
(a) Title of securities outstanding under each such other
indenture. $108,450,000 Convertible Subordinated Debentures
due 2006 issued under Indenture dated as of October 13, 1999;
and
(b) Title of securities outstanding under each such other
indenture. $230,000,000 Convertible Subordinated Notes due
2007 issued under Indenture dated as of February 8, 2000.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1. Articles of Association of the Trustee as Now in
Effect (see Exhibit 1 to Form T-1 filed in connection
with Registration Statement No. 333-41329, which is
incorporated by reference).
Exhibit 2. Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in
connection with Registration Statement No. 333-41329,
which is incorporated by reference).
Exhibit 3. Authorization of the Trustee to Exercise Corporate
Trust Powers (contained in Exhibit 2).
Exhibit 4. Existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration
Statement No. 333-41329, which is incorporated by
reference).
Exhibit 5. Not Applicable
Exhibit 6. The consent of the Trustee required by Section 321
(b) of the Act (see Exhibit 6 to Form T-1 filed in
connection with Registration Statement No. 333-41329,
which is incorporated by reference).
Exhibit 7. A copy of the latest report of condition of the
Trustee, published pursuant to law or the
requirements of its supervising or examining
authority.
Exhibit 8. Not Applicable
Exhibit 9. Not Applicable
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of San
Francisco, and State of California, on the __ of December, 2000.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By
/s/ Karen Lei
------------------------
Karen Lei
Assistant Vice President
EXHIBIT 7. REPORT OF CONDITION OF THE TRUSTEE.
CONSOLIDATED REPORT OF CONDITION OF Chase Manhattan Bank and Trust Company, N.A.
-------------------------------------------
(Legal Title)
LOCATED AT 1800 Century Park East, Ste. 400 Los Angeles, CA 94111
------------------------------------------------------
(Street) (City) (State)(Zip)
AS OF CLOSE OF BUSINESS ON December 31, 1999
-----------------
ASSETS DOLLAR AMOUNTS IN THOUSANDS
1. Cash and balances due from
a. Noninterest-bearing balances and currency and coin (1,2) 4,258
b. Interest bearing balances (3) 0
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 0
b. Available-for-sale securities (from Schedule RC-B, column D) 1,089
3. Federal Funds sold (4) and securities purchased agreements to resell 82,900
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) 68
b. LESS: Allowance for loan and lease losses 0
c. LESS: Allocated transfer risk reserve 0
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c) 68
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 142
7. Other real estate owned (from Schedule RC-M) 0
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 0
9. Customers liability to this bank on acceptances outstanding 0
10. Intangible assets (from Schedule RC-M) 1,026
11. Other assets (from Schedule RC-F) 1,996
12a. TOTAL ASSETS 91,479
(1) INCLUDES CASH ITEMS IN PROCESS OF COLLECTION AND UNPOSTED DEBITS.
(2) THE AMOUNT REPORTED IN THIS ITEM MUST BE GREATER THAN OR EQUAL TO THE SUM OF SCHEDULE RC-M,
ITEMS 3.a AND 3.b
(3) INCLUDES TIME CERTIFICATES OF DEPOSIT NOT HELD FOR TRADING.
(4) REPORT "TERM FEDERAL FUNDS SOLD" IN SCHEDULE RC, ITEM 4.a "LOANS AND LEASES, NET OF UNEARNED INCOME"
AND IN SCHEDULE RC-C, PART 1.
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) 59,457
(1) Noninterest-bearing 7,509
(2) Interest-bearing 51,948
b. In foreign offices, Edge and Agreement subsidiaries, and IBF'
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased (2) and securities sold under agreements to repurchase 0
15. a. Demand notes issued to the U.S. Treasury 0
b. Trading liabilities 0
16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases):
a. With a remaining maturity of one year or less 0
b. With a remaining maturity of more than one year through three years 0
c. With a remaining maturity of more than three years 0
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 0
19. Subordinated notes and Debentures (3) 0
20. Other liabilities (from Schedule RC-G) 5,756
21. Total liabilities (sum of items 13 through 20) 65,213
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 0
24. Common stock- 600
25. Surplus (exclude all surplus related to preferred stock) 12,590
26. a. Undivided profits and capital reserves 13,076
b. Net unrealized holding gains (losses) on available-for-sale securities 0
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 26,266
29. Total liabilities, equity capital, and losses deferred pursuant to 12 U.S.C. 1823 (j)
(sum of items 21 and 28.c) 91,479
