<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended MARCH 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to _________.
Commission file number 0-25331
CRITICAL PATH, INC.
A CALIFORNIA CORPORATION I.R.S. EMPLOYER NO. 91-1788300
320 FIRST STREET
SAN FRANCISCO, CALIFORNIA 94105
415-808-8800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date: AS OF APRIL 30, 2000, THE COMPANY HAD
OUTSTANDING 62,198,881 SHARES OF COMMON STOCK, $ 0.001 PAR VALUE PER SHARE.
<PAGE> 2
CRITICAL PATH, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet 1
Consolidated Statement of Operations 2
Consolidated Statement of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Supplemental Pro Forma Financial Data 35
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
Part II. Other Information
Item 1. Legal Proceedings 37
Item 2. Changes in Securities and Use of Proceeds 37
Item 3. Defaults Upon Senior Securities 37
Item 4. Submission of Matters to a Vote of the Security Holders 37
Item 5. Other Information 37
Item 6. Exhibits and Reports on Form 8-K 37
</TABLE>
<PAGE> 3
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
CRITICAL PATH, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 75,932 $ 348,052
Restricted cash 325 325
Accounts receivable, net 10,147 24,352
Other current assets 40,800 9,306
----------- -----------
Total current assets 127,204 382,035
Investments 18,426 12,699
Notes receivable from officers 669 836
Property and equipment, net 52,517 66,877
Intangible assets, net 474,297 1,210,111
Other assets 692 9,325
----------- -----------
Total assets $ 673,805 $ 1,681,883
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 35,621 $ 36,736
Accrued expenses 7,120 12,655
Deferred revenue, current 1,603 12,897
Capital lease and other obligations, current 6,585 8,259
----------- -----------
Total current liabilities 50,929 70,547
Convertible subordinated notes payable -- 300,000
Deferred revenue, long-term 215 203
Capital lease and other obligations, long-term 5,669 10,967
----------- -----------
Total liabilities 56,813 381,717
----------- -----------
Commitments and contingencies
Shareholders' Equity
Preferred Stock and paid-in-capital, $0.001 par value
Shares authorized: 5,000
Shares issued and outstanding: none -- --
Common Stock and paid-in-capital, $0.001 par value
Shares authorized: 150,000
Shares issued and outstanding: 46,937 and 61,984
(net of 134 treasury shares at cost of $229) 864,699 1,633,261
Notes receivable from shareholders (1,154) (1,167)
Unearned compensation (124,906) (130,454)
Accumulated deficit, including other comprehensive income (121,647) (201,474)
----------- -----------
Total shareholders' equity 616,992 1,300,166
----------- -----------
Total liabilities and shareholders' equity $ 673,805 $ 1,681,883
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
1
<PAGE> 4
CRITICAL PATH, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended March 31 1999 2000
-------- --------
(unaudited)
<S> <C> <C>
Net revenues
Licenses $ -- $ 11,070
Services 1,049 13,483
-------- --------
Total net revenues 1,049 24,553
-------- --------
Cost of net revenues
Licenses -- 1,007
Services 1,914 14,340
Amortization of purchased technology -- 2,114
Acquisition-related retention bonuses -- 390
Stock-based expenses 446 493
-------- --------
Total cost of net revenues 2,360 18,344
-------- --------
Gross profit (loss) (1,311) 6,209
-------- --------
Operating expenses
Sales and marketing 1,984 13,605
Research and development 1,379 6,323
General and administrative 1,550 6,766
Acquisition-related retention bonuses -- 2,679
Amortization of intangible assets -- 47,699
Stock-based expenses 11,657 6,703
-------- --------
Total operating expenses 16,570 83,775
-------- --------
Loss from operations (17,881) (77,566)
Interest and other income, net 351 1,258
Interest expense (64) (274)
-------- --------
Loss before income taxes (17,594) (76,582)
Provision for income taxes -- (360)
-------- --------
Net loss $(17,594) $(76,942)
======== ========
Net loss per share - basic and diluted $ (2.51) $ (1.52)
======== ========
Weighted average shares - basic and diluted 7,011 50,570
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
2
<PAGE> 5
CRITICAL PATH, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31 1999 2000
--------- ---------
(unaudited)
<S> <C> <C>
Operations
Net loss $ (17,594) $ (76,942)
Provision for doubtful accounts 24 330
Depreciation and amortization 626 6,191
Amortization of intangible assets -- 49,813
Amortization of stock-based costs and expenses 12,210 7,212
Accounts receivable (415) (3,394)
Other assets (741) 2,401
Accounts payable 1,927 (6,937)
Accrued expenses (167) 4,088
Deferred revenue (500) (57)
--------- ---------
Net cash used in operating activities (4,630) (17,295)
--------- ---------
Investing
Notes receivable from officers (170) (100)
Property and equipment purchases (659) (11,046)
Investments in unconsolidated entities, net -- 3,000
Payments for acquisitions, net of cash acquired -- (5,549)
Repayment of promissory note receivable -- 10,000
--------- ---------
Net cash used in investing activities (829) (3,695)
--------- ---------
Financing
Proceeds from issuance of Preferred Stock, net 12,496 --
Proceeds from issuance of Common Stock, net 1,303 3,851
Proceeds from convertible debt offering, net -- 290,250
Principal payments on lease obligations (398) (823)
Purchase of treasury stock (227) --
--------- ---------
Net cash provided by financing activities 13,174 293,278
--------- ---------
Net change in cash and cash equivalents 7,715 272,288
Effect of exchange rates on cash and cash equivalents -- (168)
Cash and cash equivalents at beginning of period 14,791 75,932
--------- ---------
Cash and cash equivalents at end of period $ 22,506 $ 348,052
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
3
<PAGE> 6
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited Consolidated Financial Statements ("Financial Statements") of
Critical Path, Inc. and Subsidiaries (the "Company" or "Critical Path")
furnished herein reflect all adjustments that are, in the opinion of management,
necessary to present fairly the financial position and results of operations for
each interim period presented. All adjustments are normal recurring adjustments.
The Financial Statements should be read in conjunction with the consolidated
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, presented in the
Company's 1999 Annual Report on Form 10-K/A. The results of operations for the
interim periods presented herein are not necessarily indicative of the results
to be expected for the entire year.
NOTE 2 - ACQUISITIONS AND JOINT VENTURE
ISOCOR CORPORATION
On January 19, 2000, the Company acquired ISOCOR Corporation ("ISOCOR"), a
leading supplier of Internet messaging, directory and meta-directory software
solutions. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the tangible and
intangible net assets acquired on the basis of their respective fair values on
the acquisition date. The fair value of intangible assets was determined based
upon an independent valuation using a combination of methods, including an
income approach for the acquired existing and in-process technologies and the
customer base, and a replacement cost approach for the value of the assembled
workforce.
The total purchase price of approximately $274.9 million consisted of $226.7
million of the Company's Common Stock (5,043,054 shares), assumed stock options
with a fair value of $37.2 million, and other acquisition related expenses of
approximately $11.0 million, consisting primarily of payments for
4
<PAGE> 7
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
financial advisory and other professional fees. Of the total purchase price,
$18.7 million was allocated to net tangible assets, and the remainder was
allocated to intangible assets, including in-process technology ($200,000),
existing technology ($18.3 million), customer base ($9.8 million), assembled
workforce ($3.4 million) and goodwill ($224.5 million). The acquired in-process
technology was recognized as research and development expense in the period the
transaction was consummated. The fair value of other acquired intangible assets,
excluding goodwill, was capitalized and is being amortized over their estimated
useful lives of three years. Goodwill is being amortized using the straight-line
method over three years.
The ISOCOR acquisition was recognized as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Fair value of assets acquired $ 290,176
Liabilities assumed (15,291)
Fair value of Common Stock and options issued (263,885)
-----------
Cash paid, including acquisition costs 11,000
Less: cash acquired 18,989
----------
Net cash acquired $ 7,989
==========
</TABLE>
THE DOCSPACE COMPANY
On March 8, 2000, the Company acquired all outstanding stock of The docSpace
Company ("docSpace"), a provider of Web-based services for secure file delivery,
storage and collaboration. The acquisition was accounted for using the purchase
method of accounting and accordingly, the purchase price was allocated to the
tangible and intangible assets acquired on the basis of their respective fair
values on the acquisition date. The fair value of intangible assets was
determined based upon an independent valuation using a combination of methods,
including a cost approach for the acquired existing technology, and the
replacement cost approach for the value of the assembled workforce.
The total purchase price of $258.0 million consisted of $30.0 million cash,
Common Stock (3,805,820 shares) valued at $218.0 million, and other acquisition
costs of approximately $10.0 million. Of the total purchase price, approximately
$7.1 million has been allocated to net tangible liabilities and the remainder
has been allocated to intangible assets, including assembled workforce
($500,000), existing technology ($21.5 million), and goodwill ($243.1 million).
The fair value of acquired intangible assets, excluding goodwill, was
capitalized and is being amortized over their estimated useful lives of three
years. Goodwill is being amortized using the straight-line method over three
years.
The docSpace acquisition was recognized as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Fair value of assets acquired $ 266,128
Liabilities assumed (8,154)
Fair value of Common Stock issued (217,979)
-----------
Cash paid, including acquisition costs 39,995
Less: cash acquired 153
----------
Net cash paid $ 39,842
==========
</TABLE>
5
<PAGE> 8
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
REMARQ COMMUNITIES, INC.
On March 30, 2000, the Company acquired RemarQ Communities, Inc. ("RemarQ"), a
provider of Internet collaboration services for corporations, Web portals and
Internet service providers. The acquisition was accounted for using the purchase
method of accounting and accordingly, the purchase price was allocated to the
tangible and intangible net assets acquired on the basis of their respective
fair values on the acquisition date. The total purchase price of approximately
$267.6 million, consisted of Common Stock (3,868,450 shares) valued at $259.3
million, assumed stock options with an estimated fair market value of $7.7
million, and other acquisition related expenses of approximately $600,000,
consisting primarily of payments for legal and other professional fees. Of the
total purchase price, approximately $7.8 million was allocated to net tangible
assets, and the remainder was allocated to intangible assets, including existing
technology ($4.5 million), assembled workforce ($3.3 million), customer base
($5.9 million), and goodwill totaling ($246.1 million). The fair value of the
acquired intangible assets, excluding goodwill, was capitalized and is being
amortized over their estimated useful lives of two to three years. Goodwill is
being amortized using the straight-line method over three years.
The RemarQ acquisition was recognized as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Fair value of assets acquired $ 279,033
Liabilities assumed (11,453)
Fair value of Common Stock and options issued (267,000)
-----------
Cash paid, including acquisition costs 580
Less: cash acquired 11,203
----------
Net cash acquired $ 10,623
==========
</TABLE>
Pro Forma Results
The following unaudited pro forma information presents the Company's
consolidated results of operations for the three months ended March 31, 1999 and
2000, as if the acquisitions had been consummated at the beginning of each
period. The pro forma consolidated results of operations include certain pro
forma adjustments, including the amortization of intangible assets and the
accretion of the acquisition-related retention bonuses.
<TABLE>
<CAPTION>
Three Months Ended March 31 1999 2000
---- ----
<S> <C> <C>
(in thousands, except per share data)
Net revenues 9,423 27,962
Net loss (89,293) (130,874)
Net loss per share -
basic and diluted (4.95) (2.31)
</TABLE>
The pro forma results are not necessarily indicative of those that would have
actually occurred had the acquisitions taken place at the beginning of the
periods presented.
CRITICAL PATH PACIFIC
The Company has signed a memorandum of understanding to enter into a joint
venture with Mitsui and Co., Ltd. and NTT Communications Corporation to bring
messaging solutions to Japan. The Company's ownership in the joint venture upon
inception will be 40%. The Company will account for its investment in this joint
venture using the equity method.
6
<PAGE> 9
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 3 - ACQUISITION-RELATED RETENTION BONUS
In connection with the acquisitions of dotOne Corporation ("dotOne"), Amplitude
Software Corporation ("Amplitude"), Xeti, Inc. ("Xeti"), FaxNet Corporation
("FaxNet"), ISOCOR, and docSpace, the Company established a retention bonus
program in the aggregate amount of $20.7 million to provide incentives for
certain former employees of these companies to continue their employment with
Critical Path. Payment of bonuses to the listed employees will occur one year
following the date of acquisition, unless the listed employees voluntarily
terminate their employment with the Company prior to the respective
acquisition's one-year anniversary. The aggregate amount of the eligible bonuses
is reduced for the bonus amount allocated to each former dotOne, Amplitude,
Xeti, FaxNet, ISOCOR, and docSpace employee that chooses to terminate his or her
employment with the Company. A ratable share of the adjusted eligible bonus
amount will be accrued and charged to compensation expense over the respective
12-month period commencing on the date the bonuses are granted. As of March 31,
2000, the aggregate, adjusted eligible bonus amount was $18.3 million, and the
amount recognized as compensation expense was $3.1 million during the three
months then ended. Based on the functions of the employees scheduled to receive
acquisition-related retention bonuses, $390,000 of the compensation charge was
allocated to cost of net revenues and the remaining $2.7 million was allocated
to operating expenses.
NOTE 4 - INTANGIBLE ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
(In thousands) 1999 2000
---- ----
<S> <C> <C>
Goodwill $ 475,368 $ 1,192,425
Customer list 12,800 28,500
Assembled workforce 6,960 14,160
Existing technology 9,940 55,640
Patent license 1,488 1,488
--------- -----------
506,556 1,292,213
Less: accumulated amortization (32,259) (82,102)
----------- ------------
Intangible assets, net $ 474,297 $ 1,210,111
========== ============
</TABLE>
Related amortization of intangible assets was $49.8 million during the three
months ended March 31, 2000. There was no amortization of intangible assets
during the first quarter of 1999.
NOTE 5 - BORROWINGS
On March 30, 2000, the Company issued $300 million of five-year, 5.75%
Convertible Subordinated Notes ("Notes") due April 1, 2005, to qualified
institutional buyers in reliance on Rule 144A under the Securities Act of 1933.
Holders may convert the Notes into shares of Critical Path's Common Stock at any
time before their maturity or the business day before their redemption or
repurchase by Critical Path. The conversion rate is 9.8546 shares per $1,000
principal amount of Notes, subject to adjustment in certain circumstances. This
rate is equivalent to a conversion price of approximately $101.48 per share.
The Company incurred approximately $10.8 million in debt issuance costs,
consisting primarily of payments for an underwriting discount and legal and
other professional fees. These costs have been capitalized and will be
recognized as a component of interest expense on a straight-line basis over the
five-year term of the Notes.
7
<PAGE> 10
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Interest is payable on April 1 and October 1 of each year with the first
interest payment due on October 1, 2000. The Notes are subordinated in right of
payment to all senior debt of Critical Path and effectively subordinated to all
existing and future debt and all other liabilities of Critical Path's
subsidiaries.
On or after the third business day after April 1, 2003, through March 31, 2004,
the Company has the option to redeem all or a portion of the Notes that have not
been previously converted at the redemption price equal to 102.30% of the
principal amount. During the period from April 1, 2004 through March 31, 2005,
the Company has the option to redeem all or a portion of the Notes that have not
been previously converted at the redemption price equal to 101.15% of the
principal amount. Thereafter the redemption price is equal to 100% of principal
amount. The Notes are non-callable for three years. In the event of a "Change in
Control," as defined in the Notes' Offering Circular, the Holders have the
option of requiring the Company to repurchase any Notes held at a price of 100%
of the principal amount of the Notes plus accrued interest to the date of
repurchase.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Contingencies
On March 8, 2000, the Company acquired docSpace, which is involved in a patent
infringement action with Tumbleweed Communications Corp. The lawsuit relates to
a Tumbleweed patent that describes an apparatus for delivering documents via the
Internet. The Company has denied the allegations of infringement and has
counterclaimed for violations of the antitrust laws and related state law
claims. Both parties have moved for summary judgement. This case is in the
preliminary phase and the Company is not currently able to assess the impact, if
any, on its financial position or results of operations.
The Company is party to various legal proceedings in the ordinary course of its
business. The Company believes that the ultimate outcome of these matters will
not have a material adverse impact on its financial position, results of
operations, or operating cash flow.
NOTE 7 - SHAREHOLDERS' EQUITY
WARRANTS
America Online/ICQ
In January of 1999, the Company entered into an agreement with ICQ, Inc.
("ICQ"), a subsidiary of America Online, Inc., pursuant to which the
Company provides email hosting services that are integrated with ICQ's instant
messaging service provided to ICQ's customers. As part of the agreement, ICQ
agreed to provide sub-branded advertising for the Company in exchange for
warrants to purchase 2,442,766 shares of the Company's Common Stock, issuable
upon attainment of each of five milestones.
As of March 31, 2000, four of the five milestones had been attained.
Aggregate charges to stock-based expenses of $7.9 million and $2.1 million were
recorded during the three-month periods ended March 31, 1999 and 2000,
respectively, related to these warrants. The remaining shares underlying the
fifth milestone were remeasured using the March 31, 2000, closing price of the
Company's Common Stock of $85.00 resulting in a revised aggregate fair value of
all vested and unvested warrants of $94.6 million.
8
<PAGE> 11
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Qwest Communications Corporation
In October of 1999, the Company entered into an agreement with Qwest
Communications Corporation ("Qwest"), a telecommunications company, pursuant to
which the Company provides email hosting services to Qwest's customers. As part
of the agreement, Qwest agreed to provide sub-branded advertising for Critical
Path in exchange for warrants to purchase up to a maximum of 3,534,540 shares of
Common Stock upon attainment of each of six milestones.
As of March 31, 2000, only the first of the six milestones had been attained.
None of the remaining milestones are considered probable and as a result, the
fair value of the warrants relating to the shares underlying the second through
sixth milestones have not been recognized. During the three-month period ended
March 31, 2000, $1.9 million was charged to stock-based expense related to these
vested warrants.
Worldsport Network Ltd.
In December of 1999, the Company entered into an agreement with Worldsport
Network Ltd. ("Worldsport"), the sole and exclusive provider of Internet
solutions for the General Association of International Sports Federations
("GAISF") and a majority of the international federations it recognizes.
Worldsport offers Critical Path's advanced Web-based email and calendaring
services to the entire GAISF network and its members. As part of the agreement,
Worldsport agreed to provide sub-branded advertising for the Company in exchange
for warrants to purchase up to a 1.25% equity interest in the Company on a fully
diluted basis upon attainment of each of five milestones.
As of March 31, 2000, none of the milestones were considered probable and as a
result, the fair value associated with these warrants has not been recognized.
In January of 2000, the docSpace Company entered into an agreement with a major
telecommunications company ("Telco") pursuant to which the docSpace Company
would provide secure messaging services to the Telco's customers. As part of the
agreement, Telco agreed to provide marketing, publicity, and promotional
services to docSpace. As a result of the completion of the Company's acquisition
of docSpace, Critical Path assumed warrants that allowed Telco to purchase up to
a maximum of 349,123 shares of Common Stock upon attainment of each of three
milestones.
Subsequent to the acquisition, the Company entered into discussions with Telco
to modify its relationship. Accordingly, the vesting provisions of the proposed
agreement are being modified to reflect the requirements of the new
relationship.
As of March 31, 2000, none of the vesting milestones had been attained; however,
the Company believes that all shares underlying these warrants are probable of
issuance. As a result, the shares underlying these milestones were remeasured
using the March 31, 2000, closing price of the Company's Common Stock of $85.00,
resulting in a revised fair value of the warrants of $25.9 million. The fair
value of the warrants will be recognized on a straight-line basis over the
greater of the term of the contract or the expected period of benefit of the
strategic relationship. During the three-month period ended March 31, 2000, no
amount has been recognized as stock-based expense related to these warrants.
9
<PAGE> 12
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
COMPREHENSIVE LOSS
The components of comprehensive loss, net of tax, are as follows:
<TABLE>
<CAPTION>
Three months Ended March 31 1999 2000
(In thousands) ---- ----
<S> <C> <C>
Net loss $ (17,594) $(76,942)
Unrealized investment losses - (2,717)
Foreign currency translation adjustments - (168)
---------- ---------
Comprehensive loss $ (17,594) $(79,827)
========== =========
</TABLE>
Accumulated other comprehensive loss consists of unrealized gains (losses) on
available-for-sale securities, net of tax, and cumulative translation
adjustments, as presented on the accompanying consolidated balance sheet.
NOTE 9 - NET LOSS PER SHARE
Net loss per share is calculated as follows:
<TABLE>
<CAPTION>
Three months Ended March 31 1999 2000
(in thousands, except per share amounts) ---- ----
<S> <C> <C>
Net loss $(17,594) $(76,942)
-------- --------
Weighted average shares outstanding 10,405 53,495
Weighted average shares subject
to repurchase agreements (3,394) (1,857)
Weighted average shares held in escrow
related to acquisitions -- (1,068)
-------- --------
Shares used in computation of basic and
diluted loss per share 7,011 50,570
======== ========
Net loss per share - basic and diluted $ (2.51) $ (1.52)
======== ========
</TABLE>
10
<PAGE> 13
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
At March 31, 1999 and 2000, approximately 16.0 million and 31.0 million
potential common shares, respectively, were excluded from the determination of
diluted net loss per share, as the effect of such shares on a weighted average
basis is anti-dilutive.
11
<PAGE> 14
CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of Critical Path, Inc., and Subsidiaries
("Company" or "Critical Path") should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the Company included
herein, as well as the Company's 1999 Annual Report on Form 10-K/A. The
following discussion contains forward-looking statements. The Company's actual
results may differ significantly from those projected in these forward-looking
statements. Factors that might cause future results to differ materially from
those projected in the forward-looking statements include, but are not limited
to, future enhancements of our service and product offerings, potential
expansion of our employee base and operating assets, acquisitions, competition,
development of new strategic relationships, opening of new data centers and
sales offices, additional investments in technology, and those discussed in
"Additional Factors That May Affect Future Operating Results" and elsewhere in
this report. Readers are cautioned not to place undue reliance on these
forward-looking statements. The Company has no obligation to publicly release
the results of any revisions to these forward-looking statements to reflect
events or circumstances after the date of this filing.
OVERVIEW
Critical Path is the leading global provider of complete end-to-end Internet
messaging and collaboration solutions for wireless, Internet-centric,
telecommunication and corporate businesses. Through its allsourcing strategy,
Critical Path is the only advanced messaging provider to offer businesses the
flexibility to outsource, midsource or insource all or part of their messaging
and collaboration applications. Critical Path has built an industry-leading
global infrastructure with data centers connected to key Internet exchange
points. The Company is headquartered in San Francisco, with offices in locations
nationwide and in Canada, Germany, England, Ireland, France, Denmark, Italy,
Switzerland, Brazil and Argentina. The Company was founded in February 1997.
ACQUISITIONS
ISOCOR CORPORATION. On January 19, 2000, the Company acquired ISOCOR Corporation
("ISOCOR"), a leading supplier of Internet messaging, directory and
meta-directory software solutions. The acquisition was accounted for using the
purchase method of accounting and accordingly, the purchase price was allocated
to the tangible and intangible net assets acquired on the basis of their
respective fair values on the acquisition date. The fair value of intangible
assets was determined based upon an independent valuation using a combination of
methods, including an income approach for the acquired existing and in-process
technologies and the customer base, and a replacement cost approach for the
value of the assembled workforce.
The total purchase price of approximately $274.9 million consisted of $226.7
million of the Company's Common Stock (5,043,054 shares), assumed stock options
with a fair value of $37.2 million, and other acquisition related expenses of
approximately $11.0 million, consisting primarily of payments for financial
advisory and other professional fees. Of the total purchase price, $18.7 million
was allocated to net tangible assets, and the remainder was allocated to
intangible assets, including in-process technology ($200,000), existing
technology ($18.3 million), customer base ($9.8 million), assembled workforce
($3.4 million) and goodwill ($224.5 million). The acquired in-process technology
was recognized as research and development expense in the period the transaction
was consummated. The fair value of the other acquired intangible assets,
excluding goodwill, was capitalized and is being amortized over their estimated
useful lives of three years. Goodwill is being amortized using the straight-line
method over three years.
THE DOCSPACE COMPANY. On March 8, 2000, the Company acquired all outstanding
stock of The docSpace Company ("docSpace"), a provider of Web-based services for
secure file delivery, storage and collaboration. The acquisition was accounted
for using the purchase method of accounting and accordingly, the purchase price
was allocated to the tangible and intangible assets acquired on the basis of
their respective fair values on the acquisition date. The fair value of
intangible assets was determined based upon an independent valuation using a
combination of methods, including a cost approach for the acquired existing
technology, and the replacement cost approach for the value of the assembled
workforce.
The total purchase price of $258.0 million consisted of $30.0 million cash,
Common Stock (3,805,820 shares) valued at $218.0 million, and other acquisition
costs of approximately $10.0 million. Of the total purchase price, approximately
$7.1 million has been allocated to net tangible liabilities and the remainder
has been allocated to intangible assets, including assembled workforce
($500,000), existing technology ($21.5 million), and goodwill ($243.1 million).
The fair value of the acquired intangible assets, excluding goodwill, was
capitalized and is being amortized over their estimated useful lives of three
years. Goodwill is being amortized using the straight-line method over three
years.
REMARQ COMMUNITIES, INC. On March 30, 2000, the Company acquired all outstanding
stock of RemarQ Communities, Inc. ("RemarQ"), a provider of Internet
collaboration services for corporations, Web portals and Internet service
providers. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the tangible and
intangible assets acquired on the basis of their respective fair values on the
acquisition date. The total purchase price of approximately $267.6 million
consisted of Common Stock (3,868,450 shares) valued at $259.3 million, assumed
stock options valued at approximately $7.7 million, and other acquisition
related expenses of approximately $600,000. Of the total purchase price,
approximately $7.8 million has been allocated to net tangible assets and the
remainder was allocated to intangible assets, including existing technology
($4.5 million), assembled workforce ($3.3 million), customer base ($5.9
million), and goodwill totaling approximately ($246.1 million). The fair value
of the acquired intangible assets, excluding goodwill, was capitalized and is
being amortized over their
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
estimated useful lives of two to three years. Goodwill is being amortized using
the straight-line method over three years.
WARRANTS
America Online/ICQ. In January of 1999, the Company entered into an agreement
with ICQ, Inc. ("ICQ"), a subsidiary of America Online, Inc., pursuant to which
the Company provides email hosting services that are integrated with ICQ's
instant messaging service provided to ICQ's customers. As part of the agreement,
ICQ agreed to provide sub-branded advertising for the Company in exchange for
warrants to purchase 2,442,766 shares of Series B Preferred Stock, issuable upon
attainment of each of five milestones.
As of March 31, 2000, four of the five milestones had been attained. Aggregate
charges to stock-based expenses of $7.9 million and $2.1 million were recorded
during the three-month periods ended March 31, 1999 and 2000, respectively,
related to these warrants. The remaining shares underlying the fifth milestone
were remeasured using the March 31, 2000, closing price of the Company's Common
Stock of $85.00 resulting in a revised aggregate fair value of all vested and
unvested warrants of $94.6 million.
Qwest Communications Corporation. In October of 1999, the Company entered into
an agreement with Qwest Communications Corporation ("Qwest"), a
telecommunications company, pursuant to which the Company provides email hosting
services to Qwest's customers. As part of the agreement, Qwest agreed to provide
sub-branded advertising for Critical Path in exchange for warrants to purchase
up to a maximum of 3,534,540 shares of Common Stock upon attainment of each of
six milestones.
As of March 31, 2000, only the first of the six milestones had been attained.
None of the milestones are considered probable and as a result, the fair value
of the warrants relating to the shares underlying the second through sixth
milestones have not been recognized. During the three-month period ended March
31, 2000, $1.9 million was charged to stock-based expense related to these
vested warrants.
Worldsport Network Ltd. In December of 1999, the Company entered into an
agreement with Worldsport Network Ltd. ("Worldsport"), the sole and exclusive
provider of Internet solutions for the General Association of International
Sports Federations ("GAISF") and a majority of the international federations it
recognizes. Worldsport offers Critical Path's advanced Web-based email and
calendaring services to the entire GAISF network and its members. As part of the
agreement, Worldsport agreed to provide sub-branded advertising for the Company
in exchange for warrants to purchase up to a 1.25% equity interest in the
Company on a fully diluted basis upon attainment of each of five milestones.
As of March 31, 2000, none of the milestones were considered probable and as a
result, the fair value associated with these warrants has not been recognized.
In January of 2000, the docSpace Company entered into an agreement with a major
telecommunications company ("Telco"), pursuant to which the docSpace Company
would provide secure messaging services to the Telco's customers. As part of the
agreement, Telco agreed
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
to provide marketing, publicity, and promotional services to docSpace. As a
result of the completion of the Company's acquisition of docSpace, Critical Path
assumed warrants that allowed Telco to purchase up to a maximum of 349,123
shares of Common Stock upon attainment of each of three milestones.
Subsequent to the acquisition, the Company entered into discussions with Telco
to modify its relationship. Accordingly, the vesting provisions of the proposed
agreement are being modified to reflect the requirements of the new
relationship.
As of March 31, 2000, none of the vesting milestones had been attained; however,
the Company believes that all shares underlying these warrants are probable of
issuance. As a result, the shares underlying these milestones were remeasured
using the March 31, 2000, closing price of the Company's Common Stock of $85.00,
resulting in a revised fair value of the warrants of $25.9 million. The fair
value of the warrants will be recognized on a straight-line basis over the
greater of the term of the contract or the expected period of benefit of the
strategic relationship. During the three-month period ended March 31, 2000, no
amount has been recognized as stock-based expense related to these warrants.
The Company believes that each of its warrant agreements could have a
significant current and potential future impact on the Company's results of
operations. The Company expects that future changes in the trading price of the
Company's Common Stock at the end of each quarter, and at the time certain
milestones are considered probable and achieved, may cause additional
substantial changes in the ultimate amount of the related stock-based charges.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In view of the rapidly evolving nature of the Company's business, recent
acquisitions, and limited operating history, the Company believes that
period-to-period comparisons of revenues and operating results, including gross
profit margin and operating expenses as a percentage of total net revenues, are
not meaningful and should not be relied upon as indications of future
performance. At March 31, 2000, the Company had 921 employees, in comparison
with 488 employees at December 31, 1999 and 182 at March 31, 1999. The Company
does not believe that its historical growth rates for revenue, expenses, or
personnel are indicative of future results.
NET REVENUES
Net revenues increased to $24.6 million during the first quarter of 2000 from
$1.0 million during the same period in 1999. In addition to the impact from the
Company's acquisitions, this increase in net revenue resulted from a substantial
increase in the number of email boxes the Company hosted during the first
quarter of 2000 in comparison with the first quarter of the previous year. The
Company also recognized $11.1 million from licensing its software products
during the first quarter of 2000 as compared to no license revenues in the first
quarter of 1999. The Company's international operations accounted for
approximately 50% of net revenues during the first quarter of 2000.
In connection with certain customer contracts executed in 1998, the Company
granted warrants and stock purchase rights to purchase Series B Convertible
Preferred Stock. The fair value of these warrants and stock purchase rights,
determined using the Black-Scholes option-pricing model, was recognized ratably
as a sales discount over the terms of the respective agreements. Amortization of
this discount amounted to $106,000 for the first quarter of 1999, and had no
impact on the first quarter of 2000.
COST OF NET REVENUES
Services. Cost of net services revenues consists primarily of costs incurred in
the delivery and support of messaging services, including depreciation of
capital equipment used in network infrastructure, amortization of purchased
technology, Internet connection charges, accretion of acquisition-related
retention bonuses, personnel costs incurred in operations, customer support
functions and professional services including custom engineering, installation
and training services, and other direct and allocated indirect costs.
Licenses. Cost of net license revenues consists primarily of product
media duplication, manuals and packaging materials, personnel and facility costs
associated with the assembly operation, and third-party royalties relating to
licensed technology.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
During the first quarter of 2000, total cost of net revenues was $18.3 million,
or 75% of net revenues, in comparison with costs of $2.4 million, or 225% of net
revenues, for the first quarter of 1999. During the first quarter of 2000, the
Company added eight new hosted mail clusters to its data centers, expanding the
capacity of its hosting network to manage it current customer needs and
anticipated growth. Additional costs were incurred during the first quarter of
2000 to add technology platforms for new service offerings. As a result of these
significant acquisitions of equipment, depreciation expense for such equipment
during the first quarter of 2000 increased substantially in comparison with the
same quarter in 1999.
Cost of net revenues was also impacted by the increased compensation and other
personnel costs resulting from the additional headcount added through the
Company's eight acquisitions completed during the last 12 month period, and
through its continued efforts to enhance its complete end-to-end messaging
services. Operations, customer support, and professional services staff
increased from 50 employees at March 31, 1999, to 304 employees at March 31,
2000.
During the quarter ended March 31, 2000, the Company recognized stock-based
charges associated with employee stock options in the amount of $493,000. In
addition, charges associated with amortization of acquired technology and
acquisition-related retention bonuses in the amounts of $2.1 million and
$390,000, respectively, were also recognized in cost of net revenues during the
first quarter of 2000.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation for sales and marketing personnel, advertising, public relations,
other promotional costs, and, to a lesser extent, related overhead. Sales and
marketing expenses during the quarter ended March 31, 2000, amounted to $13.6
million, or 55% of net revenues, in comparison with approximately $2.0 million,
or 189% of net revenues, during the first quarter in 1999. Increases in
marketing and promotional expenses, incentive compensation payments to sales
personnel, and increases in compensation associated with additional headcount
accounted for the increase in sales and marketing expenses. Sales and marketing
staff increased from 61 employees to 282 employees at March 31, 1999 and 2000,
respectively.
Research and Development. Research and development expenses consist primarily
of compensation for technical staff, payments to outside contractors, and, to a
lesser extent, related overhead. The Company recognizes research and development
expenses, including in-process research and development costs, as they are
incurred. Research and development expenses amounted to $6.3 million, or 26% of
net revenues, during the quarter ended March 31, 2000, in comparison with $1.4
million, or 131% of net revenues, for the first quarter of 1999.
These significant increases resulted primarily from increases in personnel as
the Company continues to develop and enhance its messaging service and product
offerings and to develop new electronic messaging services and products.
Research and development staff increased from 52 employees to 209 employees at
March 31, 1999 and 2000, respectively.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
General and Administrative. General and administrative expenses consist
primarily of compensation for personnel, fees for outside professional
services, occupancy costs and, to a lesser extent, related overhead. General and
administrative expenses amounted to approximately $6.8 million, or 28% of net
revenues, during the quarter ended March 31, 2000, in comparison with $1.6
million, or 148% of net revenues, during the first quarter of 1999. These
increases were attributable primarily to increases in compensation associated
with additional headcount and higher fees for outside professional services.
General and administrative staff increased from 19 employees to 126 employees at
March 31, 1999 and 2000, respectively.
Acquisition-Related Bonus Program
In connection with the acquisitions of dotOne Corporation ("dotOne"), Amplitude
Software Corporation ("Amplitude"), Xeti, Inc. ("Xeti"), FaxNet Corporation
("FaxNet"), ISOCOR, and docSpace, the Company established a retention bonus
program in the aggregate amount of $20.7 million to provide incentives for
certain former employees of these companies to continue their employment with
Critical Path. Payment of bonuses to the listed employees will occur one year
following the date of acquisition, unless the listed employees voluntarily
terminate their employment with the Company prior to the respective
acquisition's one-year anniversary. The aggregate amount of the eligible bonuses
is reduced for the bonus amount allocated to each former dotOne, Amplitude,
FaxNet, ISOCOR, and docSpace employee that chooses to terminate his or her
employment with the Company. A ratable share of the adjusted eligible bonus
amount will be accrued and charged to compensation expense over the respective
12-month period commencing on the date the bonuses are granted. As of March 31,
2000, the aggregate, adjusted eligible bonus amount was $18.3 million, and the
amount recognized as compensation expense was $3.1 million during the three
months then ended. Based on the functions of the employees scheduled to receive
acquisition-related retention bonuses, $390,000 of the compensation charge was
allocated to cost of net revenues and the remaining $2.7 million was allocated
to operating expenses.
Amortization of Intangible Assets
In connection with its acquisitions of the Connect Service business of Fabrik
Communications ("Fabrik"), dotOne, Amplitude, Xeti, FaxNet, ISOCOR, docSpace and
RemarQ accounted for under the purchase method of accounting, the Company
recorded goodwill and other intangible assets representing the excess of the
purchase price paid over the fair value of net assets acquired. Other intangible
assets primarily include assembled workforce, customer base and existing
technology. The aggregate amortization of these intangibles was $49.8 million
during the first quarter of 2000. There were no acquisitions during the first
quarter of 1999. The Company anticipates that future amortization of intangibles
associated with its 1999 and first quarter 2000 acquisitions will continue to be
amortized on a straight-line basis over their expected useful lives ranging from
two to eight years.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
It is likely that the Company will continue to expand its business through
acquisitions and internal development. Any additional acquisitions or impairment
of goodwill and other purchased intangibles could result in additional merger
and acquisition related costs.
Stock-Based Expenses
In connection with certain stock option grants and Common Stock issuances during
the years ended December 31, 1998 and 1999, the Company recognized unearned
compensation totaling $19.9 million and $22.3 million, respectively, which is
being amortized over the vesting periods of the related options. Amortization
expense recognized during the first quarters of 1999 and 2000 totaled
approximately $3.7 million and $3.2 million, respectively. Approximately
$446,000 and $493,000 of amortized unearned compensation was allocated to cost
of net revenues, and the remaining $3.2 million and $2.7 million was amortized
to operating expenses for the quarters ended March 31, 1999 and 2000,
respectively.
The Company incurred stock-based expenses for warrants the Company granted to
ICQ (a subsidiary of AOL), Qwest, AT&T and a lessor and for Common Stock issued
to one other strategic partner. Amortization of the fair value of these warrants
and Common Stock resulted in stock-based expenses of approximately $8.4 million
and $4.0 million for the quarters ended March 31, 1999 and 2000, respectively.
The decrease in amortization expense during the period resulted from the
decrease in the market price of the Company's Common Stock as of March 31, 2000.
Interest and Other Income and Interest Expense
Interest and other income consists primarily of interest earnings on cash and
cash equivalents as well as net realized gains (losses) on foreign exchange
transactions. Interest income amounted to $351,000 million and $1.1 million
during the quarters ended March 31, 1999 and 2000, respectively. The Company
completed private placements of equity securities in April 1998, September 1998,
and January 1999, and closed public offerings of Common Stock in April 1999 and
June 1999. As a result, interest income increased significantly during the
latter half of 1999 and into 2000 in comparison with early 1999 due to higher
cash balances available for investing. The Company also recognized net realized
gains from foreign exchange transactions associated with its international
operations in the amount of $170,000 during the first quarter of 2000.
During the quarters ended March 31, 1999 and 2000, the Company incurred interest
expense on capital lease obligations and stock-based charges in the amount of
$64,000 and $274,000, respectively, of which $48,000 and $258,000 related to the
amortization of stock-based charges and the remainder to interest payments on
capital lease obligations. The Company expects to incur significant interest
charges on a quarterly basis on the amounts outstanding under its $300 million
five-year, 5.75% Convertible Subordinated Notes due April 1, 2005, issued on
March 30, 2000.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Income Taxes
No provision for federal or state income taxes has been recorded as the Company
has incurred net operating losses from its inception through March 31, 2000. The
Company recognized a provision for foreign income taxes during the first quarter
of 2000 in the amount of $360,000 as certain of the Company's European
operations generated income taxable in certain jurisdictions. As of December 31,
1999, the Company had approximately $94.9 million of federal and state net
operating loss carryforwards, which expire in varying amounts through 2019 and
2005, respectively, available to offset future taxable income. Under the Tax
Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. For example,
the amount of net operating losses that the Company may utilize in any one year
would be limited in the presence of a cumulative ownership change of more than
50% over a three-year period. At December 31, 1999, the Company also had
research and development credit carryforwards of approximately $1.2 million and
$717,000 for federal and state purposes, respectively. These research and
development credit carryforwards begin to expire through 2019 for federal
purposes, and do not expire for state purposes. Because there is significant
doubt as to whether the Company will realize any benefit from this deferred tax
asset, the Company has established a full valuation allowance as of December 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company invests excess cash primarily in money market funds and other
highly liquid securities with maturities of less than 90 days with the intent
to make such funds readily available for operating purposes. During the quarter
ended March 31, 2000, the Company's cash and cash equivalents increased by
approximately $272.1 million.
For the quarter ended March 31, 2000, the Company used $17.3 million in cash to
fund operating activities primarily due to its net loss adjusted for non-cash
costs, notably the amortization of intangibles resulting from the Company's
acquisitions. For the quarter ended March 31, 1999, the Company used $4.6
million to fund operating activities primarily due to its net loss adjusted for
non-cash costs, notably the amortization of unearned compensation resulting from
the issuance of warrants and other stock-based compensation arrangements.
Cash used in investing activities during the quarter ended March 31, 2000, was
approximately $3.7 million. The Company disbursed $11.0 million to purchase
property and equipment. Installation of network infrastructure equipment in the
Company's data centers, licenses of new software platforms, and purchases of
furniture and equipment for new employees accounted for the significant increase
in capital expenditures. The Company expects that investments in property and
equipment will continue to grow as the Company seeks to increase its capacity to
provide end-to-end messaging and collaboration services. In addition, the
Company completed its acquisitions of ISOCOR, docSpace and RemarQ during the
first quarter of 2000, and as a result, expended approximately $5.5 million in
cash proceeds and other acquisition costs, net of cash received. Furthermore,
the Company advanced approximately $100,000 to an officer pursuant to a
promissory note. These uses of cash were offset by the receipt of $10.0 million
previously advanced to a privately-held company pursuant to a promissory note.
During the first quarter of 1999, the Company issued $170,000 in notes to
certain officers of the Company and capital expenditures totaled $659,000.
Cash from financing activities during the quarter ended March 31, 2000, was
$293.3 million. The Company received $290.3 million in net proceeds from the
sale of its $300 million five-year, 5.75% Convertible Subordinated Notes due
April 2005, as well as approximately $3.9 million from the exercise of stock
options. These increases were offset by payments totaling $823,000 to retire
principal on capital lease obligations. During the quarter ended March 31,
1999, the Company completed the second round of the Series B Convertible
Preferred Stock financing through the issuance of approximately 3.2 million
shares, including 454,544 shares issued pursuant to outstanding stock purchase
rights, for net proceeds of $12.5 million. Also in January 1999, the Company
sold 1,090,909 shares of Common Stock for net proceeds of $1.3 million. In
addition, the Company paid $898,000 to retire principal on capital lease
obligations and $227,000 to purchase treasury stock.
The Company currently has no material commitments other than those under
operating lease arrangements. The Company has experienced a substantial
increase in its capital expenditures and operating lease arrangements since its
inception and anticipates that this will continue in the future. The Company
expects to incur capital expenditures of approximately $25.0 million during the
remaining nine months of 2000, including significant cash expenditures in
connection with its financial accounting integration system.
Additionally, the Company will continue to evaluate possible acquisitions of,
or investments in, businesses, products and technologies that are complementary
to those of the Company, which may require the use of cash. In the first
quarter of 2000, the company completed its acquisitions of ISOCOR, docSpace and
RemarQ and as a result, expended approximately $46.6 million in cash consisting
of approximately $25.0 million in consideration and $21.6 million in other
acquisition costs, consisting primarily of financial advisory and other
professional fees. The Company expects that future acquisitions of businesses
and other strategic assets will require considerable outlays of capital.
Management believes that existing capital resources will enable it to maintain
current and planned operations for at least the next 12 months. However,
operating and investing activities on a long-term basis may require the Company
to seek additional equity or debt financing.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND
FACE RISKS ASSOCIATED WITH EARLY STAGE COMPANIES THAT MAY ADVERSELY AFFECT OUR
BUSINESS.
Because we have had a limited operating history, it is difficult to evaluate our
business and we may face various risks, expenses and difficulties associated
with early stage companies. You should consider the risks, expenses and
difficulties that we may encounter when making your investment decision. These
risks include our ability to:
- Acquire businesses and technologies;
- Integrate the operations of the companies that we have recently
acquired;
- Manage growing domestic and international operations;
- Create and maintain strategic relationships;
- Expand sales and marketing activities;
- Expand our customer base and retain key clients;
- Introduce new services;
- Compete in a highly competitive market;
- Upgrade our systems and infrastructure to handle any increases in
messaging traffic;
- Reduce service interruptions; and
- Recruit and retain key personnel.
WE HAVE A HISTORY OF LOSSES, EXPECT CONTINUING LOSSES AND WE MAY NEVER ACHIEVE
PROFITABILITY.
As of March 31, 2000, we had an accumulated deficit of approximately $206.4
million. We have not achieved profitability in any period, and expect to
continue to incur net losses for the foreseeable future. We expect that our
operating expenses will increase as we spend resources on building our business
and that this increase may have a negative effect on operating results and
financial condition in the near term.
We have spent heavily on technology and infrastructure development. We expect to
continue to spend substantial financial and other resources on developing and
introducing new end-to-end Internet messaging and collaboration solutions, and
expanding our sales and marketing organizations, strategic relationships and
operating infrastructure. We expect that our cost of revenues, sales and
marketing expenses, general and administrative expenses, operations and customer
support expenses, and depreciation and amortization expenses will continue to
increase in absolute dollars and may increase as a
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
percent of revenues. If revenues do not correspondingly increase, our operating
results and financial condition could be negatively affected. Should we continue
to incur net losses in future periods, we may not be able to increase the number
of employees or investment in capital equipment, sales and marketing programs,
and research and development in accordance with our present plans. We may never
obtain sufficient revenues to achieve profitability. If we do achieve
profitability, we may not sustain or increase profitability in the future. This
may, in turn, cause our stock price to decline.
DUE TO OUR LIMITED OPERATING HISTORY AND THE EMERGING NATURE OF THE INTERNET
MESSAGING AND COLLABORATION SOLUTIONS MARKET, FUTURE REVENUES ARE UNPREDICTABLE,
AND OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.
We cannot accurately forecast our revenues as a result of our limited operating
history and the emerging nature of the Internet messaging and collaboration
solutions market. Our revenues could fall short of expectations if we experience
delays or cancellations of even a small number of orders. We often offer
volume-based pricing, which may affect operating margins. A number of factors
are likely to cause fluctuations in operating results, including, but not
limited to:
- Continued growth of the Internet in general and of messaging and
collaboration usage in particular;
- Demand for outsourced messaging services;
- Demand for licensing of messaging, directory, and other products;
- Our ability to attract and retain customers and maintain customer
satisfaction;
- Our ability to upgrade, develop and maintain our systems and
infrastructure;
- The amount and timing of operating costs and capital expenditures
relating to expansion of business and infrastructure;
- Technical difficulties or system outages;
- The announcement or introduction of new or enhanced services by
competitors;
- Our ability to attract and retain qualified personnel with Internet
industry expertise, particularly sales and marketing personnel;
- The pricing policies of competitors;
- Failure to increase international sales; and
- Governmental regulation surrounding the Internet and messaging in
particular.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
In addition to the factors set forth above, operating results will be impacted
by the extent to which we incur non-cash charges associated with stock-based
arrangements with employees and non-employees. In particular, we have incurred
and expect to continue to incur substantial non-cash charges associated with the
grant of warrants to our customers and other parties with which we have
commercial relationships. For example, we recognized a $2.1 million non-cash
charge to advertising expense during the first quarter of 2000 in connection
with the amortization of a warrant to ICQ, a subsidiary of America Online.
Period-to-period comparisons of operating results are not a good indication of
future performance. It is likely that operating results in some quarters will be
below market expectations. In this event, the price of our Common Stock is
likely to decline.
FURTHER ACQUISITIONS COULD RESULT IN DILUTION, OPERATING DIFFICULTIES AND OTHER
CONSEQUENCES.
We expect to acquire or invest in additional businesses, products, services and
technologies that complement or augment our service offerings and customer base.
Since January 1999, we have completed the acquisition of eight companies for an
aggregate consideration consisting of cash, Common Stock and the assumption of
stock options and warrants totaling approximately $1.3 billion.
We are currently engaged in discussions with a number of companies regarding
strategic acquisitions or investments. Although these discussions are ongoing,
we have not signed any definitive agreements, and cannot assure you that any of
these discussions will result in actual acquisitions. To be successful, we will
need to identify suitable acquisition candidates, integrate disparate
technologies and corporate cultures and manage a geographically dispersed
company. We cannot assure you that we will be able to do this successfully.
Acquisitions could divert attention from other business concerns and could
expose us to unforeseen liabilities. In addition, we may lose key employees
while integrating any new companies.
We expect to pay for acquisitions by issuing additional Common Stock, which
would dilute current shareholders. We may also use cash to make acquisitions. It
may be necessary for us to raise additional funds through public or private
financings. We cannot assure you that we will be able to raise additional funds
at any particular point in the future or on favorable terms. In addition, we may
be required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions, which would materially increase
operating expenses.
WE WILL FACE TECHNICAL, OPERATIONAL AND STRATEGIC CHALLENGES THAT MAY PREVENT US
FROM SUCCESSFULLY INTEGRATING REMARQ, DOCSPACE, ISOCOR, FAXNET, XETI, AMPLITUDE,
DOTONE AND FABRIK.
Acquisitions involve risks related to the integration and management of acquired
technology, operations and personnel. The integration of RemarQ, docSpace,
ISOCOR, FaxNet, Xeti, Amplitude, dotOne, and Fabrik Communications into our
business has been and will be a complex, time consuming and expensive process
and may disrupt our business if not completed in a timely
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
and efficient manner. We must operate as a combined organization utilizing,
common information and communication systems, operating procedures, financial
controls and human resources practices. In particular, we are currently
evaluating, upgrading or replacing our financial information systems and
establishing uniformity among the systems of the acquired businesses. We may
encounter substantial difficulties, costs and delays involved in integrating the
operations of our subsidiaries, including:
- potential incompatibility of business cultures;
- perceived adverse changes in business focus;
- potential conflicts in sponsor, advertising or strategic
relationships; and
- the loss of key employees and diversion of the attention of management
from other ongoing business concerns.
Consequently, we may not be successful in integrating acquired businesses or
technologies and may not achieve anticipated revenue and cost benefits. We also
cannot guarantee that these acquisitions will result in sufficient revenues or
earnings to justify our investment in, or expenses related to, these
acquisitions or that any synergies will develop. If we fail to execute our
acquisition strategy successfully for any reason, our business will suffer
significantly.
WE HAVE EXPERIENCED RAPID GROWTH THAT HAS PLACED A STRAIN ON RESOURCES AND OUR
FAILURE TO MANAGE GROWTH COULD CAUSE OUR BUSINESS TO SUFFER.
We have expanded our operations rapidly and intend to continue this expansion.
The number of our employees increased from 93 on December 31, 1998 to 921 on
March 31, 2000. This expansion has placed, and is expected to continue to place,
a significant strain on managerial, operational and financial resources. To
manage any further growth, we will need to improve or replace our existing
operational, customer service and financial systems, procedures and controls.
Any failure to properly manage these systems and procedural transitions could
impair our ability to attract and service customers, and could cause us to incur
higher operating costs and delays in the execution of our business plan. We will
also need to continue the expansion of our operations and employee base. Our
management may not be able to hire, train, retain, motivate and manage required
personnel. In addition, our management may not be able to successfully identify,
manage and exploit existing and potential market opportunities. If we cannot
manage growth effectively, our business and operating results could suffer.
IF WE FAIL TO EXPAND SALES AND MARKETING ACTIVITIES, WE MAY BE UNABLE TO EXPAND
OUR BUSINESS.
Our ability to increase revenues will depend on our ability to successfully
recruit, train and retain sales and marketing personnel. We plan to continue to
invest significant resources to expand our sales and marketing organizations.
Competition for additional qualified personnel is intense and we may not be able
to hire and retain personnel with relevant experience.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The complexity and implementation of our Internet messaging services require
highly trained sales and marketing personnel to educate prospective customers
regarding the use and benefits of our services. Current and prospective
customers, in turn, must be able to educate their end-users. With our relatively
brief operating history and our plans for expansion, we have considerable need
to recruit, train and retain qualified staff. Any delays or difficulties
encountered in these staffing efforts would impair our ability to attract new
customers and to enhance our relationships with existing customers. This in turn
would adversely impact the timing and extent of revenues. Because the majority
of our sales and marketing personnel have recently joined us and have limited
experience working together, our sales and marketing organizations may not be
able to compete successfully against the larger and more experienced sales and
marketing organizations of our competitors. If we do not successfully expand
sales and marketing activities, our business could suffer and our stock price
could decline.
UNPLANNED SYSTEM INTERRUPTIONS AND CAPACITY CONSTRAINTS COULD REDUCE OUR ABILITY
TO PROVIDE MESSAGING AND COLLABORATION SERVICES AND COULD HARM OUR BUSINESS AND
REPUTATION.
Our customers have in the past experienced some interruptions in our messaging
service. We believe that these interruptions will continue to occur from time to
time. These interruptions are due to hardware failures, unsolicited bulk email,
or "spam," attacks and operating system failures. For example, in January 2000,
our customers experienced a service interruption due to an operating system
failure. Our revenues depend on the number of end-users who use our messaging
services. Our business will suffer if we experience frequent or long system
interruptions that result in the unavailability or reduced performance of
systems or networks or reduce our ability to provide email services. We expect
to experience occasional temporary capacity constraints due to sharply increased
traffic, which may cause unanticipated system disruptions, slower response
times, impaired quality and degradation in levels of customer service. If this
were to continue to happen, our business and reputation could suffer
dramatically.
We have entered into service agreements with some customers that require minimum
performance standards, including standards regarding the availability and
response time of messaging services. If we fail to meet these standards, our
customers could terminate their relationships with us and we could be subject to
contractual monetary penalties. Any unplanned interruption of services may
adversely affect our ability to attract and retain customers.
IF WE DO NOT SUCCESSFULLY ADDRESS THE RISKS INHERENT IN THE EXPANSION OF OUR
INTERNATIONAL OPERATIONS, OUR BUSINESS COULD SUFFER.
We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. If revenues from
international operations do not exceed the expense of establishing and
maintaining these operations, our business, financial condition and operating
results will suffer. At present, we have international operations in Canada,
Argentina, Brazil, Denmark, France, Germany, Ireland, Italy, Switzerland and the
United Kingdom and for the three months ended March 31, 2000 we derived
approximately 50% of our revenues from international sales. We have limited
experience in international operations and may not be able to compete
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
effectively in international markets. We face certain risks inherent in
conducting business internationally, such as:
- Unexpected changes in regulatory requirements including U.S. export
restrictions on encryption technologies;
- Difficulties and costs of staffing and managing international
operations;
- Differing technology standards;
- Difficulties in collecting accounts receivable and longer collection
periods;
- Political and economic instability;
- Fluctuations in currency exchange rates;
- Imposition of currency exchange controls;
- Potentially adverse tax consequences; and
- Reduced protection for intellectual property rights in some countries.
Any of these factors could adversely affect international operations and,
consequently, business and operating results. Specifically, failure to
successfully manage international growth could result in higher operating costs
than anticipated, or could delay or preclude altogether our ability to generate
revenues in key international markets.
WE DEPEND ON STRATEGIC RELATIONSHIPS AND OTHER SALES CHANNELS AND THE LOSS OF
ANY STRATEGIC RELATIONSHIPS COULD HARM OUR BUSINESS AND HAVE AN ADVERSE IMPACT
ON REVENUES.
We depend on strategic relationships to expand distribution channels and to
undertake joint product development and marketing efforts. Our ability to
increase revenues depends upon marketing services through new and existing
strategic relationships. We have entered into written agreements with ICQ (a
subsidiary of America Online), E*TRADE, Network Solutions, Sprint, MCI Worldcom
and US West, among others. We depend on a broad acceptance of outsourced
messaging services on the part of potential partners and acceptance of our
company as the supplier for these outsourced messaging services. We also depend
on joint marketing and product development through strategic relationships to
achieve market acceptance and brand recognition. For example, through our
relationship with E*TRADE, we can conduct shared advertising campaigns and
include messaging services in E*TRADE's international strategic relationships.
Our agreements with strategic partners typically do not restrict them from
introducing competing services. These agreements typically are for terms of one
to three years, and automatically renew for additional one-year periods unless
either party gives prior notice of its intention to terminate the agreement. In
addition, these agreements are terminable by our partners without cause, and
some agreements are terminable by us, upon 30-120 days' notice. Most of the
agreements also provide for the partial refund of fees paid or other monetary
penalties in the event that our services fail to meet defined minimum
performance standards. Distribution partners may choose not to renew existing
arrangements on commercially acceptable terms, or at all. If we lose any
strategic relationships, fail to renew these agreements or relationships or fail
to develop new strategic relationships, business will suffer. The loss of any
key strategic relationships would have an adverse impact on current and future
revenue. In addition to strategic relationships, we also depend on the ability
of our customers to sell and market our services to their end-users.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
WE MAY NOT BE ABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE OF THE INTERNET
MESSAGING AND COLLABORATION INDUSTRY.
The Internet messaging industry is characterized by rapid technological change,
changes in user and customer requirements and preferences, and the emergence of
new industry standards and practices that could render our existing services,
proprietary technology and systems obsolete. We must continually improve the
performance, features and reliability of our services, particularly in response
to competitive offerings. Our success depends, in part, on our ability to
enhance our existing email and messaging services and to develop new services,
functionality and technology that address the increasingly sophisticated and
varied needs of prospective customers. If we don't properly identify the feature
preferences of prospective customers, or if we fail to deliver email features
that meet the standards of these customers, our ability to market our service
successfully and to increase revenues could be impaired. The development of
proprietary technology and necessary service enhancements entail significant
technical and business risks and require substantial expenditures and lead-time.
We may not be able to keep pace with the latest technological developments. We
may also be unable to use new technologies effectively or adapt services to
customer requirements or emerging industry standards.
IF OUR SYSTEM SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER.
A fundamental requirement for online communications is the secure transmission
of confidential information over public networks. Third parties may attempt to
breach our security or that of our customers. If these attempts are successful,
customers' confidential information, including customers' profiles, passwords,
financial account information, credit card numbers or other personal information
could be breached. We may be liable to our customers for any breach in security
and a breach could harm our reputation. We rely on encryption technology
licensed from third parties. Although we have implemented network security
measures, our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays or
loss of data. We may be required to expend significant capital and other
resources to license encryption technology and additional technologies to
protect against security breaches or to alleviate problems caused by any breach.
Failure to prevent security breaches may have a material adverse effect on
business and operating results.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
WE WILL CONTINUE TO DEPEND ON BROAD MARKET ACCEPTANCE FOR OUTSOURCED
INTERNET-BASED EMAIL SERVICE.
The market for outsourced Internet-based email service is new and rapidly
evolving. Concerns over the security of online services and the privacy of users
may inhibit the growth of the Internet and commercial online services. We cannot
estimate the size or growth rate of the potential market for our service
offerings, and we do not know whether our service will achieve broad market
acceptance. To date a substantial portion of our revenues have been derived from
sales of email service offerings and we currently expect that email service
offerings will account for a substantial portion of our revenues for the
foreseeable future. We depend on the widespread acceptance and use of
outsourcing as an effective solution for email. If the market for outsourced
email fails to grow or grows more slowly than we currently anticipate, our
business would suffer dramatically.
WE EXPECT THE MESSAGING SERVICES MARKET WILL BE VERY COMPETITIVE AND WE WILL
NEED TO COMPETE SUCCESSFULLY IN THIS MARKET.
We expect that the market for Internet-based email service will be intensely
competitive. In addition to competing with companies that develop and maintain
in-house solutions, we compete with email service providers, such as USA.NET,
Inc. and mail.com, and with product-based companies, such as Software.com, Inc.
and Lotus Development Corporation. We believe that competition will increase and
that companies such as Microsoft, which currently offers email products
primarily to Internet service providers that provide access to the Internet; web
hosting companies; web sites intended to be major starting sites for users when
they connect to the Internet, commonly referred to as web portals; and
corporations may leverage their existing relationships and capabilities to offer
email services.
We believe competition will increase as current competitors increase the
sophistication of their offerings and as new participants enter the market. Many
current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we do and may enter into strategic or
commercial relationships with larger, more established and better-financed
companies. Further, any delays in the general market acceptance of the email
hosting concept would likely harm our competitive position. Any delay would also
allow competitors additional time to improve their service or product offerings,
and provide time for new competitors to develop email service solutions and
solicit prospective customers within our target markets. Increased competition
could result in pricing pressures, reduced operating margins and loss of market
share, any of which could cause our business to suffer.
IF WE DO NOT SUCCESSFULLY ADDRESS SERVICE DESIGN RISKS, OUR REPUTATION COULD BE
DAMAGED AND OUR BUSINESS AND OPERATING RESULTS COULD SUFFER.
We must accurately forecast the features and functionality required by target
customers. In addition, we must design and implement service enhancements that
meet customer requirements in a timely and efficient manner. We may not
successfully determine customer requirements and may be unable to satisfy
customer demands. Furthermore, we may not be able to design and implement a
service incorporating desired features in a timely and efficient manner. In
addition, if any new service we launch is not favorably received by customers
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
and end-users, our reputation could be damaged. If we fail to accurately
determine customer feature requirements or service enhancements or to market
services containing such features or enhancements in a timely and efficient
manner, our business and operating results could suffer materially.
WE NEED TO UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO ACCOMMODATE INCREASES IN
MESSAGING TRAFFIC.
We must continue to expand and adapt our network infrastructure as the number of
users and the amount of information we wish to transmit increases, and as their
requirements change. The expansion and adaptation of our network infrastructure
will require substantial financial, operational and management resources. Due to
the limited deployment of services to date, the ability of our network to
connect and manage a substantially larger number of customers at high
transmission speeds is unknown, and we face risks related to the network's
ability to operate with higher customer levels while maintaining expected
performance.
As the frequency and complexity of messaging increases, we will need to make
additional investments in our infrastructure, which may be expensive. In
addition, we may not be able to accurately project the rate or timing of
messaging traffic increases or upgrade our systems and infrastructure to
accommodate future traffic levels, which may cause service degradation or
outages. We may also not be able to achieve or maintain a sufficiently high
capacity of data transmission as customer usage increases. Customer demand for
our services could be greatly reduced if we fail to maintain high capacity data
transmission. In addition, as we upgrade our network infrastructure to increase
capacity available to customers, we are likely to encounter equipment or
software incompatibility that may cause delays in implementations. We may not be
able to expand or adapt our network infrastructure to meet additional demand or
customers' changing requirements in a timely manner or at all.
BECAUSE WE PROVIDE MESSAGING AND COLLABORATION SERVICES OVER THE INTERNET, OUR
BUSINESS COULD SUFFER IF EFFICIENT TRANSMISSION OF DATA OVER THE INTERNET IS
INTERRUPTED.
The recent growth in the use of the Internet has caused frequent interruptions
and delays in accessing the Internet and transmitting data. To date we have not
experienced a significant adverse effect from these interruptions. However,
because we provide messaging and collaboration services over the Internet,
interruptions or delays in Internet transmissions will adversely affect
customers' ability to send or receive their messages. We rely on the speed and
reliability of the networks operated by third parties. Therefore, our market
depends on improvements being made to the entire Internet infrastructure to
alleviate overloading and congestion.
We depend on telecommunications network suppliers such as Level 3, Qwest, Exodus
and TeleHouse to transmit messages across their networks. In addition, to
deliver our services, we rely on a number of public and private peering
interconnections, which are arrangements among access providers to carry one
another's traffic. If these providers were to discontinue these arrangements,
and alternative providers did not emerge or were to increase the cost of
providing access, our ability to transmit messaging traffic would be reduced.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
If we were to increase our current prices to accommodate any increase in the
cost of providing access, it could negatively impact sales. If we did not
increase prices in response to rising access costs, margins would be negatively
affected. Furthermore, if additional capacity is not added as traffic increases,
our ability to distribute content rapidly and reliably through these networks
will be adversely affected.
IF WE ENCOUNTER SYSTEM FAILURES, WE MAY NOT BE ABLE TO PROVIDE ADEQUATE SERVICE
AND OUR BUSINESS AND REPUTATION COULD BE DAMAGED.
Our ability to successfully receive and send messages and provide acceptable
levels of customer service largely depends on the efficient and uninterrupted
operation of computer and communications hardware and network systems. Our
systems and operations are vulnerable to damage or interruption from fire,
flood, earthquake, power loss, telecommunications failure and similar events.
The occurrence of any of the foregoing risks could subject us to contractual
monetary penalties if we fail to meet minimum performance standards, and could
have a material adverse effect on business and operating results and damage our
reputation.
WE MUST RECRUIT AND RETAIN OUR KEY EMPLOYEES TO EXPAND OUR BUSINESS.
Our success depends on the skills, experience and performance of senior
management and other key personnel, many of whom have worked together for only a
short period of time. For example, our Chief Operating Officer and Chief
Financial Officer have joined us within the past three months. The loss of the
services of any senior management or other key personnel, including the
President, David Thatcher, and Chief Executive Officer, Douglas Hickey, could
materially and adversely affect business results. We do not have long-term
employment agreements with any executive officers and other key personnel. Our
success also depends on our ability to recruit, retain and motivate other highly
skilled sales and marketing, technical and managerial personnel. Competition for
these people is intense, and we may not be able to successfully recruit, train
or retain qualified personnel. In particular, we may not be able to hire a
sufficient number of qualified software developers.
UNKNOWN SOFTWARE DEFECTS COULD DISRUPT SERVICES, WHICH COULD HARM OUR BUSINESS
AND REPUTATION.
Our service offerings depend on complex software, both internally developed and
licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are released. We may not
discover software defects that affect new or current services or enhancements
until after they are deployed. Although we have not experienced any material
software defects to date, it is possible that, despite testing, defects may
occur in the software. These defects could cause service interruptions, which
could damage our reputation or increase service costs, cause us to lose revenue,
delay market acceptance or divert development resources, any of which could
cause business to suffer.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
WE MAY NEED ADDITIONAL CAPITAL AND RAISING ADDITIONAL CAPITAL MAY DILUTE
EXISTING SHAREHOLDERS.
We believe that existing capital resources will enable us to maintain current
and planned operations for at least the next 12 months. However, we may be
required to raise additional funds due to unforeseen circumstances. If capital
requirements vary materially from those current planned, we may require
additional financing sooner than anticipated. Such financing may not be
available in sufficient amounts or on terms acceptable to us and may be dilutive
to existing shareholders.
WE MAY NOT BE ABLE TO PROTECT INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
We regard our copyrights, service marks, trademarks, trade secrets and similar
intellectual property as critical to our success, and we rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with employees, customers and partners to protect proprietary rights.
Despite these precautions, unauthorized third parties may infringe or copy
portions of our services or reverse engineer or obtain and use information that
we regard as proprietary. End-user license provisions protecting against
unauthorized use, copying, transfer and disclosure of the licensed program may
be unenforceable under the laws of certain jurisdictions and foreign countries.
The status of United States patent protection in the software industry is not
well defined and will evolve as the U.S. Patent and Trademark Office grants
additional patents. We have several patents pending in the United States and may
seek additional patents in the future. We do not know if the patent application
or any future patent application will be issued with the scope of the claims
sought, if at all, or whether any patents received will be challenged or
invalidated. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States. Our
means of protecting proprietary rights in the United States or abroad may not be
adequate and competitors may independently develop similar technology.
Third parties may infringe or misappropriate copyrights, trademarks and similar
proprietary rights belonging to us. In addition, other parties have asserted and
may assert infringement claims against us. For example, a company that we
acquired is a party to a lawsuit involving alleged infringement of a third
party's patent. The recently acquired company has denied the allegations of
infringement and has made counterclaims. Although we have not received notice of
any other alleged patent infringement, we cannot be certain that our products do
not infringe issued patents that may relate to our products. In addition,
because patent applications in the United States are not publicly disclosed
until the patent is issued, applications may have been filed which relate to our
software products. We may be subject to legal proceedings and claims from time
to time in the ordinary course of business, including claims of alleged
infringement of trademarks and other intellectual property rights of third
parties. Intellectual property litigation is expensive and time-consuming and
could divert management's attention away from operating our business.
WE MAY NEED TO LICENSE THIRD-PARTY TECHNOLOGIES AND WE FACE RISKS IN DOING SO.
We intend to continue to license certain technology from third parties,
including web server and encryption technology. The market is evolving and we
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
may need to license additional technologies to remain competitive. We may not be
able to license these technologies on commercially reasonable terms or at all.
In addition, we may fail to successfully integrate any licensed technology into
our services. These third-party in-licenses may expose us to increased risks,
including risks related to the integration of new technology, the diversion of
resources from the development of proprietary technology, and an inability to
generate revenues from new technology sufficient to offset associated
acquisition and maintenance costs. An inability to obtain any of these licenses
could delay product and service development until equivalent technology can be
identified, licensed and integrated. Any such delays in services could cause our
business and operating results to suffer.
THE TRADING PRICES AND VOLUMES OF OUR STOCK HAVE BEEN VOLATILE AND WE EXPECT
THAT THIS VOLATILITY WILL CONTINUE.
Our stock price and trading volumes have been highly volatile since our initial
public offering on March 29, 1999. We expect that this volatility will continue
in the future due to factors such as:
- Actual or anticipated fluctuations in results of operations;
- Changes in or failure to meet securities analysts' expectations;
- Announcements of technological innovations and acquisitions;
- Introduction of new services by us or our competitors;
- Developments with respect to intellectual property rights;
- Conditions and trends in the Internet and other technology industries;
and
- General market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against that company. We may become involved in this type
of litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse effect
on our business and operating results.
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES COULD IMPAIR THE GROWTH OF THE
INTERNET AND DECREASE DEMAND FOR OUR SERVICES OR INCREASE OUR COST OF DOING
BUSINESS.
Although there are currently few laws and regulations directly applicable to the
Internet and messaging services, a number of laws have been proposed involving
the Internet, including laws addressing user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
of products and services. Further, the growth and development of the market for
messaging services may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may impair the growth
of the Internet or commercial online services which could decrease the demand
for our services and increase our cost of doing business, or otherwise harm
business and operating results. Moreover, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve.
WE MAY HAVE LIABILITY FOR INTERNET CONTENT AND WE MAY NOT HAVE ADEQUATE
LIABILITY INSURANCE.
As a provider of messaging services, we face potential liability for defamation,
negligence, copyright, patent or trademark infringement and other claims based
on the nature and content of the materials transmitted via our services. We do
not and cannot screen all of the content generated by our users, and we could be
exposed to liability with respect to this content. Furthermore, some foreign
governments, such as Germany, have enforced laws and regulations related to
content distributed over the Internet that are more strict than those currently
in place in the United States.
Although we carry general liability and umbrella liability insurance, our
insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. There is a risk that a
single claim or multiple claims, if successfully asserted against us, could
exceed the total of our coverage limits. There is also a risk that single claim
or multiple claims asserted against us may not qualify for coverage under our
insurance policies as a result of coverage exclusions that are contained within
these policies. Should either of these risks occur, capital contributed by our
stockholders may need to be used to settle claims. Any imposition of liability,
particularly liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on our reputation and
business and operating results, or could result in the imposition of criminal
penalties.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS THE PRICE OF OUR COMMON STOCK.
As of April 30, 2000, we had approximately 62.2 million shares of Common Stock
outstanding. Sales of a substantial number of shares of Common Stock in the
public market could cause the market price of our Common Stock to decline. In
the near future, 7.6 million shares will become eligible for sale under S-3
registration statements that we will file to meet our registration rights
obligations in connection with recent acquisitions. Up to 2.9 million shares may
be issued upon the conversion of our Convertible Subordinated Notes and will
become eligible for sale under an S-3 registration statement that we will file
to meet our registration rights obligations in connection with our sale of
Convertible Subordinated Notes. Certain of our shareholders and warrantholders
have registration rights with respect to the Common Stock and Common Stock
issuable under the warrants.
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUR DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS WILL BE ABLE TO
EXERT SIGNIFICANT INFLUENCE OVER US.
As a result of our offerings, our directors, executive officers and principal
shareholders will beneficially own a substantial portion of our outstanding
Common Stock. These shareholders, if they vote together, will be able to
exercise significant influence over all matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also delay or prevent a change
in control of our company.
OUR ARTICLES OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS WHICH COULD DELAY OR
PREVENT A CHANGE IN CONTROL.
Our Articles of Incorporation and Bylaws contain provisions that could delay or
prevent a change in control of our company. These provisions could limit the
price that investors might be willing to pay in the future for shares of our
Common Stock. Some of these provisions:
- Authorize the issuance of preferred stock which can be created and
issued by the board of directors without prior stockholder approval,
commonly referred to as "blank check" preferred stock, with rights
senior to those of Common Stock;
- Prohibit shareholder action by written consent; and
- Establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can
be acted upon by shareholders at a meeting.
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SUPPLEMENTAL PRO FORMA FINANCIAL DATA
The following supplemental pro forma financial information presents the
Company's consolidated results of operations for the quarters ended March 31,
1999 and 2000, excluding the impact of certain special charges consisting of (i)
stock-based compensation charges associated with outstanding options and
warrants, (ii) amortization of intangible assets associated with purchase
business combinations, and (iii) accruals for employee retention bonuses
associated with purchase business combinations. This supplemental presentation
is for informational purposes only and is not intended to replace the
consolidated operating results prepared and presented in accordance with
generally accepted accounting principles.
<TABLE>
<CAPTION>
Three Months Ended March 31 1999 2000
(in thousands, except per share amounts) -------- --------
<S> <C> <C>
Net revenues
Licenses $ -- $ 11,070
Services 1,155 13,483
-------- --------
Total net revenues 1,155 24,553
-------- --------
Cost of net revenues
Licenses -- 1,007
Services 1,914 14,340
-------- --------
Total cost of net revenues 1,914 15,347
-------- --------
Gross profit (loss) (759) 9,206
-------- --------
Operating expenses
Sales and marketing 1,984 13,605
Research and development 1,379 6,323
General and administrative 1,550 6,766
-------- --------
Total operating expenses 4,913 26,694
-------- --------
Loss from operations (5,672) (17,488)
Interest and other income (expense), net 303 1,000
-------- --------
Loss before income taxes (5,369) (16,488)
Provision for income taxes -- (360)
-------- --------
Net loss $ (5,369) $(16,848)
-------- --------
Net loss per share - basic and diluted $ (0.77) $ (0.33)
-------- --------
Weighted average shares - basic and diluted 7,011 50,570
-------- --------
</TABLE>
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CRITICAL PATH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any derivative financial instruments as of March 31,
2000. However, the Company is exposed to interest rate risk. The Company employs
established policies and procedures to manage its exposure to changes in the
market risk of its marketable securities, which are classified as
available-for-sale as of March 31, 2000.
The Company's capital lease obligations and $300 million five-year, 5.75%
Convertible Subordinated Notes due April 2005, have fixed interest rates and
fixed redemption amounts. The fair value of these instruments is affected by
changes in market interest rates. The Company believes that the market risk
arising from holdings of its financial instruments is not material.
A substantial portion of the Company's worldwide operations has a functional
currency other than the United States Dollar. In particular, the Company
maintains substantial development operations in Ireland, where the functional
currency is the Irish Pound; Germany, where the functional currency is the
German Mark; and Italy, where the functional currency is the Italian Lira. In
addition, a significant portion of the Company's revenue is also denominated in
currencies other than the United States Dollar. Fluctuations in exchange rates
may have a material adverse effect on the Company's results of operations and
could also result in exchange losses. The impact of future exchange rate
fluctuations cannot be predicted adequately. To date, the Company has not sought
to hedge the risks associated with fluctuations in exchange rates, but may
undertake such transactions in the future. There can be no assurance that any
hedging techniques implemented by the Company would be successful or that the
Company's results of operations will not be materially adversely affected by
exchange rate fluctuations.
36
<PAGE> 38
PART 2 -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
See Footnote 6, "Commitments and Contingencies", in the Notes to Consolidated
Financial Statements.
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
See Footnote 2, "Acquisitions and Joint Venture", in the Notes to Consolidated
Financial Statements.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 -- OTHER INFORMATION
None.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<S> <C>
4.5 Indenture dated March 31, 2000, by and between Critical Path,
Inc. and State Street Bank and Trust Company of California,
N.A., Trustee, relating to the $300 million five-year, 5.75%
Convertible Subordinated Notes due April 1, 2005.
10.28 Secured Promissory Note and Security Agreement dated January
18, 2000, by and between Critical Path, Inc. and Mark Rubash.
27.1 Financial Data Schedule
</TABLE>
27.1 Financial Data Schedule
b) Reports on Form 8-K
1. On February 3, 2000, the Company filed a report on Form 8-K announcing the
acquisition of ISOCOR.
2. On March 20, 2000, the Company filed a report on Form 8-K announcing the
acquisition of The docSpace Company.
3. On March 28, 2000, the Company filed a report on Form 8-K/A (as an amendment
to the Form 8-K filed on March 20, 2000) to report the financial
information required in connection with its acquisition of The docSpace
Company.
37
<PAGE> 39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 15, 2000
CRITICAL PATH, INC.
By: /s/ Mark J. Rubash
--------------------------------
Mark J. Rubash
Executive Vice President and Chief
Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
38
<PAGE> 40
CRITICAL PATH, INC.
EXHIBITS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.5 Indenture dated March 31, 2000, by and between Critical Path,
Inc. and State Street Bank and Trust Company of California,
N.A., Trustee, relating to the $300 million five-year, 5.75%
Convertible Subordinated Notes due April 1, 2005.
10.28 Secured Promissory Note and Security Agreement dated January
18, 2000, by and between Critical Path, Inc. and Mark Rubash.
27.1 Financial Data Schedule
</TABLE>
39
<PAGE> 1
EXHIBIT 4.5
------------------------------------
CRITICAL PATH, INC.
ISSUER
TO
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
TRUSTEE
------------------
INDENTURE
Dated as of March 31, 2000
-------------------
5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE APRIL 1, 2005
---------------------------------------
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ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.........................1
SECTION 1.1 Definitions.........................................................1
SECTION 1.2 Compliance Certificates And Opinions...............................10
SECTION 1.3 Form of Documents Delivered to the Trustee.........................11
SECTION 1.4 Acts of Holders of Securities......................................11
SECTION 1.5 Notices, Etc to the Trustee and Company............................14
SECTION 1.6 Notice to Holders of Securities; Waiver............................14
SECTION 1.7 Effect of Headings and Table of Contents...........................15
SECTION 1.8 Successors and Assigns.............................................15
SECTION 1.9 Separability Clause................................................15
SECTION 1.10 Benefits of Indenture..............................................15
SECTION 1.11 Governing Law......................................................15
SECTION 1.12 Legal Holidays.....................................................15
SECTION 1.13 Conflict With Trust Indenture Act..................................16
ARTICLE II SECURITY FORMS................................................................16
SECTION 2.1 Form Generally.....................................................16
SECTION 2.2 Form of Security...................................................18
SECTION 2.3 Form of Certificate of Authentication..............................29
SECTION 2.4 Form of Conversion Notice..........................................30
SECTION 2.5 Form of Assignment.................................................31
ARTICLE III THE SECURITIES...............................................................32
SECTION 3.1 Title and Terms....................................................32
SECTION 3.2 Denominations......................................................33
SECTION 3.3 Execution, Authentication, Delivery and Dating.....................33
SECTION 3.4 Global Securities; Non-global Securities; Book-entry
Provisions.........................................................33
SECTION 3.5 Registration; Registration of Transfer and Exchange;
Restrictions on Transfer...........................................35
SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities....................38
SECTION 3.7 Payment of Interest; Interest Rights Preserved.....................39
SECTION 3.8 Persons Deemed Owners..............................................40
SECTION 3.9 Cancellation.......................................................40
SECTION 3.10 Computation of Interest............................................41
SECTION 3.11 CUSIP Numbers......................................................41
ARTICLE IV SATISFACTION AND DISCHARGE....................................................41
SECTION 4.1 Satisfaction And Discharge of Indenture............................41
SECTION 4.2 Application of Trust Money.........................................42
ARTICLE V REMEDIES.......................................................................43
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SECTION 5.1 Events of Default..................................................43
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.................44
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee............................................................45
SECTION 5.4 Trustee May File Proofs of Claim...................................46
SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities........47
SECTION 5.6 Application of Money Collected.....................................47
SECTION 5.7 Limitation on Suits................................................47
SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest and to Convert........................................48
SECTION 5.9 Restoration of Rights and Remedies.................................48
SECTION 5.10 Rights and Remedies Cumulative.....................................48
SECTION 5.11 Delay or Omission Not Waiver.......................................49
SECTION 5.12 Control by Holders of Securities...................................49
SECTION 5.13 Waiver of Past Defaults............................................49
SECTION 5.14 Undertaking for Costs..............................................50
SECTION 5.15 Waiver of Stay, Usury or Extension Laws............................50
ARTICLE VI THE TRUSTEE...................................................................50
SECTION 6.1 Certain Duties and Responsibilities................................50
SECTION 6.2 Notice of Defaults.................................................51
SECTION 6.3 Certain Rights of Trustee..........................................52
SECTION 6.4 Not Responsible for Recitals or Issuance of Securities.............53
SECTION 6.5 May Hold Securities, Act as Trustee under Other Indentures.........53
SECTION 6.6 Money Held in Trust................................................53
SECTION 6.7 Compensation and Reimbursement.....................................53
SECTION 6.8 Corporate Trustee Required; Eligibility............................54
SECTION 6.9 Resignation and Removal; Appointment of Successor..................54
SECTION 6.10 Acceptance of Appointment by Successor.............................55
SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business........56
SECTION 6.12 Authenticating Agents..............................................56
SECTION 6.13 Disqualification; Conflicting Interests............................58
SECTION 6.14 Preferential Collection of Claims Against Company..................58
ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.........................58
SECTION 7.1 Company May Consolidate, Etc,......................................58
SECTION 7.2 Successor Substituted..............................................59
ARTICLE VIII SUPPLEMENTAL INDENTURES.....................................................59
SECTION 8.1 Supplemental Indentures Without Consent of Holders of
Securities.........................................................59
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SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities......60
SECTION 8.3 Execution of Supplemental Indentures...............................61
SECTION 8.4 Effect of Supplemental Indentures..................................61
SECTION 8.5 Reference in Securities to Supplemental Indentures.................61
SECTION 8.6 Notice of Supplemental Indentures..................................62
ARTICLE IX MEETINGS OF HOLDERS OF SECURITIES.............................................62
SECTION 9.1 Purposes for Which Meetings May Be Called..........................62
SECTION 9.2 Call, Notice and Place of Meetings.................................62
SECTION 9.3 Persons Entitled to Vote at Meetings...............................62
SECTION 9.4 Quorum; Action.....................................................63
SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of
Meetings...........................................................63
SECTION 9.6 Counting Votes and Recording Action of Meetings....................64
ARTICLE X COVENANTS......................................................................64
SECTION 10.1 Payment of Principal, Premium and Interest.........................64
SECTION 10.2 Maintenance of Offices or Agencies.................................65
SECTION 10.3 Money for Security Payments to Be Held in Trust....................65
SECTION 10.4 Existence..........................................................66
SECTION 10.5 Maintenance of Properties..........................................67
SECTION 10.6 Payment of Taxes and Other Claims..................................67
SECTION 10.7 Registration and Listing...........................................67
SECTION 10.8 Statement by Officers as to Default................................68
SECTION 10.9 Delivery of Certain Information....................................68
SECTION 10.10 Resale of Certain Securities.......................................68
SECTION 10.11 Registration Rights................................................69
SECTION 10.12 Waiver of Certain Covenants........................................70
ARTICLE XI REDEMPTION OF SECURITIES......................................................71
SECTION 11.1 Right of Redemption................................................71
SECTION 11.2 Applicability of Article...........................................71
SECTION 11.3 Election to Redeem; Notice to Trustee..............................71
SECTION 11.4 Selection by Trustee of Securities to Be Redeemed..................71
SECTION 11.5 Notice of Redemption...............................................72
SECTION 11.6 Deposit of Redemption Price........................................73
SECTION 11.7 Securities Payable on Redemption Date..............................73
SECTION 11.8 Conversion Arrangement on Call for Redemption......................74
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ARTICLE XII CONVERSION OF SECURITIES.....................................................74
SECTION 12.1 Conversion Privilege and Conversion Rate...........................74
SECTION 12.2 Exercise of Conversion Privilege...................................75
SECTION 12.3 Fractions of Shares................................................77
SECTION 12.4 Adjustment of Conversion Rate......................................77
SECTION 12.5 Notice of Adjustments of Conversion Rate...........................81
SECTION 12.6 Notice of Certain Corporate Action.................................82
SECTION 12.7 Company to Reserve Common Stock....................................83
SECTION 12.8 Taxes on Conversions...............................................83
SECTION 12.9 Covenant as to Common Stock........................................83
SECTION 12.10 Cancellation of Converted Securities...............................83
SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets.......84
SECTION 12.12 Rights Issued in Respect of Common Stock...........................85
SECTION 12.13 Responsibility of Trustee for Conversion Provisions................85
ARTICLE XIII SUBORDINATION OF SECURITIES.................................................86
SECTION 13.1 Securities Subordinate to Senior Debt..............................86
SECTION 13.2 No Payment in Certain Circumstances, Payment over of
Proceeds upon Dissolution, Etc.....................................86
SECTION 13.3 Prior Payment to Senior Debt upon Acceleration of Securities.......88
SECTION 13.4 Payment Permitted If No Default....................................88
SECTION 13.5 Subrogation to Rights of Holders of Senior Debt....................88
SECTION 13.6 Provisions Solely to Define Relative Rights........................89
SECTION 13.7 Trustee to Effectuate Subordination................................89
SECTION 13.8 No Waiver of Subordination Provisions..............................89
SECTION 13.9 Notice to Trustee..................................................90
SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent.....91
SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Debt...................91
SECTION 13.12 Reliance by Holders of Senior Debt on Subordination
Provisions.........................................................91
SECTION 13.13 Rights of Trustee as Holder of Senior Debt; Preservation of
Trustee's Rights...................................................91
SECTION 13.14 Article Applicable to Paying Agents................................91
SECTION 13.15 Certain Conversions and Repurchases Deemed Payment.................92
ARTICLE XIV REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER
UPON A CHANGE IN CONTROL............................................................92
SECTION 14.1 Right to Require Repurchase........................................92
SECTION 14.2 Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock..............................................93
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SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc................94
SECTION 14.4 Certain Definitions................................................97
SECTION 14.5 Consolidation, Merger, etc.........................................98
ARTICLE XV HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY;
NON-RECOURSE........................................................................98
SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders..........98
SECTION 15.2 Preservation of Information........................................99
SECTION 15.3 Reserved...........................................................99
SECTION 15.4 Reports by Trustee................................................100
SECTION 15.5 Reports by Company................................................100
ARTICLE XVI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS......................................................................100
SECTION 16.1 Indenture and Securities Solely Corporate Obligations.............100
</TABLE>
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<PAGE> 7
INDENTURE, dated as of March 31, 2000, between CRITICAL PATH, INC., a
corporation duly organized and existing under the laws of the State of
California, having its principal office at 320 First Street, San Francisco,
California 94105 (herein called the "Company"), and STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., a national banking association organized under the
laws of the United States, as Trustee hereunder (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 5 3/4%
Convertible Subordinated Notes due April 1, 2005 (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, 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. Further, all
things necessary to duly authorize the issuance of the Common Stock of the
Company issuable upon the conversion of the Securities, and to duly reserve for
issuance the number of shares of Common Stock issuable upon such conversion,
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 I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 Definitions.
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 generally accepted accounting
principles in the United States, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with respect to
any computation required or permitted hereunder shall mean such accounting
principles as are generally accepted at the date of such computation; and
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<PAGE> 8
(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.
"Act", when used with respect to any Holder of a Security, has the
meaning specified in Section 1.4.
"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.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of The Depository Trust Company or any successor
Depository, in each case to the extent applicable to such transaction and as in
effect from time to time.
"Authenticating Agent" means any Person authorized pursuant to Section
6.12 to act on behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"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 have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, shall have been
delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment, Place of
Conversion or any other place, as the case may be, means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in such Place of Payment, Place of Conversion or other place, as the case may
be, are authorized or obligated by law or executive order to close; provided,
however, that a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close shall not be a
Business Day for purposes of Section 13.9.
"Change in Control" has the meaning specified in Section 14.4(2).
"Closing Price Per Share" means, with respect to the Common Stock, for
any day, (i) the last reported sale price regular way on the Nasdaq National
Market or, (ii) if the Common Stock is not quoted on the Nasdaq National Market,
the last reported sale price regular way per share or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
2
<PAGE> 9
prices regular way, in either case, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or (iii) if
the Common Stock is not quoted on the Nasdaq National Market or listed or
admitted to trading on any national securities exchange, the average of the
closing bid prices in the over-the-counter market as furnished by any New York
Stock Exchange member firm selected from time to time by the Company for that
purpose.
"Code" has the meaning specified in Section 2.l.
"Commission" means the United States Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means the Common Stock, par value $0.001 per share, of
the Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 12.11, shares issuable on conversion or
repurchase of Securities shall include only shares of Common Stock or shares of
any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of
Securities shall include shares of all such classes, and 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.
"common stock" includes any stock of any class of capital stock 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
issuer thereof and which is not subject to redemption by the issuer thereof.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Notice" has the meaning specified in Section 14.3.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its (i) Chairman of the Board, its Vice
Chairman of the Board, its Chief Executive Officer, its President, an Executive
Vice President or a Vice President, and by its (ii) Principal financial officer,
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Constituent Person" has the meaning specified in Section 12.11.
"Conversion Agent" means any Person authorized by the Company to convert
Securities in accordance with Article XII. The Company has initially appointed
the Trustee as its Conversion Agent pursuant to Section 10.2 hereof.
3
<PAGE> 10
"Conversion Price" has the meaning specified in Section 14.4(3).
"Conversion Rate" has the meaning specified in Section 12.1.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time the trust created by this Indenture shall be principally
administered (which at the date of this Indenture is located at 633 West 5th
Street, 12th Floor, Los Angeles, California 90071, Attention: Corporate Trust
Administration (Critical Path, Inc., 5 3/4% Convertible Subordinated Notes due
April 1, 2005)).
"corporation" means a corporation, company, association, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, with respect to any Securities (including any Global
Securities), a clearing agency that is registered as such under the Exchange Act
and is designated by the Company to act as Depositary for such Securities (or
any successor securities clearing agency so registered).
"Designated Senior Debt" means the Company's obligations under any
particular Senior Debt in which the instrument creating or evidencing the same
or the assumption or guarantee thereof (or related agreements or documents to
which the Company is a party) expressly provides that such Senior Debt shall be
"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).
"Distribution Date" shall mean the "Distribution Date" as such term is
defined in the Registration Rights Agreement.
"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" means The Depository Trust Company, a New York corporation.
"Effective Failure" has the meaning specified in Section 10.11.
"Effectiveness Period" has the meaning specified in Section 10.11.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the United States Securities Exchange Act of 1934
(or any successor statute), as amended from time to time.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.
4
<PAGE> 11
"Holder" means the Person in whose name the Security is registered in
the Security Register.
"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,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Initial Purchasers" means Goldman, Sachs & Co., FleetBoston Robertson
Stephens Inc., Lehman Brothers Inc. and Chase Securities Inc.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Issue Date" means March 31, 2000.
"Liquidated Damages" has the meaning specified in Section 10.11.
"Maturity", when used with respect to any Security, 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 declaration of
acceleration, call for redemption, exercise of the repurchase right set forth in
Article XIV or otherwise.
"Non-electing Share" has the meaning specified in Section 12.11.
"Notice of Default" has the meaning specified in Section 5.1.
"Officers' Certificate" means a certificate signed by (i) the Chairman
of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President, an Executive Vice President or a Vice President and by (ii) the
principal financial officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee. One of the Officers signing an Officers' Certificate given pursuant to
Section 10.8 shall be the principal executive, financial or accounting officer
of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for the payment or redemption of which money in
the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent
5
<PAGE> 12
(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 or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to Section 3.6 or
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; and
(iv) Securities converted into Common Stock pursuant to Article
XII;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities are present at a meeting of Holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such determination as to the presence of a quorum or upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Securities which a Responsible Officer of the Trustee has been notified in
writing to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee is not
the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor, and the Trustee shall be protected in relying
upon an Officer's Certificate to such effect.
"Over-allotment Option" has the meaning specified in Section 3.1.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company and, except
as otherwise specifically set forth herein, such term shall include the Company
if it shall act as its own Paying Agent. The Company has initially appointed the
Trustee as its Paying Agent pursuant to Section 10.2 hereof.
"Payment Blockage Notice" has the meaning specified in Section 13.2.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Conversion" has the meaning specified in Section 3.1.
"Place of Payment" has the meaning specified in Section 3.1.
6
<PAGE> 13
"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 3.6 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.
"Purchase Agreement" means the Purchase Agreement, dated as of March 27,
2000, between the Company and the Initial Purchasers, as such agreement may be
amended from time to time.
"Qualified Institutional Buyer" shall mean a "qualified institutional
buyer" as defined in Rule 144A.
"Press Release" means any press release issued by the Company and
disseminated to Reuters Business News Services and Bloomberg News Services.
"Record Date" means any Regular Record Date or Special Record Date.
"Record Date Period" means the period from the close of business of any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registrable Securities" has the meaning specified in Section 10.11.
"Registration Default" has the meaning specified in Section 10.11.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of March 31, 2000, between the Company and the Initial Purchasers, as
such agreement may be amended from time to time.
"Regular Record Date" for interest payable in respect of any Security on
any Interest Payment Date means the March 15 or September 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
"Representative" means the (a) indenture trustee or other trustee, agent
or representative for any Senior Debt or (b) with respect to any Senior Debt
that does not have any such trustee, agent or other representative, (i) in the
case of such Senior Debt issued pursuant to an agreement providing for voting
arrangements as among the holders or owners of such Senior Debt, any holder or
owner of such Senior Debt acting with the consent of the required persons
necessary to bind such holders or
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owners of such Senior Debt and (ii) in the case of all other such Senior Debt,
the holder or owner of such Senior Debt.
"Repurchase Date" has the meaning specified in Section 14.1.
"Repurchase Price" has the meaning specified in Section 14.1.
"Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Office of the Trustee with direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge and familiarity with the particular
subject.
"Restricted Global Security" has the meaning specified in Section 2.1.
"Restricted Securities" means all Securities required pursuant to
Section 3.5(3) to bear any Restricted Securities Legend. Such term includes the
Restricted Global Security.
"Restricted Securities Legend" means, collectively, the legends
substantially in the forms of the legends required in the form of Security set
forth in Section 2.2 to be placed upon each Restricted Security.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Information" has the meaning specified in Section 10.9.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals of the Company".
"Securities Act" means the United States Securities Act of 1933 (or any
successor statute), as amended from time to time.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5.
"Senior Debt" means the principal of (and premium, if any) and 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) on, and all fees and
other amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
of this Indenture or thereafter created, incurred or assumed: (a) indebtedness
of the Company evidenced by a credit or loan agreement, note, bond, debenture or
other written obligation, (b) all obligations of the Company for money borrowed,
(c) all obligations of the Company evidenced by a note or similar instrument
given in connection with the acquisition of any businesses, properties or assets
of any kind, (d) obligations of the Company (i) as lessee under leases required
to be capitalized on the balance sheet of the lessee
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<PAGE> 15
under generally accepted accounting principles and (ii) as lessee under other
leases for facilities, capital equipment or related assets, whether or not
capitalized, entered into or leased for financing purposes, (e) all obligations
of the Company under interest rate and currency swaps, caps, floors, collars,
hedge agreements, forward contracts or similar agreements or arrangements, (f)
all obligations of the Company with respect to letters of credit, bankers'
acceptances and similar facilities (including reimbursement obligations with
respect to the foregoing), (g) all obligations of the Company issued or assumed
as the deferred purchase price of property or services (but excluding trade
accounts payable and accrued liabilities arising in the ordinary course of
business), (h) all obligations of the type referred to in clauses (a) through
(g) above of another Person and all dividends of another Person, the payment of
which, in either case, the Company has assumed or guaranteed, or for which the
Company is responsible or liable, directly or indirectly, jointly or severally,
as obligor, guarantor or otherwise, or which is secured by a lien on the
property of the Company, and (i) renewals, extensions, modifications,
replacements, restatements and refundings of, or any indebtedness or obligation
issued in exchange for, any such indebtedness or obligation described in clauses
(a) through (h) of this paragraph; provided, however, that Senior Debt shall not
include any such indebtedness or obligation if the terms of such indebtedness or
obligation (or the terms of the instrument under which, or pursuant to which it
is issued) expressly provide that such indebtedness or obligation is not
superior in right of payment to the Securities.
"Shelf Registration Statement" has the meaning specified in Section
10.11.
"Significant Subsidiary" means, with respect to any Person, a Subsidiary
of such Person that would constitute a "significant subsidiary" as such term is
defined under Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Company pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest 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, "voting stock" means stock or other similar
interests in the corporation which ordinarily has or have voting power for the
election of directors, or persons performing similar functions, whether at all
times or only so long as no senior class of stock or other interests has or have
such voting power by reason of any contingency.
"Successor Security" of any particular Security means every Security
issued after, and 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 3.6 in
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<PAGE> 16
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.
"Surrender Certificate" means a certificate substantially in the form
set forth in Annex B.
"Trading Day" means (i) if the Common Stock is quoted on the Nasdaq
National Market or any other system of automated dissemination of quotations of
securities prices, days on which trades may be effected through such system,
(ii) if the Common Stock is listed or admitted for trading on any national or
regional securities exchange, days on which such national or regional securities
exchange is open for business, or (iii) if the Common Stock is not listed on a
national or regional securities exchange or quoted on the Nasdaq National Market
or any other system of automated dissemination of quotation of securities
prices, days on which the Common Stock is traded regular way in the
over-the-counter market and for which a closing bid and a closing asked price
for the Common Stock are available.
"Trust Indenture Act" means the Trust Indenture Act of 1939, and the
rules and regulations thereunder, as in force at the date as of which this
instrument was executed, provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means,
to the extent required by any such amendment, the Trust Indenture Act of 1939,
and the rules and regulations thereunder, as so amended.
"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.
"United States" means the United States of America (including the States
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana
Islands).
"Unrestricted Securities Certificate" means a certificate substantially
in the form set forth in Annex A.
SECTION 1.2 Compliance Certificates And Opinions.
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.
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<PAGE> 17
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (including certificates provided for
in Section 10.8) shall include:
(1) a statement that each individual signing such certificate or
opinion 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 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
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3 Form of Documents Delivered to the Trustee.
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 a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company or any other Person
stating that the information with respect to such factual matters is in the
possession of the Company or such other Person, unless such counsel knows, or in
the exercise of reasonable care should know, that the certificate or opinion 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.
SECTION 1.4 Acts of Holders of Securities.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Indenture to be given or
taken by Holders of Securities may be embodied in and evidenced by (A) one or
more instruments of substantially similar tenor signed by
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<PAGE> 18
such Holders in person or by an agent or proxy duly appointed in writing by such
Holders or (B) 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 IX. Such action shall become effective when such instrument or
instruments or record is delivered to the Trustee and, where it is hereby
expressly required, to the Company. The Trustee shall promptly deliver to the
Company copies of all such instruments and records delivered to the Trustee.
Such instrument or instruments and records (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 6.1)
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 9.6.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority.
(3) The principal amount and serial number of any Security held by
any Person, and the date of his holding the same, shall be proved by the
Security Register.
(4) The fact and date of execution of any such instrument or writing
and the authority of the Person executing the same may also be proved in any
other manner which the Trustee deems sufficient; and the Trustee may in any
instance require further proof with respect to any of the matters referred to in
this Section 1.4.
(5) The Company may set any day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote on
any action, authorized or permitted by this Indenture to be given or taken by
Holders. Promptly and in any case not later than ten days after setting a record
date, the Company shall notify the Trustee and the Holders of such record date.
If not set by the Company prior to the first solicitation of a Holder made by
any Person in respect of any such action, or, in the case of any such vote,
prior to such vote, the record date for any such action or vote shall be the
30th day (or, if later, the date of the most recent list of Holders required to
be provided pursuant to Section 15.1) prior to such first solicitation or vote,
as the case may be. With regard to any record date, the Holders on such date (or
their duly appointed agents or proxies), and only such Persons, shall be
entitled to give or take, or vote on, the relevant action, whether or not such
Holders remain Holders after such record date. Notwithstanding the foregoing,
the Company shall not set a record date for, and the provisions of this
paragraph shall not apply with respect to, any notice, declaration or direction
referred to in the next paragraph.
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<PAGE> 19
Upon receipt by the Trustee from any Holder of (i) any notice of default
or breach referred to in Section 5.1(4), if such default or breach has occurred
and is continuing and the Trustee shall not have given such a notice to the
Company, (ii) any declaration of acceleration referred to in Section 5.2, if an
Event of Default has occurred and is continuing and the Trustee shall not have
given such a declaration to the Company, or (iii) any direction referred to in
Section 5.12, if the Trustee shall not have taken the action specified in such
direction, then, with respect to clauses (ii) and (iii), a record date shall
automatically and without any action by the Company or the Trustee be set for
determining the Holders entitled to join in such declaration or direction, which
record date shall be the close of business on the tenth day (or, if such day is
not a Business Day, the first Business Day thereafter) following the day on
which the Trustee receives such declaration or direction, and, with respect to
clause (i), the Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in such notice of default. Promptly
after such receipt by the Trustee of any such declaration or direction referred
to in clause (ii) or (iii), and promptly after setting any record date with
respect to clause (i), and as soon as practicable thereafter, the Trustee shall
notify the Company and the Holders of any such record date so fixed. The Holders
on such record date (or their duly appointed agents or proxies), and only such
Persons, shall be entitled to join in such notice, declaration or direction,
whether or not such Holders remain Holders after such record date; provided
that, unless such notice, declaration or direction shall have become effective
by virtue of Holders of the requisite principal amount of Securities on such
record date (or their duly appointed agents or proxies) having joined therein on
or prior to the 90th day after such record date, such notice, declaration or
direction shall automatically and without any action by any Person be canceled
and of no further effect. Nothing in this paragraph shall be construed to
prevent a Holder (or a duly appointed agent or proxy thereof) from giving,
before or after the expiration of such 90-day period, a notice, declaration or
direction contrary to or different from, or, after the expiration of such
period, identical to, the notice, declaration or direction to which such record
date relates, in which event a new record date in respect thereof shall be set
pursuant to this paragraph. In addition, nothing in this paragraph shall be
construed to render ineffective any notice, declaration or direction of the type
referred to in this paragraph given at any time to the Trustee and the Company
by Holders (or their duly appointed agents or proxies) of the requisite
principal amount of Securities on the date such notice, declaration or direction
is so given.
(6) Except as provided in Sections 5.12 and 5.13, any request,
demand, authorization, direction, notice, consent, election, waiver or other Act
of the Holder 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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(7) The provisions of this Section 1.4 are subject to the provisions
of Section 9.5.
SECTION 1.5 Notices, Etc to the Trustee and Company.
Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of Holders of Securities or other document
provided or permitted by this Indenture to be made upon, given or furnished to,
or filed with,
(1) the Trustee by any Holder of Securities or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with a Responsible Officer of the Trustee and received at its
Corporate Trust Office, Attention: Corporate Trust Administration (Critical
Path, Inc., 5 3/4% Convertible Subordinated Notes due April 1, 2005).
(2) the Company by the Trustee or by any Holder of Securities shall
be sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing, mailed, first-class postage prepaid, or telecopied and
confirmed by mail, first-class postage prepaid, or delivered by hand or
overnight courier, addressed to the Company at 320 First Street, San Francisco,
California 94105, Attention: Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by the Company.
SECTION 1.6 Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of Securities of any event, such notice shall be
sufficiently given to Holders if in writing and mailed, first-class postage
prepaid or delivered by an overnight delivery service, to each Holder of a
Security affected by such event, at the address of such Holder as it appears in
the Security Register, not earlier than the earliest date and not later than the
latest date prescribed for the giving of such notice.
Neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Security shall affect the sufficiency of
such notice with respect to other Holders of Securities. In case by reason of
the suspension of regular mail service or by reason of any other cause it shall
be impracticable to give such notice by mail, then such notification to Holders
of Securities as shall be made with the approval of the Trustee, which approval
shall not be unreasonably withheld, shall constitute a sufficient notification
to such Holders for every purpose hereunder.
Such notice shall be deemed to have been given when such notice is
mailed.
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<PAGE> 21
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders of Securities shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
SECTION 1.7 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 1.8
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 1.9 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 anyway be affected or impaired thereby.
SECTION 1.10 Benefits of Indenture.
Except as provided in the next sentence, nothing in this Indenture or in
the Securities, express or implied, shall give to any Person, other than the
parties hereto and their successors assigns hereunder and the Holders of
Securities, any benefit or legal or equitable right, remedy or claim under this
Indenture. The provisions of Article XIII are intended to be for the benefit of,
and shall be enforceable directly by, the holders of Senior Debt.
SECTION 1.11 Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 1.12 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Repurchase
Date or Stated Maturity of any Security or the last day on which a Holder of a
Security has a right to convert his Security shall not be a Business Day at a
Place of Payment or Place of Conversion, as the case may be, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal of, premium, if any, or interest on, or the payment of the
Redemption Price or Repurchase Price (whether the same is payable in cash or in
shares of Common Stock in the case of the
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<PAGE> 22
Repurchase Price) with respect to, or delivery for conversion of, such Security
need not be made at such Place of Payment or Place of Conversion, as the case
may be, on or by such day, but may be made on or by the next succeeding Business
Day at such Place of Payment or Place of Conversion, as the case may be, with
the same force and effect as if made on the Interest Payment Date, Redemption
Date or Repurchase Date, or at the Stated Maturity or by such last day for
conversion; provided, however, that in the case that payment is 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,
Repurchase Date, Stated Maturity or last day for conversion, as the case may be.
SECTION 1.13 Conflict With Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
Until such time as this Indenture shall be qualified under the Trust Indenture
Act, this Indenture, the Company and the Trustee shall be deemed for all
purposes hereof to be subject to and governed by the Trust Indenture Act to the
same extent as would be the case if this Indenture were so qualified on the date
hereof.
ARTICLE II
SECURITY FORMS
SECTION 2.1 Form Generally.
The Securities shall be in substantially the form set forth in this
Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange, the Internal Revenue Code of 1986, as amended, and
regulations thereunder (the "Code"), or as may, consistent herewith, be
determined by the officers executing such Securities, as evidenced by their
execution thereof. All Securities shall be in fully registered form.
The Trustee's certificates of authentication shall be in substantially
the form set forth in Section 2.3.
Conversion notices shall be in substantially the form set forth in
Section 2.4.
Repurchase notices shall be substantially in the form set forth in
Section 2.2.
The Securities shall be printed, lithographed, typewritten or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any automated quotation system or securities
exchange (including on steel engraved borders if so required by any securities
exchange upon which the Securities may be listed) on which the Securities
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<PAGE> 23
may be quoted or listed, as the case may be, all as determined by the officers
executing such Securities, as evidenced by their execution thereof.
Upon their original issuance, Securities issued as contemplated by the
Purchase Agreement to Qualified Institutional Buyers in reliance on Rule 144A
shall be issued in the form of one or more Global Securities in definitive,
fully registered form without interest coupons and bearing the Restricted
Securities Legend. Such Global Security shall be registered in the name of DTC,
as Depositary, or its nominee and deposited with the Trustee, as custodian for
DTC, for credit by DTC to the respective accounts of beneficial owners of the
Securities represented thereby (or such other accounts as they may direct). Such
Global Security, together with its Successor Securities which are Global
Securities, are collectively herein called the "Restricted Global Security".
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<PAGE> 24
SECTION 2.2 Form of Security.
[FORM OF FACE]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED
SECURITY:
THIS NOTE AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER.
THIS NOTE AND ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ACQUIRING FOR
ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO THE EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (3) TO AN INSTITUTIONAL INVESTOR THAT IS AN "ACCREDITED INVESTOR"
WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES.
THIS NOTE, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION AND ANY
RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY
THE RESTRICTIONS ON RESALES AND OTHER TRANSFERS OF THIS NOTE AND ANY SUCH SHARES
TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION
THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED
SECURITIES GENERALLY. THE HOLDER OF THIS NOTE AND ANY SUCH SHARES SHALL BE
DEEMED BY THE ACCEPTANCE OF THIS NOTE AND ANY SUCH SHARES TO HAVE AGREED TO ANY
SUCH AMENDMENT OR SUPPLEMENT.]
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<PAGE> 25
[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL
SECURITY:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND
ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE
INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.]
19
<PAGE> 26
CRITICAL PATH, INC.
5 3/4% CONVERTIBLE SUBORDINATED NOTE DUE APRIL 1, 2005
No. __________________ $__________
CUSIP NO.
CRITICAL PATH, INC., a corporation duly organized and existing under the
laws of the State of California (herein called the "Company", which term
includes any successor Person under the Indenture referred to on the reverse
hereof), for value received, hereby promises to pay to _________________, or
registered assigns, the principal sum of ________ United States Dollars
(U.S.$______ ) [IF THIS SECURITY IS A GLOBAL SECURITY, THEN INSERT -- (which
principal amount may from time to time be increased or decreased to such other
principal amounts (which, taken together with the principal amounts of all other
Outstanding Securities, shall not exceed $300,000,000 (or $350,000,000 if the
Over-allotment Option is exercised in full) by adjustments made on the records
of the Trustee hereinafter referred to in accordance with the Indenture)] on
April 1, 2005 and to pay interest thereon, from March 31, 2000, or from the most
recent Interest Payment Date (as defined below) to which interest has been paid
or duly provided for, semi-annually in arrears on April 1 and October 1 in each
year (each, an "Interest Payment Date"), commencing October 1, 2000, at the rate
of 5 3/4% per annum, until the principal hereof is due, and at the rate of 5
3/4% per annum on any overdue principal and premium, if any, and, to the extent
permitted by law, on any overdue interest. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be the March 15 or
September 15 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Except as otherwise provided in the Indenture, any
such interest not so punctually paid or duly provided for will forthwith cease
to be payable to the Holder on such Regular Record Date and may either be paid
to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Company, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
the Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any automated quotation system or
securities exchange on which the Securities may be quoted or listed, and upon
such notice as may be required by such exchange, all as more fully provided in
the Indenture. Payments of principal shall be made upon the surrender of this
Security at the option of the Holder at the Corporate Trust Office of the
Trustee, or at such other office or agency of the Company as may be designated
by it for such purpose in the Borough of Manhattan, The City of New York, in
such lawful monies of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, or at such
other offices or agencies as the Company may designate, by United States Dollar
check drawn on, or wire transfer to, a United States Dollar account (such a
transfer to be made only to a Holder of an aggregate principal amount of
Securities
20
<PAGE> 27
in excess of U.S.$2,000,000 and only if such Holder shall have furnished wire
instructions in writing to the Trustee no later than 15 days prior to the
relevant payment date). Payment of interest on this Security may be made by
United States Dollar check mailed to the address of the Person entitled thereto
as such address shall appear in the Security Register, or, upon written
application by the Holder to the Security Registrar setting forth wire
instructions not later than the relevant Record Date, by transfer to a United
States Dollar account (such a transfer to be made only to a Holder of an
aggregate principal amount of Securities in excess of U.S. $2,000,000 and only
if such Holder shall have furnished wire instructions in writing to the Trustee
no later than 15 days prior to the relevant payment date).
Except as specifically provided herein and in the Indenture, the Company
shall not be required to make any payment with respect to any tax, assessment or
other governmental charge imposed by any government or any political subdivision
or taxing authority thereof or therein.
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.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their respective authorized signatories, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
21
<PAGE> 28
IN WITNESS WHEREOF, the Company has caused this Security to be duly executed.
CRITICAL PATH, INC.
By: ____________________________________
Name:
Title:
Attest:
By: _____________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
Dated:
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By: _____________________________
Authorized Signatory
<PAGE> 29
[FORM OF REVERSE]
This Security is one of a duly authorized issue of securities of the
Company designated as its "5 3/4% Convertible Subordinated Notes due April 1,
2005" (herein called the "Securities"), limited in aggregate principal amount to
U.S. $300,000,000 (or $350,000,000 if the Over-allotment Option is exercised in
full), issued and to be issued under an Indenture, dated as of March 31, 2000
(herein called the "Indenture"), between the Company and State Street Bank and
Trust Company of California, N.A., as Trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee, the holders of Senior Debt and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. As provided in the Indenture and subject
to certain limitations therein set forth, Securities are exchangeable for a like
aggregate principal amount of Securities of any authorized denominations as
requested by the Holder surrendering the same upon surrender of the Security or
Securities to be exchanged, at the Corporate Trust Office of the Trustee. The
Trustee upon such surrender by the Holder will issue the new Securities in the
requested denominations.
No sinking fund is provided for the Securities. The Securities will not
be subject to redemption until on or after the third Business Day after April 1,
2003 and will be redeemable on and after that date at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days notice to the
Holders prior to the Redemption Date at the Redemption Prices (expressed as
percentages of the principal amount) set forth below.
The following table sets forth the Redemption Prices (expressed as
percentages of the principal amount) if such Security is redeemed during the
12-month period beginning April 1 (beginning the third Business Day after April
1, 2003 through March 31, 2004, in the case of the first such period):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003 102.30%
2004 101.15%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together, in each case, with accrued interest to the Redemption Date; provided,
however, that interest installments on Securities whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
In the event of a redemption of the Securities, the Company will not be
required (a) to register the transfer or exchange of 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 or exchange of any Security, or portion thereof, called for redemption.
21
<PAGE> 30
In any case where the due date for the payment of the principal of,
premium, if any, interest, or Liquidated Damages on any Security or the last day
on which a Holder of a Security has a right to convert his Security shall be, at
any Place of Payment or Place of Conversion as the case may be, a day on which
banking institutions at such Place of Payment or Place of Conversion are
authorized or obligated by law or executive order to close, then payment of
principal, premium, if any, interest, or Liquidated Damages, or delivery for
conversion of such Security need not be made on or by such date at such place
but may be made on or by the next succeeding day at such place which is not a
day on which banking institutions are authorized or obligated by law or
executive order to close, with the same force and effect as if made on the date
for such payment or the date fixed for redemption or repurchase, or by such last
day for conversion, and no interest shall accrue on the amount so payable for
the period after such date.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time on or before the
close of business on the date of Maturity, or in case this Security or a portion
hereof is called for redemption or the Holder hereof has exercised his right to
require the Company to repurchase this Security or such portion hereof, then in
respect of this Security until the Business Day immediately preceding, but
(unless the Company defaults in making the payment due upon redemption or
repurchase, as the case may be) not after, the close of business on the Business
Day immediately preceding the Redemption Date or the Repurchase Date, as the
case may be, to convert this Security (or any portion of the principal amount
hereof that is an integral multiple of U.S.$1,000, provided that the unconverted
portion of such principal amount is U.S.$1,000 or any integral multiple of
U.S.$1,000 in excess thereof) into fully paid and nonassessable shares of Common
Stock of the Company at an initial Conversion Rate of 9.8546 shares of Common
Stock for each U.S.$1,000 principal amount of Securities (or at the current
adjusted Conversion Rate if an adjustment has been made as provided in the
Indenture) by surrender of this Security, duly endorsed or assigned to the
Company or in blank and, in case such surrender shall be made during the period
from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date
(except if this Security or portion thereof has been called for redemption on a
Redemption Date or is repurchasable on a Repurchase Date occurring, in either
case, during such period and, as a result, the right to convert this Security
would otherwise terminate in such period if not exercised), also accompanied by
payment in New York Clearing House 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 this Security then being converted, and also the conversion
notice hereon duly executed, to the Company at the Corporate Trust Office of the
Trustee, or at such other office or agency of the Company, subject to any laws
or regulations applicable thereto and subject to the right of the Company to
terminate the appointment of any Conversion Agent (as defined below) as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, or at such other offices or agencies as the Company may designate (each a
"Conversion Agent"), provided, further, that if this Security or portion hereof
has been called for redemption on a Redemption Date or is repurchasable on a
Repurchase Date occurring, in either case, during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such succeeding Interest Payment Date, and as a
result, the right to convert this Security would otherwise terminate in such
period if not exercised and this Security is surrendered for
22
<PAGE> 31
conversion during such period, then the Holder of this Security on such Regular
Record Date will be entitled to receive the interest accruing hereon from the
Interest Payment Date next preceding the date of such conversion to such
succeeding Interest Payment Date and the Holder of this Security who converts
this Security or a portion hereof during such period shall not be required to
pay such interest upon surrender of this Security for conversion. Subject to the
provisions of the preceding sentence and, in the case of a conversion after the
close of business on the Regular Record Date next preceding any Interest Payment
Date and on or before the close of business on such Interest Payment Date, to
the right of the Holder of this Security (or any Predecessor Security of record
as of such Regular Record Date) to receive the related installment of interest
to the extent and under the circumstances provided in the Indenture, no cash
payment or adjustment is to be made on conversion for interest accrued hereon
from the Interest Payment Date next preceding the day of conversion, or for
dividends on the Common Stock issued on conversion hereof. The Company shall
thereafter deliver to the Holder the fixed number of shares of Common Stock
(together with any cash adjustment, as provided in the Indenture) into which
this Security is convertible and such delivery will be deemed to satisfy the
Company's obligation to pay the principal amount of this Security. No fractions
of shares or scrip representing fractions of shares will be issued on
conversion, but instead of any fractional interest (calculated to the nearest
1/100th of a share) the Company shall pay a cash adjustment as provided in the
Indenture. The Conversion Rate is subject to adjustment as provided in the
Indenture. In addition, the Indenture provides that in case of certain
consolidations or mergers to which the Company is a party (other than a
consolidation or merger that does not result in any reclassification,
conversion, exchange or cancellation of the Common Stock) or the conveyance,
transfer, sale or lease of all or substantially all of the property and assets
of the Company, the Indenture shall be amended, without the consent of any
Holders of Securities, so that this Security, if then Outstanding, will be
convertible thereafter, during the period this Security shall be convertible as
specified above, only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, transfer, sale
or lease by a holder of the number of shares of Common Stock of the Company into
which this Security could have been converted immediately prior to such
consolidation, merger, conveyance, transfer, sale or lease (assuming such holder
of Common Stock is not a Constituent Person or an Affiliate of a Constituent
Person, failed to exercise any rights of election and received per share the
kind and amount received per share by a plurality of Non-electing Shares. No
adjustment in the Conversion Rate will be made until such adjustment would
require an increase or decrease of at least one percent of such rate, provided
that any adjustment that would otherwise be made will be carried forward and
taken into account in the computation of any subsequent adjustment.
If this Security is a Registrable Security (as defined in this
Indenture), then the Holder of this Security [IF THIS SECURITY IS A GLOBAL
SECURITY, THEN INSERT -- (including any Person that has a beneficial interest in
this Security)] and the Common Stock of the Company issuable upon conversion
hereof is entitled to the benefits of a Registration Rights Agreement, dated as
of March 31, 2000, executed by the Company (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, the Company has
agreed for the benefit of the Holders from time to time of the Registrable
Securities that it will, at its expense, (a) within 90 days after the Issue Date
file a shelf registration statement (the "Shelf Registration Statement") with
the Commission with respect to resales of the Registrable Securities, (b) use
all reasonable efforts to cause such Shelf
23
<PAGE> 32
Registration Statement to be declared effective by the Commission within 180
days after the Issue Date of the Securities, provided, however, that the Company
may, upon written notice to all the Holders, postpone having the Shelf
Registration Statement declared effective for a reasonable period not to exceed
90 days if the Company possesses material non-public information, the disclosure
of which would have a material adverse effect on the Company and its
subsidiaries taken as a whole, and (c) use all reasonable efforts to maintain
such Shelf Registration Statement effective under the Securities Act of 1933, as
amended, until the second annual anniversary of the date it is declared
effective or such earlier date as is provided in the Registration Rights
Agreement (the "Effectiveness Period"). The Company will be permitted to suspend
the use of the prospectus which is part of the Shelf Registration Statement
during certain periods of time as provided in the Registration Rights Agreement.
If (i) on or prior to 90 days following the Issue Date, a Shelf
Registration Statement has not been filed with the Commission, or (ii) on or
prior to the 180th day following the Issue Date, such Shelf Registration
Statement is not declared effective (each, a "Registration Default"), additional
interest ("Liquidated Damages") will accrue on this Restricted Security from and
including the day following such Registration Default to but excluding the day
on which such 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, in respect of the Restricted
Securities following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount of the Restricted Securities to and
including the 90th day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
day following such Registration Default. Pursuant to the Registration Rights
Agreement, in the event that the Shelf Registration Statement ceases to be
effective (or the Holders of Registrable Securities are otherwise prevented or
restricted by the Company from effecting sales pursuant thereto) (an "Effective
Failure") during the Effectiveness Period for more than 45 days, whether or not
consecutive, during any 90-day period or for more than 90 days, whether or not
consecutive, during any 12-month period, then the interest rate borne by the
Restricted Securities shall increase by an additional one-half of one percent
(0.50%) per annum from the 46th day of the applicable 90-day period or the 91st
day of the applicable 12-month period until the earlier of (A) such time as the
Effective Failure is cured or (B) the Effectiveness Period expires.
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages payable as described in the preceding paragraph to the extent
that, in such context, Liquidated Damages are, were or would be payable in
respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
[If this Security is a Registrable Security and the Holder of this
Security [IF THIS SECURITY IS A GLOBAL SECURITY, THEN INSERT -- (including any
Person that has a beneficial interest in this Security)] elects to sell this
Security pursuant to the Shelf Registration Statement then, by its acceptance
24
<PAGE> 33
hereof, such Holder of this Security agrees to be bound by the terms of the
Registration Rights Agreement relating to the Registrable Securities which are
the subject of such election.]
If a Change in Control occurs, the Holder of this Security, at the
Holder's option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is at least $1,000 or an integral multiple of
$1,000 in excess thereof, provided that the portion of the principal amount of
this Security to be Outstanding after such repurchase is at least equal to
U.S.$1,000) for cash at a Repurchase Price equal to 100% of the principal amount
thereof plus interest accrued to the Repurchase Date. At the option of the
Company, the Repurchase Price may be paid in cash or, subject to the conditions
provided in the Indenture, by delivery of shares of Common Stock having a fair
market value equal to the Repurchase Price. For purposes of this paragraph, the
fair market value of shares of Common Stock shall be determined by the Company
and shall be equal to 95% of the average of the Closing Prices Per Share for the
five consecutive Trading Days immediately preceding and including the third
Trading Day prior to the Repurchase Date. Whenever in this Security 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 of 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 Security shall not be construed as excluding the
Repurchase Price so payable in those provisions of this Security when such
express mention is not made; provided, however, that, for the purposes of the
second succeeding paragraph, such reference shall be deemed to include reference
to the Repurchase Price only to the extent the Repurchase Price is payable in
cash.
[THE FOLLOWING PARAGRAPH SHALL APPEAR IN EACH GLOBAL SECURITY:
In the event of a deposit or withdrawal of an interest in this Security,
including an exchange, transfer, redemption, repurchase or conversion of this
Security in part only, the Trustee, as custodian of the Depositary, shall make
an adjustment on its records to reflect such deposit or withdrawal in accordance
with the Applicable Procedures.]
[THE FOLLOWING PARAGRAPH SHALL APPEAR IN EACH SECURITY THAT IS NOT A
GLOBAL SECURITY:
In the event of redemption, repurchase or conversion of this Security in
part only, a new Security or Securities for the unredeemed, unrepurchased or
unconverted portion hereof will be issued in the name of the Holder hereof.]
The indebtedness evidenced by this Security is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of 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 his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
so provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes.
25
<PAGE> 34
If an Event of Default shall occur and be continuing, the principal of
all the Securities, together with accrued interest to the date of declaration,
may be declared due and payable in the manner and with the effect provided in
the Indenture. Upon payment (i) of the amount of principal so declared due and
payable, together with accrued interest to the date of declaration, and (ii) of
interest on any overdue principal and, to the extent permitted by applicable
law, overdue interest, all of the Company's obligations in respect of the
payment of the principal of and interest on the Securities shall terminate.
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 either (a) the written consent of
the Holders of not less than a majority in principal amount of the Securities at
the time Outstanding, 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 66-2/3% in aggregate principal amount of the Outstanding
Securities represented and entitled to vote at such meeting. 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 in exchange therefore or in lieu hereof
whether or not notation of such consent or waiver is made upon this Security or
such other Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, the Holders of not
less than 25% in principal amount of the Outstanding Securities shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity and the
Trustee shall not have received from the Holders of a majority in principal
amount of the Securities Outstanding a direction inconsistent with such request,
and shall have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The foregoing shall not
apply to any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof, premiums if any, or interest (including
Liquidated Damages) hereon on or after the respective due dates expressed herein
or for the enforcement of the right to convert this Security as provided in the
Indenture.
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, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, places
and rate, and in the coin or currency, herein prescribed or to convert this
Security as provided in the Indenture.
26
<PAGE> 35
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable on the Security Register
upon surrender of this Security for registration of transfer at the Corporate
Trust Office of the Trustee or at such other office or agency of the Company as
may be designated by it for such purpose in the Borough of Manhattan, The City
of New York (which shall initially be an office or agency of the Trustee), or at
such other offices or agencies as the Company may designate, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder thereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees by the Registrar. No service
charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to recover any tax or other
governmental charge payable in connection therewith.
Prior to due presentation of a this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered, as the owner
thereof for all purposes, whether or not such Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
No recourse for the payment of the principal (and premium, if any) or
interest on this Security and no recourse under or upon any obligation, covenant
or agreement of the Company in the Indenture or any indenture supplemental
thereto or in any Security, or because of the creation of any indebtedness
represented thereby, shall be had against any incorporator, stockholder,
employee, agent, officer or director or subsidiary, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of consideration for the issue hereof, expressly waived and released.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
27
<PAGE> 36
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Security, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM as tenant in common UNIF GIFT MIN ACT ______ Custodian _______
TEN ENT as tenants by the entireties (Cust) (Cust) (Minor)
JT TEN as joint tenants with right of survivorship under Uniform Gifts to
and not as tenants in common Minors Act _______
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
28
<PAGE> 37
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(1) Pursuant to Section 14.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
(2) The undersigned hereby directs the Trustee or the Company to pay
it or ______________ an amount in cash or, at the Company's election, Common
Stock valued as set forth in the Indenture, equal to 100% of the principal
amount to be repurchased (as set forth below), plus interest accrued to the
Repurchase Date, as provided in the Indenture.
Dated:
_________________________________
_________________________________
Signature(s)
Signature(s) must be guaranteed by an
Eligible Guarantor Institution with
membership in an approved signature guarantee
program pursuant to Rule 17Ad-15 under the
Securities Exchange Act of 1934.
_________________________________
Signature Guaranteed
Principal amount to be repurchased (at least
U.S. $1,000 or an integral multiple of $1,000
in excess thereof):____ ___________________
Remaining principal amount following such
repurchase (not less than U.S. $1,000):
- --------------
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
SECTION 2.3 Form of Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially
the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: _______________
29
<PAGE> 38
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.
as Trustee
By:____________________________
Authorized Signatory
SECTION 2.4 Form of Conversion Notice.
CONVERSION NOTICE
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is U.S.$1,000 or an integral multiple of U.S.$1,000 in excess thereof,
provided that the unconverted portion of such principal amount is U.S. $1,000 or
any integral multiple of U.S. $1,000 in excess thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred to
in this Security, and directs that such shares, together with a check in payment
for any fractional share and any Securities representing any unconverted
principal amount hereof, be delivered to and be registered in the name of the
undersigned unless a different name has been indicated below. If shares of
Common Stock or Securities are to be registered in the name of a Person other
than the undersigned, (a) the undersigned will pay all transfer taxes payable
with respect thereto and (b) signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an approved signature guarantee program
pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount
required to be paid by the undersigned on account of interest accompanies this
Security.
Dated:_____________ _____________________________________
Signature(s)
If shares or Securities are to be
registered in the name of a Person
other than the Holder, please print
such Person's name and address:
_________________________________
(Name)
_________________________________
_________________________________
(Address)
_________________________________
Social Security or other Identification
Number, if any
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_________________________________
[Signature Guaranteed]
If only a portion of the Securities is to be converted, please indicate:
1. Principal amount to be converted: U.S. $___________
2. Principal amount and denomination of Securities
representing unconverted principal amount to be issued:
Amount: U.S. $___________ Denominations: U.S. $____________
(U.S.$1,000 or any integral multiple of U.S.$1,000 in excess thereof, provided
that the unconverted portion of such principal amount is U.S. $1,000 or any
integral multiple of U.S. $1,000 in excess thereof)
SECTION 2.5 Form of Assignment.
For value received ________________ hereby sell(s), assign(s) and
transfer(s) unto ________________ (Please insert social security or other
identifying number of assignee) the within Security, and hereby irrevocably
constitutes and appoints ____________________as attorney to transfer the said
Security on the books of the Company, with full power of substitution in the
premises.
Dated: _______________ ________________________________________
____________________________________________
Signature(s)
Signature(s) must be guaranteed by an
Eligible Guarantor Institution with
membership in an approved signature guarantee
program pursuant to Rule 17Ad - 15 under the
Securities Exchange Act of 1934.
____________________________________________
Signature Guaranteed
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ARTICLE III
THE SECURITIES
SECTION 3.1 Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to U.S. $300,000,000 (or
$350,000,000 if the Over-allotment Option set forth in Section 2 of the Purchase
Agreement is exercised in full (the "Over-allotment Option")), except for
Securities authenticated and delivered pursuant to Section 3.4, 3.5, 3.6, 8.5,
12.2 or 14.3(5) in exchange for, or in lieu of, other Securities previously
authenticated and delivered under this Indenture.
(1) The Securities shall be known and designated as the "5 3/4%
Convertible Subordinated Notes due April 1, 2005" of the Company. Their Stated
Maturity shall be April 1, 2005 and they shall bear interest on their principal
amount from March 31, 2000, payable semi-annually in arrears on April 1 and
October 1 in each year, commencing October 1, 2000, at the rate of 5 3/4% per
annum until the principal thereof is due and at the rate of 5 3/4% per annum on
any overdue principal and, to the extent permitted by law, on any overdue
interest; provided, however, that payments shall only be made on a Business Day
as provided in Section 1.12.
The principal of, premium, if any, and interest on the Securities shall
be payable as provided in the form of Securities set forth in Section 2.2, and
the Repurchase Price, whether payable in cash or in shares of Common Stock,
shall be payable at such places as are identified in the Company Notice given
pursuant to Section 14.3 (any city in which any Paying Agent is located being
herein called a "Place of Payment").
The Registrable Securities are entitled to the benefits of a
Registration Rights Agreement as provided by Section 10.11 and in the form of
Security set forth in Section 2.2. The Securities are entitled to the payment of
Liquidated Damages as provided by Section 10.11.
The Securities shall be redeemable at the option of the Company at any
time on or after the third Business Day after April 1, 2003, in whole or in
part, subject to the conditions and as otherwise provided in Article XI and in
the form of Security set forth in Section 2.2.
The Securities shall be convertible as provided in Article XII (any city
in which any Conversion Agent is located being herein called a "Place of
Conversion").
The Securities shall be subordinated in right of payment to Senior Debt
of the Company as provided in Article XIII.
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<PAGE> 41
The Securities shall be subject to repurchase by the Company at the
option of the Holders as provided in Article XIV.
SECTION 3.2 Denominations.
The Securities shall be issuable only in registered form, without
coupons, in denominations of U.S.$1,000 and integral multiples of U.S.$1,000 in
excess thereof.
SECTION 3.3 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its Chief Executive
Officer, its President, one of its Executive Vice Presidents or one of its Vice
Presidents, and attested by its Chief Financial Officer, Secretary or one of its
Assistant Secretaries. Any such signature may be manual or facsimile.
Securities bearing the manual or facsimile signature of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
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 or to its order 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 make available for
delivery such Securities as in this Indenture provided.
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 the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
SECTION 3.4 Global Securities; Non-global Securities; Book-entry Provisions.
(1) Global Securities
(i) Each Global Security authenticated under this Indenture
shall be registered in the name of the Depositary designated by the Company for
such Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(ii) Except for exchanges of Global Securities for definitive,
Non-global Securities at the sole discretion of the Company, no Global Security
may be exchanged in whole or
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<PAGE> 42
in part for Securities registered, and no transfer of a Global Security in whole
or in part may be registered, in the name of any Person other than the
Depositary for such Global Security or a nominee thereof unless (A) such
Depositary (i) has notified the Company that it is unwilling or unable to
continue as Depositary for such Global Security or (ii) has ceased to be a
clearing agency registered as such under the Exchange Act or announces an
intention permanently to cease business or does in fact do so or (B) there shall
have occurred and be continuing an Event of Default with respect to such Global
Security. In such event, if a successor Depositary for such Global Security is
not appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such ineligibility, the Company will execute, and the
Trustee, upon receipt of an Officers' Certificate directing the authentication
and delivery of Securities, will authenticate and deliver, Securities, in any
authorized denominations in an aggregate principal amount equal to the principal
amount of such Global Security in exchange for such Global Security.
(iii) If any Global Security is to be exchanged for other
Securities or canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Security Registrar, for exchange or
cancellation, as provided in this Article III. If any Global Security is to be
exchanged for other Securities or canceled in part, or if another Security is to
be exchanged in whole or in part for a beneficial interest in any Global
Security, in each case, as provided in Section 3.5, then either (A) such Global
Security shall be so surrendered for exchange or cancellation, as provided in
this Article III, or (B) the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
canceled, or equal to the principal amount of such other Security to be so
exchanged for a beneficial interest therein, as the case may be, by means of an
appropriate adjustment made on the records of the Trustee, as Security
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security, the Trustee shall, subject to Section 3.5(3) and as
otherwise provided in this Article III, authenticate and deliver any Securities
issuable in exchange for such Global Security (or any portion thereof) to or
upon the order of, and registered in such names as may be directed by, the
Depositary or its authorized representative. Upon the request of the Trustee in
connection with the occurrence of any of the events specified in the preceding
paragraph, the Company shall promptly make available to the Trustee a reasonable
supply of Securities that are not in the form of Global Securities. The Trustee
shall be entitled to rely upon any order, direction or request of the Depositary
or its authorized representative which is given or made pursuant to this Article
III if such order, direction or request is given or made in accordance with the
Applicable Procedures.
(iv) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global Security
or any portion thereof, whether pursuant to this Article III or otherwise, shall
be authenticated and delivered in the form of, and shall be, a registered Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof, in which case such
Security shall be authenticated and delivered in definitive, fully registered
form, without interest coupons.
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<PAGE> 43
(v) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under the Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members and
such owners of beneficial interests in a Global Security will not be considered
the owners or holders thereof.
(2) Non-global Securities. Securities issued upon the events described in
Section 3.4(l)(ii) shall be in definitive, fully registered form, without
interest coupons, and shall bear the Restricted Securities Legend if and as
required by this Indenture.
SECTION 3.5 Registration; Registration of Transfer and Exchange; Restrictions
on Transfer.
(1) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office referred to as
the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
of transfers of Securities. The Trustee is hereby appointed "Security Registrar"
for the purpose of registering Securities and transfers and exchanges of
Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office
or agency of the Company designated pursuant to Section 10.2 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Securities
of any authorized denominations and of a like aggregate principal amount and
bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, and subject to the other provisions of this
Section 3.5, Securities may be exchanged for other Securities of any authorized
denomination and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at any such office or agency. Whenever any Securities
are so surrendered for exchange, and subject to the other provisions of this
Section 3.5, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities that the Holder making the exchange is entitled to
receive. Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company, the Trustee and the Security Registrar duly
executed, by the Holder thereof or his attorney duly authorized in writing.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt and entitled to the same benefits under this Indenture as the Securities
surrendered upon such registration of transfer or exchange.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities except as provided in Section 3.6, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any
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<PAGE> 44
registration of transfer or exchange of Securities, other than exchanges
pursuant to Section 3.4, 8.5, 12.2 or 14.3 (other than where the shares of
Common Stock are to be issued or delivered in a name other than that of the
Holder of the Security) not involving any transfer and other than any stamp and
other duties, if any, which may be imposed in connection with any such transfer
or exchange by the United States or any political subdivision thereof or
therein, which shall be paid by the Company.
In the event of a redemption of the Securities, neither the Company nor
the Securities Registrar will 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 Security, or
portion thereof, called for redemption.
(2) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture or the Securities, transfers and exchanges of
Securities and beneficial interests in a Global Security of the kinds specified
in this Section 3.5(2) shall be made only in accordance with this Section
3.5(2).
(i) Restricted Global Security to Restricted Non-global
Security. In the event that Non-global Securities are to be issued pursuant to
Section 3.4(1)(ii) in connection with any transfer of Securities, such transfer
may be effected only in accordance with the provisions of this Clause (2)(i) and
subject to the Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) a Company Order from the Company directing the Trustee, as
Security Registrar, to (x) authenticate and deliver one or more Securities of
the same aggregate principal amount as the beneficial interest in the Restricted
Global Security to be transferred, such instructions to contain the name or
names of the designated transferee or transferees, the authorized denomination
or denominations of the Securities to be so issued and appropriate delivery
instructions and (y) decrease the beneficial interest of a specified Agent
Member's account in a Restricted Global Security by a specified principal amount
not greater than the principal amount of such Restricted Global Security, and
(B) such other certifications, legal opinions or other information as the
Company or the Trustee 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, then the Trustee, as
Security Registrar, shall decrease the principal amount of the Restricted Global
Security by the specified amount and authenticate and deliver Securities in
accordance with such instructions from the Company as provided in Section
3.4(1)(iii).
(ii) Restricted Non-global Security to Restricted Global
Security. If the Holder of a Restricted Security (other than a Global Security)
wishes at any time to transfer all or any portion of such Restricted Security to
a Person who wishes to take delivery thereof in the form of a beneficial
interest in the Restricted Global Security, such transfer may be effected only
in accordance with the provisions of this Clause (2)(ii) and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of
such Restricted Security as provided in Section 3.5(1) and instructions from the
Company directing that a beneficial interest in the Restricted Global Security
in a specified principal amount not greater than the principal amount of such
Security be credited to a specified Agent Member's account, then the Trustee, as
Security
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<PAGE> 45
Registrar, shall cancel such Restricted Security (and issue a new Restricted
Security in respect of any untransferred portion thereof) as provided in Section
3.5(1) and increase the principal amount of the Restricted Global Security by
the specified principal amount as provided in Section 3.4(1)(iii).
(iii) Exchanges Between Global Security and Non-global Security.
A beneficial interest in a Global Security may be exchanged for a Security that
is not a Global Security only as provided in Section 3.4 or only if such
exchange occurs in connection with a transfer effected in accordance with Clause
2(i) above, provided that, if such interest is a beneficial interest in the
Restricted Global Security, then such interest shall be exchanged for a
Restricted Security (subject in each case to Section 3.5(3)). A Security that is
not a Global Security may be exchanged for a beneficial interest in a Global
Security only if such exchange occurs in connection with a transfer effected in
accordance with Clause (2)(ii) above.
(3) Securities Act Legends. All Securities issued pursuant to this
Indenture, and all Successor Securities, shall bear the Restricted Securities
Legend, subject to the following:
(i) subject to the following Clauses of this Section 3.5(3), a
Security or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Restricted
Securities Legend borne by such Global Security for which the Security was
exchanged;
(ii) subject to the following Clauses of this Section 3.5(3), a
new Security that is not a Global Security and is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear the Restricted Securities Legend borne by the Security for
which the new Security was exchanged;
(iii) any Securities that are sold or otherwise disposed of
pursuant to an effective registration statement under the Securities Act
(including the Shelf Registration Statement), together with their Successor
Securities shall not bear a Restricted Securities Legend; the Company shall
inform the Trustee in writing of the effective date of any such registration
statement registering the Securities under the Securities Act and shall notify
the Trustee at any time when prospectuses must be delivered with respect to
Securities to be sold pursuant to such registration statement. The Trustee shall
not be liable for any action taken or omitted to be taken by it in good faith in
accordance with the aforementioned registration statement;
(iv) at any time after the Securities may be freely transferred
without registration under the Securities Act or without being subject to
transfer restrictions pursuant to the Securities Act, a new Security that does
not bear a Restricted Securities Legend may be issued in exchange for or in lieu
of a Security (other than a Global Security) or any portion thereof that bears
such a legend if the Trustee has received an Unrestricted Securities
Certificate, satisfactory to the Trustee and duly executed by the Holder of such
Security bearing a Restricted Securities Legend or his attorney duly authorized
in writing, and after such date and receipt of such certificate, the Trustee
shall authenticate and deliver such new Security in exchange for or in lieu of
such other Security as provided in this Article III;
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<PAGE> 46
(v) a new Security that does not bear a Restricted Securities
Legend may be issued in exchange for or in lieu of a Security or any portion
thereof that bears such a legend if, in the Company's judgment, placing such a
legend upon such new Security is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at the
direction of the Company, shall authenticate and deliver such a new Security as
provided in this Article III; and
(vi) notwithstanding the foregoing provisions of this Section
3.5(3), a Successor Security of a Security that does not bear a Restricted
Securities Legend shall not bear such legend unless the Company has reasonable
cause to believe that such Successor Security is a "restricted security" within
the meaning of Rule 144, in which case the Trustee, at the direction of the
Company, shall authenticate and deliver a new Security bearing a Restricted
Securities Legend in exchange for such Successor Security as provided in this
Article III.
(4) Any stock certificate representing shares of Common Stock issued
upon conversion of the Securities shall bear the Restricted Securities Legend
borne by such Securities, to the extent required by this Indenture, unless such
shares of Common Stock have been sold pursuant to a registration statement that
has been declared effective under the Securities Act (and that continues to be
effective at the time of such transfer) or sold pursuant to Rule 144(k) of the
Securities Act, or unless otherwise agreed by the Company in writing with
written notice thereof to the transfer agent for the Common Stock. With respect
to the transfer of shares of Common Stock issued upon conversion of the
Securities that are restricted hereunder, any deliveries of certificates, legal
opinions or other instruments that would be required to be made to the Security
Registrar in the case of a transfer of Securities, as described above, shall
instead be made to the transfer agent for the Common Stock.
(5) Neither the Trustee, the Paying Agent nor any of their agents
shall (i) have any duty to monitor compliance with or with respect to any
federal or state or other securities or tax laws or (ii) have any duty to obtain
documentation on any transfers or exchanges other than as specifically required
hereunder.
SECTION 3.6 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 be delivered to the Company and to 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 satisfactory to the Company
and the Trustee to save each of them and any agent of either of them harmless,
then, in the absence of actual notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and the Trustee shall authenticate and deliver, in lieu of any such destroyed,
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<PAGE> 47
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 conditions set forth in the preceding
paragraph.
Upon the issuance of any new Security under this Section 3.6, 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 (other than any
stamp and other duties, if any, which may be imposed in connection therewith by
the United States or any political subdivision thereof or therein, which shall
be paid by the Company) and any other expenses (including the fees and expenses
of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 3.6 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
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 3.6 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies of any Holder with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7 Payment of Interest; Interest Rights Preserved.
Interest on any Security that 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.
Any interest on any Security that is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security, the date of the
proposed payment and the Special Record Date, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or
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<PAGE> 48
shall make arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. The Special Record Date for the payment of such Defaulted
Interest shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee, in the name and at
the expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at such Holder's address as it
appears in the Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 3.5,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
Interest on any Security that is converted in accordance with Section
12.2 during a Record Date Period shall be payable in accordance with the
provisions of Section 12.2.
SECTION 3.8 Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee, any Paying Agent and any agent of the Company, the Trustee
or any Paying Agent may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 3.7) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee, any Paying Agent nor any agent of
the Company, the Trustee or any Paying Agent shall be affected by notice to the
contrary.
SECTION 3.9 Cancellation.
All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered to the Trustee shall be canceled promptly by the Trustee (or its
agent). No Securities shall be authenticated in lieu of or in exchange for any
Securities canceled as
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provided in this Section 3.9. The Trustee shall dispose of all canceled
Securities in accordance with applicable law and its customary practices in
effect from time to time.
SECTION 3.10 Computation of Interest.
Interest on the Securities (including any Liquidated Damages) shall be
computed on the basis of a 360-day year of twelve 30-day months.
SECTION 3.11 CUSIP Numbers.
The Company in issuing Securities may use "CUSIP" numbers (if then
generally in use) in addition to serial numbers; if so, the Trustee shall use
such CUSIP numbers in addition to serial numbers in notices of redemption and
repurchase as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such CUSIP numbers
either as printed on the Securities or as contained in any notice of a
redemption or repurchase and that reliance may be placed only on the serial or
other identification numbers printed on the Securities, and any such redemption
or repurchase shall not be affected by any defect in or omission of such CUSIP
numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction And Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of conversion, or registration of transfer or
exchange, or replacement of Securities herein expressly provided for and any
right to receive Liquidated Damages as provided in Section 10.11 and in the form
of Securities set forth in Section 2.2 and the Company's obligations to the
Trustee pursuant to Section 6.7), and the Trustee, at the expense of the
Company, shall execute proper instruments in form and substance satisfactory to
the Trustee acknowledging satisfaction and discharge of this Indenture, when
(1) either
(i) all Securities theretofore authenticated and delivered
(other than (A) Securities which have been destroyed, lost or stolen and that
have been replaced or paid as provided in Section 3.6 and (B) Securities for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 10.3) have been delivered to the Trustee
for cancellation; or
(ii) all such Securities not theretofore delivered to the
Trustee or its agent for cancellation (other than Securities referred to in
clauses (A) and (B) of clause (1)(i) above)
(a) have become due and payable, or
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(b) will have become due and payable at their Stated
Maturity within one year, or
(c) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the Company,
in the case of clause (a), (b) or (c) above, has deposited or caused to be
deposited with the Trustee as trust funds (immediately available to the Holders
in the case of clause (a)) in trust for the purpose an amount in cash sufficient
to pay and discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal, premium, if any, and
interest (including any Liquidated Damages) to the date of such deposit (in the
case of Securities which have become due and payable) or to the Stated Maturity
or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.12, the obligation of
the Company to pay Liquidated Damages, if money shall have been deposited with
the Trustee pursuant to clause (1)(ii) of this Section 4.1, the obligations of
the Trustee under Section 4.2 and the last paragraph of Section 10.3 and the
obligations of the Company and the Trustee under Section 3.5 and Article XII
shall survive. Funds held in trust pursuant to this Section are not subject to
the provisions of Article XIII.
SECTION 4.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 and in accordance with
the provisions of Article XIII shall be held in trust for the sole benefit of
the Holders and not be subject to the subordination provisions of Article XIII,
and such monies shall be applied by the Trustee, in accordance with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying Agent, to the Persons entitled thereto, of the principal,
premium, if any, and interest for whose payment such money has been deposited
with the Trustee.
All moneys deposited with the Trustee pursuant to Section 4.1 (and held
by it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed or assessed against all money deposited with the Trustee
pursuant to Section 4.1 (other than income taxes and franchise taxes incurred or
payable by the Trustee and such other taxes, fees or
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charges incurred or payable by the Trustee that are not directly the result of
the deposit of such money with the Trustee).
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article XIII 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):
(1) default in the payment of the principal of or premium, if any, on
any Security at its Maturity, whether or not such payment is prohibited by the
subordination provisions of the Securities or of this Indenture; or
(2) default in the payment of any interest (including any Liquidated
Damages) upon any Security when it becomes due and payable, and continuance of
such default for a period of 30 days, whether or not such payment is prohibited
by the subordination provisions of the Securities or of this Indenture; or
(3) failure by the Company to give a Company Notice in accordance
with Section 14.3 whether or not such Company Notice is prohibited by the
subordination provisions of the Securities or the Indenture; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in the performance or breach of which is specifically dealt with
elsewhere in this Section), and continuance of such default or breach for a
period of 60 days after there has been given, by registered or certified mail,
to the Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25% in principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(5) any indebtedness under any bonds, debentures, notes or other
evidences of indebtedness for money borrowed (or guarantee thereof) by the
Company or any Significant Subsidiary or under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or any Significant
Subsidiary (an "Instrument") with an aggregate principal amount in excess of
U.S. $10,000,000, whether such indebtedness now exists or shall hereafter be
created, is not paid at final maturity of any Instrument (either at its stated
maturity or upon acceleration thereof), and such indebtedness is not discharged,
or such acceleration is not rescinded or annulled, within a period of 30 days
after there shall have been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the
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Outstanding Securities a written notice specifying such default and requiring
the Company to cause such indebtedness to be discharged or cause such default to
be cured or waived or such acceleration to be rescinded or annulled and stating
that such notice is a "Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Significant Subsidiary under any applicable Federal or State law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Significant Subsidiary or of any
substantial part of the property of either, 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
(7) the commencement by the Company or any Significant Subsidiary of
a voluntary case or proceeding under any applicable 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 either
to the entry of a decree or order for relief in respect of the Company or any
Significant Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
either, or the filing by either of a petition or answer or consent seeking
reorganization or similar relief under any applicable Federal or State law, or
the consent by either to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of any substantial part of the property of either, or the making
by either of an assignment for the benefit of creditors, or the admission by
either in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company or any Significant
Subsidiary in furtherance of any such action.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.1(6) or 5.1(7) with respect to the Company) occurs and is continuing,
then in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities may, subject to the provisions of
Article XIII, declare the principal of all the Securities to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by the Holders), and upon any such declaration such principal and all accrued
interest thereon shall become immediately due and payable. If an Event of
Default specified in Section 5.1(6) or 5.1(7) with respect to the Company
occurs, the principal of, and accrued interest on, all the Securities shall,
subject to the provisions of Article XIII, ipso facto become immediately due and
payable without any declaration or other Act of the Holders or any act on the
part of the Trustee.
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At any time after such declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article V provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may, on behalf of all Holders, rescind and annul such
declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest on all Securities,
(ii) the principal of and premium, if any, on any Securities
that have become due otherwise than by such declaration of acceleration and any
interest thereon at the rate borne by the Securities,
(iii) to the extent permitted by applicable law, interest upon
overdue interest at a rate of 5 3/4% per annum, and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel;
(2) all Events of Default, other than the nonpayment of the principal
of and any premium and interest on, Securities which have become due solely by
such declaration of acceleration, have been cured or waived as provided in
Section 5.13; and
(3) such rescission and annulment would not conflict with any
judgment or decree issued in appropriate judicial proceedings regarding the
payment by the Trustee to the Holders of the amounts referred to in 5.2(1).
No rescission or annulment referred to above shall affect any subsequent
default or impair any right consequent thereon.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest (including any
Liquidated Damages) on any Security when it becomes due and payable and such
default continues for a period of 30 days, or
(2) 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 but subject to the provisions of
Article XIII pay to it, for the benefit of the Holders of such Securities the
whole amount then due and payable on such Securities for principal and interest
(including any Liquidated Damages) and interest on any overdue principal and
premium, if any, and, to the extent permitted by applicable law, on any overdue
interest (including any Liquidated Damages), at a rate of 5 3/4% per annum, and
in addition thereto,
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such further amount as shall be sufficient to cover the reasonable 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 or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, 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.
SECTION 5.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or the
creditors of either, the Trustee (irrespective of whether the principal of, and
any interest on, 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) 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,
premium, if any, and interest owing and unpaid in respect of the Securities and
take such other actions, including participating as a member, voting or
otherwise, of any official committee of creditors appointed in such matter, and
to file such other papers or documents, in each of the foregoing cases, 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 proceeding 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 6.7.
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Nothing herein contained 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;
provided, however, that the Trustee may, on behalf of such Holders, vote for the
election of a trustee in bankruptcy or similar official. SECTION 5.5 Trustee May
Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which judgment
has been recovered.
SECTION 5.6 Application of Money Collected.
Subject to Article XIII, any money collected by the Trustee pursuant to
this Article V 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, premium, if any, or interest, 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 under Section 6.7;
SECOND: To the payment of the amounts then due and unpaid for principal
of, premium, if any, or interest (including Liquidated Damages, if any) on, the
Securities 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, premium, if any, and
interest (including Liquidated Damages, if any), respectively;
THIRD: To such other Person or Persons, if any, to the extent entitled
thereto; and
FOURTH: Any remaining amounts shall be repaid to the Company.
SECTION 5.7 Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
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(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee, and if
requested, shall have provided, reasonable indemnity against the costs, expenses
and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity (or if requested, receipt of indemnity) has failed to
institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60 day period by the Holders of a majority in
principal amount of the Outstanding Securities, it being understood and intended
that no one or more of such Holders shall have any right in any manner whatever
by virtue of, or by availing of, any provision of this Indenture to affect,
disturb or prejudice the rights of any other of such Holders, or to obtain or
seek to obtain priority or preference over any other of such Holders or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all such Holders.
SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert.
Notwithstanding any other provision in this Indenture, but subject to
the provisions of Article XIII, the Holder of any Security shall have the right,
which is absolute and unconditional, to receive payment of the principal of,
premium, if any, and (subject to Section 3.7) interest (including Liquidated
Damages, if any) on such Security on the respective Stated Maturities expressed
in such Security (or, in the case of redemption or repurchase, on the Redemption
Date or Repurchase Date, as the case may be), and to convert such Security in
accordance with Article XII, and to institute suit for the enforcement of any
such payment and right to convert, and such rights shall not be impaired without
the consent of such Holder.
SECTION 5.9 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
such Holders shall continue as though no such proceeding had been instituted.
SECTION 5.10 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 3.6, no right or remedy herein
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conferred 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 now 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 5.11 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 V 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 (subject to the
limitations contained in this Indenture) by the Holders of Securities as the
case may be.
SECTION 5.12 Control by Holders of Securities.
Subject to Section 6.3, the Holders of a majority in principal amount of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action that might involve it in
personal liability or be unjustly prejudicial to the Holders of Securities not
consenting.
SECTION 5.13 Waiver of Past Defaults.
The Holders, either (i) through the written consent of not less than a
majority in 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 at least 66-2/3% in principal
amount of the Outstanding Securities represented at such meeting, may on behalf
of the Holders of all the Securities waive any past default hereunder and its
consequences, except a default (A) in the payment of the principal of, premium,
if any, or interest (including Liquidated Damages) on any Security, or (B) in
respect of a covenant or provision hereof which under Article VIII cannot be
modified or amended without the consent of the Holder 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; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
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SECTION 5.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or 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 5.14 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 principal
amount of the Outstanding Securities, or to any suit instituted by any Holder of
any Security for the enforcement of the payment of the principal of, premium, if
any, or interest on any Security on or after the respective Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption or
repurchase, on or after the Redemption Date or Repurchase Date, as the case may
be) or for the enforcement of the right to convert any Security in accordance
with Article XII.
SECTION 5.15 Waiver of Stay, Usury 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 or
take the benefit or advantage of, any stay, usury or extension law wherever
enacted, now or at any time hereafter in force, that 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 by reason of such law 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.
ARTICLE VI
THE TRUSTEE
SECTION 6.1 Certain Duties and Responsibilities.
(1) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(ii) 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, but 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 be under a duty to
examine the same to determine
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whether or not they conform to the requirements of this Indenture, but not to
verify the contents thereof.
(2) In case an Event of Default 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 man would exercise or use under the circumstances in the conduct of his
own affairs.
(3) 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
(i) this paragraph (3) shall not be construed to limit the
effect of paragraph (1) of this Section;
(ii) 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;
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
(iv) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(4) Whether or not therein 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.
SECTION 6.2 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder as to which
the Trustee has received written notice, the Trustee shall give to all Holders
of Securities, in the manner provided in Section 1.6, notice of such default,
unless such default shall have been cured or waived; provided, however, that,
except in the case of a default in the payment of the principal of, premium, if
any, or interest on any Security the Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust committee of directors or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided, further, that in the case of any default of the character
specified in
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Section 5.1(4), no such notice to Holders of Securities shall be given until at
least 60 days after the occurrence thereof or, if applicable, the cure period
specified therein. For the purpose of this Section, the term "default" means any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
SECTION 6.3 Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(1) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, Officers' Certificate, other
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, coupon, other evidence of indebtedness or
other paper or document (collectively, the "Documents") believed by it to be
genuine and to have been signed or presented by the proper party or parties, and
the Trustee need not investigate any fact or matter stated in such Documents;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors shall be sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be the one specifically prescribed) may, in the absence of bad faith on its
part, request and rely upon an Officers' Certificate or Opinion of Counsel;
(4) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders of Securities pursuant to this Indenture, unless such Holders
shall have offered, and, if requested by the Trustee, delivered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction;
(6) 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 may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible
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for any misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder.
SECTION 6.4 Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities (except the
Trustee's certificates of authentication) shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture, of the Securities or of the Common Stock issuable upon the conversion
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 6.5 May Hold Securities, Act as Trustee under Other Indentures.
The Trustee, any Authenticating Agent, any Paying Agent, any Conversion
Agent or any other agent of the Company or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Conversion Agent or such other agent.
The Trustee may become and act as trustee under other indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding in the same manner as if it were not
Trustee hereunder.
SECTION 6.6 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
agreed in writing with the Company.
SECTION 6.7 Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree in
writing for its acceptance of this Indenture and for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee (including costs and expenses of enforcing this
Indenture and defending itself against any claim (whether asserted by the
Company, any Holder of Securities or any other Person) or liability in
connection with the exercise of any of its powers or duties hereunder) in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and
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disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee (and its directors, officers, employees
and agents) for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust, including the
reasonable costs, expenses and reasonable attorneys' fees of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
The Trustee shall have a lien prior to the Securities on all money or
property held or controlled by the Trustee to secure the Company's payment
obligations in this Section 6.7, except that held in trust to pay principal and
interest (including Liquidated Damages) on the Securities.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 5.1(6) or Section 5.1(7), the expenses
(including the reasonable charges of its counsel) and the compensation for the
services are intended to constitute expenses of the administration under any
applicable Federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee.
SECTION 6.8 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such, having (or
be part of a holding company group with) a combined capital and surplus of at
least U.S. $50,000,000, subject to supervision or examination by federal or
state authority, and in good standing. The Trustee or an Affiliate of the
Trustee shall maintain an established place of business in the Borough of
Manhattan, The City of New York. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article and a
successor shall be appointed pursuant to Section 6.9.
SECTION 6.9 Resignation and Removal; Appointment of Successor.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10.
(2) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 6.10 shall not have been
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delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(3) The Trustee may be removed at any time by an Act of the Holders
of a majority in principal amount of the Outstanding Securities, delivered to
the Trustee and the Company. If the instrument of acceptance by a successor
Trustee required by Section 6.10 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of removal, the removed Trustee
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(4) If at any time:
(i) the Trustee shall cease to be eligible under Section 6.8
and shall fail to resign after written request therefor by the Company or by any
Holder of a Security who has been a bona fide Holder of a Security for at least
six months, or
(ii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been
a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee and
shall comply with the applicable requirements of this Section and Section 6.10.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 6.10, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner required by this Section and Section
6.10, any Holder of a Security who has been a bona fide Holder of a Security for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(6) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders of Securities in the manner provided in Section 1.6. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 6.10 Acceptance of Appointment by Successor.
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Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture), shall
be the successor of the Trustee hereunder, provided such corporation shall be
otherwise eligible under this Article, without the execution or filing of any
paper or any further act on the part of any of the parties hereto. In case any
Securities shall have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 6.12 Authenticating Agents.
The Trustee may, with the consent of the Company, appoint an
Authenticating Agent or Agents acceptable to the Company with respect to the
Securities, which Authenticating Agent shall be authorized to act on behalf of
the Trustee to authenticate Securities issued upon exchange or substitution
pursuant to this Indenture.
Securities authenticated by an Authenticating Agent shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder, and every reference in
this Indenture to the authentication and delivery of Securities by the Trustee
or the Trustee's certificate of authentication shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be subject to acceptance
by the Company and shall at all times be a corporation organized and doing
business under the laws of the United States of America, any State thereof or
the District of Columbia, authorized under such laws to act as Authenticating
Agent and subject to supervision or examination by government or other fiscal
authority. If at any time an Authenticating Agent shall
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cease to be eligible in accordance with the provisions of this Section 6.12,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section 6.12.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section 6.12, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.12, the Trustee may appoint a successor
Authenticating Agent which shall be subject to acceptance by the Company. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 6.12.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 6.12.
If an Authenticating Agent is appointed with respect to the Securities
pursuant to this Section 6.12, the Securities may have endorsed thereon, in
addition to or in lieu of the Trustee's certification of authentication, an
alternative certificate of authentication in the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.
as Trustee
By:
________________________________________
As Authenticating Agent
By:
________________________________________
Authorized Signatory
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SECTION 6.13 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 6.14 Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 7.1 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 all 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, sell or lease
such Person's properties and assets substantially as an entirety to the Company
unless:
(1) the Person formed by such consolidation or into or with which the
Company is merged or the Person to which the properties and assets of the
Company are so conveyed, transferred, sold or leased 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 other than the Company, 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,
premium, if any, and interest (including Liquidated Damages, if any) on all of
the Securities as applicable, and the performance or observance of every
covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Article XII;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event that after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing; and
(3) the Company has 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, together with any documents required under
Section 8.3.
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SECTION 7.2 Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into any other Person or any conveyance, transfer or lease of all or
substantially all the properties and assets of the Company in accordance with
Section 7.1, the successor Person formed by such consolidation or into or with
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 Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Indenture and the Securities.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 8.1 Supplemental Indentures 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 enter into one or more indentures supplemental hereto for any of the
following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants and obligations of the
Company herein and in the Securities as permitted by Article VII of this
Indenture; or
(2) to add to the covenants of the Company for the benefit of the
Holders of Securities or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of
Holders of Securities pursuant to Section 12.11 or to make provision with
respect to the repurchase rights of Holders of Securities pursuant to Section
14.5; or
(5) to make any changes or modifications to this Indenture necessary
in connection with the registration of any Registrable Securities under the
Securities Act as contemplated by Section 10.11, provided such action pursuant
to this clause (5) shall not adversely affect the interests of the Holders of
Securities; or
(6) to comply with the requirements of the Trust Indenture Act or the
rules and regulations of the Commission thereunder in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act, as
contemplated by this Indenture or otherwise; or
(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
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(8) subject to Section 13.12, to make any change in Article XIII that
would limit or terminate the benefits available to any holder of Senior Debt
under such Article; or
(9) to cure any ambiguity, to correct or supplement any provision
herein that may be inconsistent with any other provision herein or that is
otherwise defective, or to make any other provisions with respect to matters or
questions arising under this Indenture as the Company and the Trustee may deem
necessary or desirable, provided such action pursuant to this clause (9) shall
not adversely affect the interests of the Holders of Securities in any material
respect.
Upon Company Request, accompanied by a Board Resolution authorizing the
execution of any such supplemental indenture, and subject to and upon receipt by
the Trustee of the documents described in Section 8.3 hereof, the Trustee shall
join with the Company in the execution of any supplemental indenture authorized
or permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities.
With either (i) the written consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities, by the Act of said
Holders delivered to the Company and the Trustee, 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 at least 66-2/3% in principal amount of the
Outstanding Securities represented at such meeting, the Company, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent or affirmative vote of the Holder of each Outstanding Security
affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount of, or
the premium, if any, or the rate of interest payable thereon, or reduce the
amount payable upon a redemption or mandatory repurchase, or change the place or
currency of payment of the principal of, premium, if any, or interest on any
Security (including any payment of Liquidated Damages or Redemption Price or
Repurchase Price in respect of such Security) or impair the right to institute
suit for the enforcement of any payment in respect of any Security on or after
the Stated Maturity thereof (or, in the case of redemption or any repurchase, on
or after the Redemption Date or Repurchase Date, as the case may be) or, except
as permitted by Section 12.11, adversely affect the right of Holders to convert
any Security as provided in Article XII, or modify the provisions of this
Indenture with respect to the subordination of the Securities in a manner
adverse to the Holders; or
(2) reduce the requirements of Section 9.4 for quorum or voting, or
reduce the percentage in 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 (of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture; or
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(3) modify the obligation of the Company to maintain an office or
agency in the Borough of Manhattan, The City of New York, pursuant to Section
10.2; or
(4) modify any of the provisions of this Section or Section 5.13 or
10.12, 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
(5) modify the provisions of Article XIV in a manner adverse to the
Holders; or
(6) modify any of the provisions of Section 10.9.
It shall not be necessary for any Act of Holders of Securities under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 8.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Sections 6.1 and 6.3) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture, and that such supplemental
indenture has been duly authorized, executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 8.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
appertaining thereto shall be bound thereby.
SECTION 8.5 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company and the
Trustee, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
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SECTION 8.6 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 8.2, the Company
shall give notice to all Holders of Securities of such fact, setting forth in
general terms the substance of such supplemental indenture, in the manner
provided in Section 1.6. Any failure of the Company to give such notice, or any
defect therein, shall not in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE IX
MEETINGS OF HOLDERS OF SECURITIES
SECTION 9.1 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 9.2 Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of Holders of
Securities for any purpose specified in Section 9.1, to be held at such time and
at such place in the Borough of Manhattan, The City of New York, as the Trustee
shall determine. Notice of every meeting of 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
1.6, not less than 21 nor more than 180 days prior to the date fixed for the
meeting.
(2) 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 9.1, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within 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 Borough of Manhattan, The City of New York, for such meeting and may call
such meeting for such purposes by giving notice thereof as provided in paragraph
(1) of this Section.
SECTION 9.3 Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities, a Person
shall be (i) a Holder of one or more Outstanding Securities, or (ii) 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.
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SECTION 9.4 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 absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting (subject to repeated applications of this sentence). Notice of
the reconvening of any adjourned meeting shall be given as provided in Section
9.2(1), except that such notice need be given only once 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 that 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 8.2 and except to the extent Section 10.12
requires a different vote) shall be effectively passed and decided if passed or
decided by the lesser of (i) the Holders of not less than a majority in
principal amount of Outstanding Securities and (ii) the Persons entitled to vote
not less than 66-2/3% in principal amount of Outstanding Securities represented
and entitled to vote 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. The
Trustee shall, in the name and at the expense of the Company, notify all the
Holders of Securities of any such resolutions or decisions pursuant to Section
1.6.
SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of Meetings.
(1) 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 1.4 and the appointment of any
proxy shall be proved in the manner specified in Section 1.4 or by having the
signature of the Person executing the proxy guaranteed by any bank, broker or
other eligible institution participating in a recognized medallion signature
guarantee program.
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(2) 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 9.2(1), 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.
(3) At any meeting, each Holder of a Security or proxy shall be
entitled to one vote for each U.S. $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.
(4) Any meeting of Holders of Securities duly called pursuant to
Section 9.2 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 9.6 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 at Stated Maturity 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 9.2 and, if applicable, Section 9.4. 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.
ARTICLE X
COVENANTS
SECTION 10.1 Payment of Principal, Premium and Interest.
The Company covenants and agrees that it will duly and punctually pay
the principal of and premium, if any, and interest (including Liquidated
Damages, if any) on the Securities in accordance
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with the terms of the Securities and this Indenture. The Company will deposit or
cause to be deposited with the Trustee, no later than the opening of business on
the date of the Stated Maturity of any Security or no later than the opening of
business on the due date for any installment of interest, all payments so due,
which payments shall be in immediately available funds on the date of such
Stated Maturity or due date, as the case may be.
SECTION 10.2 Maintenance of Offices or Agencies.
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where the Securities may be surrendered for
registration of transfer or exchange or for presentation for payment or for
conversion, redemption or repurchase and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency not designated or appointed by
the Trustee. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office or the office or agency of the Trustee in the Borough of
Manhattan, The City of New York.
The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents 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, premium, if any, and interest on the Securities have been made
available for payment and either paid or returned to the Company pursuant to the
provisions of Section 10.3, the Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment and conversion, which shall initially be
State Street Bank and Trust Company, N.A., an Affiliate of the Trustee, where
Securities may be surrendered for registration of transfer or exchange 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 1.6, 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.
The Company hereby initially designates the Trustee as Paying Agent,
Security Registrar and Conversion Agent, and each of the Corporate Trust Office
of the Trustee and the office or agency of the Trustee in the Borough of
Manhattan, The City of New York, located at 61 Broadway, 15th Floor, New York,
New York 10006 attention: Corporate Trust Administration (Critical Path, Inc. 5
3/4% Convertible Subordinated Notes due April 1, 2005) as one such office or
agency of the Company for each of the aforesaid purposes.
SECTION 10.3 Money for Security Payments to Be Held in Trust.
If the Company shall act as its own Paying Agent, it will, on or before
each due date of the principal of, premium, if any, or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal, premium, if any, or
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interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and the Company will promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, no
later than the opening of business on each due date of the principal of,
premium, if any, or interest on any Securities, deposit with the Trustee a sum
in funds immediately payable on the payment date sufficient to pay the
principal, premium, if any, or interest so becoming due, such sum to be held for
the benefit of the Persons entitled to such principal, premium, if any, or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of any failure so to act.
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,
premium, if any, or interest on Securities for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of principal,
premium, if any, or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held by
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease.
SECTION 10.4 Existence.
Subject to Article VII, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if
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the Company shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 10.5 Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Significant Subsidiary to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Significant Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 10.6 Payment of Taxes and Other Claims.
The Company will pay or discharge, or cause to be paid or discharged,
before the same may become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Significant
Subsidiary or upon the income, profits or property of the Company or any
Significant Subsidiary, (ii) all claims for labor, materials and supplies which,
if unpaid, might by law become a lien or charge upon the property of the Company
or any Significant Subsidiary, and (iii) all stamps and other duties, if any,
which may be imposed by the United States or any political subdivision thereof
or therein in connection with the issuance, transfer, exchange or conversion of
any Securities or with respect to this Indenture; provided, however, that, in
the case of clauses (i) and (ii), the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim (A) if the failure to do so will not, in the aggregate, have a material
adverse impact on the Company, or (B) if the amount, applicability or validity
is being contested in good faith by appropriate proceedings.
SECTION 10.7 Registration and Listing.
The Company (i) will effect all registrations with, and obtain all
approvals by, all governmental authorities that may be necessary under any
United States Federal or state law (including the Securities Act, the Exchange
Act and state securities and Blue Sky laws) before the shares of Common Stock
issuable upon conversion of Securities are issued and delivered, and qualified
or listed as contemplated by clause (ii) (it being understood that the Company
shall not be required to register the Securities under the Securities Act,
except pursuant to the Registration Rights Agreement referred to in Section
10.11); and (ii) will qualify the shares of Common Stock required to be issued
and delivered upon conversion of Securities, prior to such issuance or delivery,
for quotation on the Nasdaq National Market or, if the Common Stock is not then
quoted on the Nasdaq National Market, list the Common Stock on each national
securities exchange or quotation system on which outstanding Common Stock is
listed or quoted at the time of such delivery.
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Nothing in this Section will limit the application of Section 10.11.
SECTION 10.8 Statement by Officers as to Default.
The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
The Company will deliver to the Trustee, forthwith upon becoming aware
of any default or any Event of Default under the Indenture, an Officers'
Certificate specifying with particularity such default or Event of Default and
further stating what action the Company has taken, is taking or proposes to take
with respect thereto. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.
Any notice required to be given under this Section 10.8 shall be
delivered to the Trustee at its Corporate Trust Office.
SECTION 10.9 Delivery of Certain Information.
At any time when the Company is not subject to Section 13 or 15(d) of
the Exchange Act, upon the request of a Holder of a Restricted Security or the
holder of shares of Common Stock issued upon conversion thereof, the Company
will promptly furnish or cause to be furnished Rule 144A Information (as defined
below) to such Holder of Restricted Securities or such holder of shares of
Common Stock issued upon conversion of Restricted Securities, or to a
prospective purchaser of any such security designated by any such Holder or
holder, as the case may be, to the extent required to permit compliance by such
Holder or holder with Rule 144A under the Securities Act (or any successor
provision thereto) in connection with the resale of any 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 that is two years from the
later of (i) the date such a security (or any such predecessor security) was
last acquired from the Company or (ii) the date such a security (or any such
predecessor security) was last acquired from an "affiliate" of the Company
within the meaning of Rule 144 under the Securities Act (or any successor
provision thereto). "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto).
SECTION 10.10 Resale of Certain Securities.
During the period beginning on the last date of original issuance of the
Securities and ending on the date that is two years from such date (or such
shortened period under Rule 144(k) under the Securities Act or any successor
rule), the Company will not, and will not permit any of its subsidiaries or
other "affiliates" (as defined under Rule 144 under the Securities Act or any
successor provision thereto) to, resell (i) any Securities that constitute
"restricted securities" under Rule 144 or
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(ii) any securities into which the Securities have been converted under this
Indenture that constitute "restricted securities" under Rule 144, that in either
case have been reacquired by any of them. The Trustee shall have no
responsibility in respect of the Company's performance of its agreement in the
preceding sentence.
SECTION 10.11 Registration Rights.
The Company agrees that the Holders from time to time of Registrable
Securities (as defined below) are entitled to the benefits of a Registration
Rights Agreement, dated as of March 31, 2000 (the "Registration Rights
Agreement"), executed by the Company. Pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the holders from time to
time of the Registrable Securities that it will, at its expense, (i) within 90
calendar days after the Issue Date (as defined below) of the Securities, file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Registrable Securities, (ii) use all
reasonable efforts to cause such Shelf Registration Statement to be declared
effective by the Commission within 180 calendar days after the Issue Date of the
Securities, provided, however that the Company may, upon written notice to all
the Holders, postpone having the Shelf Registration Statement declared effective
if the Company possesses material non-public information, the disclosure of
which would have a material adverse effect on the Company and its subsidiaries
taken as a whole and (iii) use all reasonable efforts to maintain such Shelf
Registration Statement effective under the Securities Act until the second
annual anniversary of the date it is declared effective or such earlier date as
is provided in the Registration Rights Agreement (the "Effectiveness Period").
The Company will be permitted to suspend the use of the prospectus which is a
part of the Shelf Registration Statement during certain periods of time as
provided in the Registration Rights Agreement.
If (i) on or prior to 90 calendar days following the Issue Date of the
Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 180th calendar day following the Issue
Date of the Securities, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on the Restricted Securities from and including the day
following such Registration Default to but excluding the day on which such
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, in respect of the Restricted Securities
following the date on which such Liquidated Damages begin to accrue, and will
accrue at a rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount of the Restricted Securities to and including
the 90th calendar day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
calendar day following such Registration Default. Pursuant to the Registration
Rights Agreement, in the event that the Shelf Registration Statement ceases to
be effective (or the Holders of Registrable Securities are otherwise prevented
or restricted by the Company from effecting sales pursuant thereto) (an
"Effective Failure") during the Effectiveness Period for more than 45 days,
whether or not consecutive, during any 90-day period or for more than 90 days,
whether or not consecutive, during any 12-month period, then the interest rate
borne by the Restricted Securities shall increase by an additional one-half of
one percent
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(0.50%) per annum from the 46th day of the applicable 90-day period or the 91st
calendar day of the applicable 12-month period until the earlier of (A) such
time as the Effective Failure is cured or (B) the Effectiveness Period expires.
Whenever in this Indenture there is mentioned, in any context, the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages provided for in this Section to the extent that, in such
context, Liquidated Damages are, were or would be payable in respect thereof
pursuant to the provisions of this Section and express mention of the payment of
Liquidated Damages (if applicable) in any provisions hereof shall not be
construed as excluding Liquidated Damages in those provisions hereof where such
express mention is not made.
For the purposes of the Registration Rights Agreement, "Registrable
Securities" means all or any portion of the Restricted Securities issued from
time to time under this Indenture and the shares of Common Stock issuable upon
conversion or repurchase of such Restricted Securities, except any such
Restricted Security or share of Common Stock issuable upon conversion or
repurchase thereof that (i) has been effectively registered under the Securities
Act and sold in a manner contemplated by the Shelf Registration Statement, (ii)
has been transferred in compliance with Rule 144 under the Securities Act (or
any successor provision thereto) or is transferable pursuant to paragraph (k) of
such Rule 144 (or any successor provision thereto) or (iii) otherwise has been
transferred and a new Security or share of Common Stock not subject to transfer
restrictions under the Securities Act has been delivered by or on behalf of the
Company in accordance with Section 3.5 of this Indenture.
If a Security, or the shares of Common Stock issuable upon conversion of
a Security, is a Registrable Security, and the Holder thereof elects to sell
such Registrable Security pursuant to the Shelf Registration Statement then, by
its acceptance thereof, the Holder of such Registrable Security will have agreed
to be bound by the terms of the Registration Rights Agreement relating to the
Registrable Securities which are the subject of such election.
For the purposes of the Registration Rights Agreement, the term "Holder"
includes any Person that has a beneficial interest in any Restricted Global
Security or any beneficial interest in a global security representing shares of
Common Stock issuable upon conversion of a Security.
If Liquidated Damages are payable under the Registration Rights
Agreement, the Company shall deliver to the Trustee a certificate to that effect
stating (i) the amount of Liquidated Damages that is payable and (ii) the date
on which Liquidated Damages are payable. Unless and until a Responsible Officer
of the Trustee receives at the Corporate Trust Office such a certificate, the
Trustee may assume without inquiry that no Liquidated Damages are payable. If
Liquidated Damages have been paid by the Company directly to the persons
entitled to them, the Company shall deliver to the Trustee a certificate setting
forth the particulars of such payment.
SECTION 10.12 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 10.4 (other than with respect to the
existence of the Company (subject to Article
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VII)), 10.5 and 10. 6, inclusive (other than a covenant or condition which under
Article VIII cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected), if before the time for such compliance the
Holders shall, through (i) the written consent of not less than a majority in
principal amount of the Outstanding Securities or (ii) the adoption of a
resolution at a meeting of Holders of the Outstanding Securities at which a
quorum is present by the Holders of not less than 66-2/3% in principal amount of
the Outstanding Securities represented at such meeting, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
or any Paying or Conversion Agent in respect of any such covenant or condition
shall remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1 Right of Redemption.
The Securities may be redeemed in accordance with the provisions of the
form of Securities set forth in Section 2.2.
SECTION 11.2 Applicability of Article.
Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of the Securities or this Indenture,
shall be made in accordance with such provision and this Article XI.
SECTION 11.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by a Board Resolution. In case of any redemption at the election of the Company
of any of the Securities, the Company shall, at least 45 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee in writing of such Redemption
Date.
SECTION 11.4 Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected by the Trustee within five Business
Days after it receives the notice described in 11.3, from the Outstanding
Securities not previously called for redemption, by lot or by such other method
as the Trustee may deem fair and appropriate.
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 (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed may be treated by
the
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Trustee as Outstanding for the purpose of such selection. The Trustee shall
promptly notify the Company and each Security 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 11.5 Notice of Redemption.
Notice of redemption shall be given in the manner provided in Section
1.6 to the Holders of Securities to be redeemed not less than 30 nor more than
60 days prior to the Redemption Date, and such notice shall be irrevocable. The
Company shall, concurrently with the giving of such notice, publish a Press
Release including the information required to be included in such notice of
redemption hereunder.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price, and accrued interest (including Liquidated
Damages, if any), if any, to the Redemption Date,
(3) if less than all 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,
(4) that on the Redemption Date the Redemption Price, and accrued
interest (including Liquidated Damages, if any), if any, to the Redemption Date,
will become due and payable upon each such Security to be redeemed, and that
interest thereon shall cease to accrue on and after said date,
(5) the Conversion Rate, the date on which the right to convert the
Securities to be redeemed will terminate and the places where such Securities
may be surrendered for conversion, and
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest (including Liquidated
Damages, if any), if any, to the Redemption Date.
In case of a partial redemption, the notice shall specify the serial and
CUSIP numbers (if any) and the portions thereof called for redemption and that
transfers and exchanges may occur on or prior to the Redemption Date.
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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 written request, by
the Trustee in the name of and at the expense of the Company. Notice of
redemption of Securities to be redeemed at the election of the Company received
by the Trustee shall be given by the Trustee to each Paying Agent in the name of
and at the expense of the Company.
SECTION 11.6 Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall deposit with the
Trustee (or, if the Company is acting as its own Paying Agent, segregate and
hold in trust as provided in Section 10.3) an amount of money (which shall be in
immediately available funds on such Redemption Date) sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest (including Liquidated Damages, if any) to the
Redemption Date on, all the Securities which are to be redeemed on that date
other than any Securities called for redemption on that date which have been
converted prior to the date of such deposit.
If any Security called for redemption is converted, any money deposited
with the Trustee 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 last paragraph of
Section 3.7) be paid to the Company on Company Request or, if then held by the
Company, shall be discharged from such trust.
SECTION 11.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, 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, including accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
Security for redemption in accordance with said notice such Security shall be
paid by the Company at the Redemption Price together with accrued and unpaid
interest (including Liquidated Damages, if any) to the Redemption Date;
provided, however, that installments of interest on Securities whose Stated
Maturity is on or prior to 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
3.7.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal amount of, premium, if any, and,
to the extent permitted by applicable law, accrued interest on such Security
shall, until paid, bear interest from the Redemption Date at a rate of 5 3/4%
per annum and such Security shall remain convertible until the Redemption Price
of such Security (or portion thereof, as the case may be) shall have been paid
or duly provided for.
Any Security that is to be redeemed only in part shall be surrendered at
the Corporate Trust Office or an office or agency of the Company designated for
that purpose pursuant to Section 10.2 (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
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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, 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.
SECTION 11.8 Conversion Arrangement on Call for Redemption.
In connection with any redemption of Securities, the Company may arrange
for the purchase and conversion of any Securities by an agreement with one or
more investment bankers or other purchasers (the "Purchasers") to purchase such
securities by paying to the Trustee in trust for the Holders, on or before the
Redemption Date, an amount not less than the applicable Redemption Price,
together with interest accrued to the Redemption Date, of such Securities.
Notwithstanding anything to the contrary contained in this Article XI, the
obligation of the Company to pay the Redemption Price, together with interest
accrued to the Redemption Date, shall be deemed to be satisfied and discharged
to the extent such amount is so paid by such Purchasers. If such an agreement is
entered into (a copy of which shall be filed with the Trustee prior to the close
of business on the Business Day immediately prior to the Redemption Date), any
Securities called for redemption that are not duly surrendered for conversion by
the Holders thereof may, at the option of the Company, be deemed, to the fullest
extent permitted by law, and consistent with any agreement or agreements with
such Purchasers, to be acquired by such Purchasers from such Holders and
(notwithstanding anything to the contrary contained in Article XII) surrendered
by such Purchasers for conversion, all as of immediately prior to the close of
business on the Redemption Date (and the right to convert any such Securities
shall be extended through such time), subject to payment of the above amount as
aforesaid. At the direction of the Company, the Trustee shall hold and dispose
of any such amount paid to it by the Purchasers to the Holders in the same
manner as it would monies deposited with it by the Company for the redemption of
Securities. Without the Trustee's prior written consent, no arrangement between
the Company and such Purchasers for the purchase and conversion of any
Securities shall increase or otherwise affect any of the powers, duties,
responsibilities or obligations of the Trustee as set forth in this Indenture,
and the Company agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising out of or in connection with any
such arrangement for the purchase and conversion of any Securities between the
Company and such Purchasers, including the costs and expenses, including
reasonable legal fees, incurred by the Trustee in the defense of any claim or
liability arising out of or in connection with the exercise or performance of
any of its powers, duties, responsibilities or obligations under this Indenture.
ARTICLE XII
CONVERSION OF SECURITIES
SECTION 12.1 Conversion Privilege and Conversion Rate.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security may be converted into fully paid
and nonassessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock of the Company at the
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Conversion Rate, determined as hereinafter provided, in effect at the time of
conversion. Such conversion right shall commence on the initial issuance date of
the Securities and expire at the close of business on the date of Maturity,
subject, in the case of conversion of any Global Security, to any Applicable
Procedures. In case a Security or portion thereof is called for redemption at
the election of the Company or the Holder thereof exercises his right to require
the Company to repurchase the Security, such conversion right in respect of the
Security, or portion thereof so called, shall expire at the close of business on
the Business Day immediately preceding the Redemption Date or the Repurchase
Date, as the case may be, unless the Company defaults in making the payment due
upon redemption or repurchase, as the case may be (in each case subject as
aforesaid to any Applicable Procedures with respect to any Global Security).
The rate at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Rate") shall be initially 9.8546
shares of Common Stock for each U.S.$1,000 principal amount of Securities. The
Conversion Rate shall be adjusted in certain instances as provided in this
Article XII.
SECTION 12.2 Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any
Security to be converted shall surrender such Security, duly endorsed in blank,
at any office or agency of the Company maintained for that purpose pursuant to
Section 10.2, accompanied by a duly signed conversion notice substantially in
the form set forth in Section 2.4 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. Each Security surrendered for
conversion (in whole or in part) during the Record Date Period shall (except in
the case of any Security or portion thereof which has been called for redemption
on a Redemption Date, or is repurchasable on a Repurchase Date, occurring, in
either case, within such Record Date Period and, as a result, the right to
convert such Security would otherwise terminate in such period if not exercised)
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 such Security (or part thereof,
as the case may be) being surrendered for conversion. The interest so payable on
such Interest Payment Date with respect to any Security (or portion thereof, if
applicable) that is surrendered for conversion during the Record Date Period
shall be paid to the Holder of such Security as of such Regular Record Date in
an amount equal to the interest that would have been payable on such Security if
such Security had been converted as of the close of business on such Interest
Payment Date. Interest payable on any Interest Payment Date in respect of any
Security surrendered for conversion on or after such Interest Payment Date shall
be paid to the Holder of such Security as of the Regular Record Date next
preceding such Interest Payment Date, notwithstanding the exercise of the right
of conversion. Except as provided in this paragraph and subject to the last
paragraph of Section 3.7, no cash payment or adjustment shall be made upon any
conversion on account of any interest accrued from the Interest Payment Date
next preceding the conversion date, in respect of any Security (or part thereof,
as the case may be) surrendered for conversion, or on account of any dividends
on the Common Stock issued upon conversion. The Company's delivery to the Holder
of the number of shares of Common Stock (and cash in lieu of fractions thereof,
as provided in this Indenture) into
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which a Security is convertible will be deemed to satisfy the Company's
obligation to pay the principal amount of the Security.
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
shall issue and deliver to the Trustee, for delivery to the Holder, 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.
All shares of Common Stock delivered upon such conversion of Restricted
Securities shall bear restrictive legends substantially in the form of the
legends required to be set forth on the Restricted Securities pursuant to
Section 3.5 and shall be subject to the restrictions on transfer provided in
such legends. Neither the Trustee nor any agent maintained for the purpose of
such conversion shall have any responsibility for the inclusion or content of
any such restrictive legends on such Common Stock; provided, however, that the
Trustee or any agent maintained for the purpose of such conversion shall have
provided, to the Company or to the Company's transfer agent for such Common
Stock, prior to or concurrently with a request to the Company to deliver such
Common Stock, written notice that the Securities delivered for conversion are
Restricted Securities.
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 an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. A Security may
be converted in part, but only if the principal amount of such Security to be
converted is any integral multiple of U.S. $1,000 and the principal amount of
such security to remain Outstanding after such conversion is equal to U.S.
$1,000 or any integral multiple of $1,000 in excess thereof.
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 beneficial
owner of such Restricted Security, then such Holder must deliver to the
Conversion Agent a Surrender Certificate, dated the date of surrender of such
Restricted Security and signed by such beneficial owner, 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 beneficial owner, shares of Common
Stock or Securities issued upon conversion of any such Restricted Security not
so accompanied by a properly completed Surrender Certificate.
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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 issuable 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 that would
otherwise be issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company shall calculate and pay a cash
adjustment in respect of such fraction (calculated to the nearest 1/100th of a
share) in an amount equal to the same fraction of the Closing Price Per Share at
the close of business on the day of conversion.
SECTION 12.4 Adjustment of Conversion Rate.
The Conversion Rate shall be subject to adjustments from time to time as
follows:
(1) In case the Company shall pay or make a dividend or other
distribution on shares of any class of capital stock payable in shares of Common
Stock, the Conversion Rate in effect at the opening of business on the day
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the opening of
business on the day following the date fixed for such determination. If, after
any such date fixed for determination, any dividend or distribution is not in
fact paid, the Conversion Rate shall be immediately readjusted, effective as of
the date the Board of Directors determines not to pay such dividend or
distribution, to the Conversion Rate that would have been in effect if such
determination date had not been fixed. For the purposes of this paragraph (1),
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.
(2) In case the Company shall issue rights, options or warrants to
all holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the current market price
per share (determined as provided in paragraph (8) of this Section 12.4) of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants (other than any rights, options or
warrants that by their terms will also be issued to any Holder upon conversion
of a Security into shares of Common Stock without any action required by the
Company or any other Person), the Conversion Rate in effect at the opening of
business on the day following the date fixed for such determination shall be
increased by dividing such Conversion Rate by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock that the aggregate of the offering price of the total number
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of shares of Common Stock so offered for subscription or purchase would purchase
at such current market price and the denominator shall be the number of shares
of Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such increase to become effective immediately after
the opening of business on the day following the date fixed for such
determination. If, after any such date fixed for determination, any such rights,
options or warrants are not in fact issued, or are not exercised prior to the
expiration thereof, the Conversion Rate shall be immediately readjusted,
effective as of the date such rights, options or warrants expire, or the date
the Board of Directors determines not to issue such rights, options or warrants,
to the Conversion Rate that would have been in effect if the unexercised rights,
options or warrants had never been granted or such determination date had not
been fixed, as the case may be. For the purposes of this paragraph (2), 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 issue any rights, options or warrants in respect of
shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such subdivision or
combination becomes effective shall be proportionately reduced, such increase or
reduction, 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.
(4) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock evidences of its indebtedness, shares of any
class of capital stock or other property (including cash or assets or
securities, but excluding (i) any rights, options or warrants referred to in
paragraph (2) of this Section, (ii) any dividend or distribution paid
exclusively in cash, (iii) any dividend or distribution referred to in paragraph
(1) of this Section and (iv) any consideration distributed in any merger or
consolidation to which Section 12.11 applies), the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by dividing the
Conversion Rate in effect immediately prior to the close of business on the date
fixed for the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the current market
price per share (determined as provided in paragraph (8) of this Section 12.4)
of the Common Stock on the date fixed for such determination less the then fair
market value (as determined by the Board of directors, whose determination shall
be conclusive and described in a Board Resolution filed with the Trustee) of the
portion of the assets, shares or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such adjustment to become
effective immediately prior to the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
distribution. If after any such date fixed for determination, any such
distribution is not in fact made, the Conversion Rate shall be immediately
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readjusted, effective as of the date of the Board of Directors determines not to
make such distribution, to the Conversion Rate that would have been in effect if
such determination date had not been fixed.
(5) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock cash (excluding any cash that is distributed
as part of a distribution referred to in paragraph (4) of this Section or cash
distributed upon a merger or consolidation to which Section 12.11 applies) in an
aggregate amount that, combined together with (I) the aggregate amount of any
other all-cash distributions to all holders of its Common Stock made exclusively
in cash within the 365-day period preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to this paragraph
(5) has been made and (II) the aggregate of any cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) of consideration payable in
respect of any tender offer by the Company or any of its Subsidiaries for all or
any portion of the Common Stock concluded within the 365-day period preceding
the date of payment of such distribution and in respect of which no adjustment
pursuant to paragraph (6) of this Section 12.4 has been made (the "combined cash
and tender amount") exceeds 10% of the product of the current market price per
share (determined as provided in paragraph (8) of this Section 12.4) of the
Common Stock on the date for the determination of holders of shares of Common
Stock entitled to receive such distribution times the number of shares of Common
Stock outstanding on such date (the "aggregate current market price"), then, and
in each such case, immediately after the close of business on such date for
determination, the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Conversion Rate in effect immediately
prior to the close of business on the date fixed for determination of the
stockholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section) of the Common Stock on
the date fixed for such determination less an amount equal to the quotient of
(x) the excess of such combined cash and tender amount over 10% of such
aggregate current market price divided by (y) the number of shares of Common
Stock outstanding on such date for determination and (ii) the denominator of
which shall be equal to the current market price per share (determined as
provided in paragraph (8) of this Section 12.4) of the Common Stock on such date
fixed for determination.
(6) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall require the payment to stockholders
(based on the acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares (as defined below)) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) that
combined together with (I) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of such
tender offer, of consideration payable in respect of any other tender offer by
the Company or any Subsidiary for all or any portion of the Common Stock
expiring within the 365-day period preceding the expiration of such tender offer
and in respect of which no adjustment pursuant to this paragraph (6) has been
made and (II) the aggregate amount of any cash distributions to all holders of
the Common Stock within
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365-day period preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to paragraph (5) of this Section has been made (the
"combined tender and cash amount") exceeds 10% of the product of the current
market price per share of the Common Stock (determined as provided in paragraph
(8) of this Section 12.4) as of the last time (the "Expiration Time") tenders
could have been made pursuant to such tender offer (as it may be amended) times
the number of shares of Common Stock outstanding (including any tendered shares)
as of 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 Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate immediately prior to close of
business on the date of the Expiration Time by a fraction (i) the numerator of
which shall be equal to (A) the product of (I) the current market price per
share of the Common Stock (determined as provided in paragraph (8) of this
Section 12.4) on the date of the Expiration Time multiplied by (II) the number
of shares of Common Stock outstanding (including any tendered shares) on the
Expiration Time less (B) the combined tender and cash amount, and (ii) the
denominator of which shall be equal to the product of (A) the current market
price per share of the Common Stock (determined as provided in paragraph (8) of
this Section 12.4) as of the Expiration Time multiplied by (B) the number of
shares of Common Stock outstanding (including any tendered shares) as of the
Expiration Time less the number 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").
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 12.11 applies) shall be deemed to involve (a) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of stockholders entitled to receive such distribution" and
"the date fixed for such determination" within the meaning of paragraph (4) of
this Section), and (b) a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes effective" or "the day
upon which such combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective" within the meaning
of paragraph (3) of this Section 12.4).
(8) For the purpose of any computation under paragraphs (2), (4), (5)
or (6) of this Section 12.4, the current market price per share of Common Stock
on any date shall be calculated by the Company and be the average of the daily
Closing Prices Per Share for the five consecutive Trading Days selected by the
Company commencing not more than 10 Trading Days before, and ending not later
than the earlier of the day in question and the day before the "ex" date with
respect to the issuance or distribution requiring such computation. For purposes
of this paragraph, the term "'ex' date", when used with respect to any issuance
or distribution, means the first date on which the Common Stock trades regular
way in the applicable securities market or on the applicable securities exchange
without the right to receive such issuance or distribution.
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(9) No adjustment in the Conversion Rate shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
paragraph (9)) would require an increase or decrease of at least one percent in
such rate; provided, however, that any adjustments which by reason of this
paragraph (9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to those
required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 12.4, as
it considers to be advisable in order to avoid or diminish any income tax to any
holders of shares of Common Stock resulting from any dividend or distribution of
stock or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes. The Company shall have
the power to resolve any ambiguity or correct any error in this paragraph (10)
and its actions in so doing shall, absent manifest error, be final and
conclusive.
(11) Notwithstanding the foregoing provisions of this Section, no
adjustment of the Conversion Rate shall be required to be made (a) upon the
issuance of shares of Common Stock pursuant to any present or future plan for
the reinvestment of dividends or (b) because of a tender or exchange offer of
the character described in Rule 13e-4(h)(5) under the Exchange Act or any
successor rule thereto.
(12) To the extent permitted by applicable law, the Company from time
to time may increase the Conversion Rate by any amount for any period of time if
the period is at least twenty (20) days, the increase is irrevocable during such
period, and the Board of Directors shall have made a determination that such
increase would be in the best interests of the Company, which determination
shall be conclusive; provided, however, that no such increase shall be taken
into account for purposes of determining whether the Closing Price Per Share of
the Common Stock equals or exceeds 105% of the Conversion Price in connection
with an event which would otherwise be a Change of Control pursuant to Section
14.4. Whenever the Conversion Rate is increased pursuant to the preceding
sentence, the Company shall give notice of the increase to the Holders in the
manner provided in Section 1.6 at least fifteen (15) days prior to the date the
increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period during which it will be in effect.
SECTION 12.5 Notice of Adjustments of Conversion Rate.
Whenever the Conversion Rate is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Rate in
accordance with Section 12.4 and shall prepare a certificate signed by the Chief
Financial Officer of the Company setting forth the adjusted Conversion Rate and
showing in reasonable detail the facts upon which such adjustment is based, and
such certificate shall promptly be filed with the Trustee and with each
Conversion Agent; and
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(2) upon each such adjustment, a notice stating that the Conversion
Rate has been adjusted and setting forth the adjusted Conversion Rate shall be
required, and as soon as practicable after it is required, such notice shall be
provided by the Company to all Holders in accordance with Section 1.6.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours, and shall not be deemed to have knowledge of any adjustment in the
Conversion Rate unless and until a Responsible Officer of the Trustee shall have
received such a certificate. Until a Responsible Officer of the Trustee receives
such a certificate, the Trustee and each Conversion Agent may assume without
inquiry that the last Conversion Rate of which the Trustee has knowledge of
remains in effect.
SECTION 12.6 Notice of Certain Corporate Action.
In case:
(1) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant to
Section 12.4; or
(2) the Company shall authorize the granting to all or substantially
all of the holders of its Common Stock of rights, options or warrants to
subscribe for or purchase any shares of capital stock of any class or of any
other rights; or
(3) of any reclassification of the Common Stock, or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 10.2, and shall
cause to be provided to all Holders in accordance with Section 1.6, 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 (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights, options 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, options or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, conveyance,
transfer, sale, lease, 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,
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consolidation, merger, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up. Neither the failure to give such notice or the notice
referred to in the following paragraph nor any defect therein shall affect the
legality or validity of the proceedings described in clauses (1) through (4) of
this Section 12.6. If at the time the Trustee shall not be the conversion agent,
a copy of such notice shall also forthwith be filed by the Company with the
Trustee.
The Company shall cause to be filed at the Corporate Trust Office and
each office or agency maintained for the purpose of conversion of Securities
pursuant to Section 10.2, and shall cause to be provided to all Holders in
accordance with Section 1.6, notice of any tender offer by the Company or any
Subsidiary for all or any portion of the Common Stock at or about the time that
such notice of tender offer is provided to the public generally.
SECTION 12.7 Company to Reserve Common Stock.
The Company shall at all times 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
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 and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of Securities pursuant hereto. The Company
shall not, however, be required to pay any tax or duty that may be payable in
respect of any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that of the Holder of the Security or Securities to
be converted, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such tax
or 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 agrees that all shares of Common Stock that may be delivered
upon conversion of Securities, upon such delivery, will have been duly
authorized and validly issued and will 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 or its agent to be canceled by or at the direction of the Trustee, which
shall dispose of the same as provided in Section 3.9.
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SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets.
In case of any consolidation or merger of the Company with or into any
other Person, any merger of another Person with or into the Company (other than
a merger that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company, the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then Outstanding shall have the right thereafter, during the
period such Security shall be convertible as specified in Section 12.1, to
convert such Security only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease by a holder of the number of shares of Common Stock of the
Company into which such Security might have been converted immediately prior to
such consolidation, merger, conveyance, sale, transfer or lease, assuming such
holder of Common Stock of the Company (i) is not (A) a Person with which the
Company consolidated or merged with or into or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be (a "Constituent Person"), or (B) an Affiliate of a Constituent
Person and (ii) failed to exercise his rights of election, if any, as to the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease (provided that if the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer, or lease is not the same for
each share of Common Stock of the Company held immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 12.11 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of 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 that, for
events subsequent to the effective date of such supplemental indenture, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Article. The above provisions of this Section 12.11 shall similarly apply
to successive consolidations, mergers, conveyances, sales, transfers or leases.
Notice of the execution of such a supplemental indenture shall be given by the
Company to the Holder of each Security as provided in Section 1.6 promptly upon
such execution.
Neither the Trustee nor any Conversion Agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or other securities or property or cash receivable by Holders of
Securities upon the conversion of their Securities after any such consolidation,
merger, conveyance, transfer, sale or lease or to any such adjustment, but may
accept as conclusive evidence of the correctness of any such provisions, and
shall be protected in relying upon, an Opinion of Counsel with respect thereto,
which the Company shall cause to be furnished to the Trustee upon request.
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SECTION 12.12 Rights Issued in Respect of Common Stock.
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 not be deemed distributed for purposes of Section 12.4(2) until the
occurrence of the earliest Trigger Event. In addition, in the event of any
distribution of rights or warrants, or any Trigger Event with respect thereto,
that shall have resulted in an adjustment to the Conversion Rate under Section
12.4(2), (1) in the case of any such rights or warrants that shall all have been
redeemed or repurchased without exercise by any holders thereof, the Conversion
Rate 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 warrants
(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 any such rights or warrants all of which shall have expired without
exercise by any holder thereof, the Conversion Price shall be readjusted as if
such issuance had not occurred.
SECTION 12.13 Responsibility of Trustee for Conversion Provisions.
The Trustee, subject to the provisions of Section 6.1, 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 Rate, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed, herein
or in any supplemental indenture provided to be employed, in making the same, or
whether a supplemental indenture need be entered into. Neither the Trustee,
subject to the provisions of Section 6.1, nor any Conversion Agent shall be
accountable with respect to the validity or value (or the kind or amount) of any
Common Stock, or of any other securities or property or cash, 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 6.1, nor any Conversion Agent shall be
responsible for any failure of the Company to make or calculate any cash payment
or to issue, transfer or deliver any shares of Common Stock or share
certificates or other securities or property or cash upon the surrender of any
Security for the purpose of conversion; and the Trustee, subject to the
provisions of Section 6.1, and any Conversion Agent shall not be responsible 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 XIII
SUBORDINATION OF SECURITIES
SECTION 13.1 Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article IV), the indebtedness represented by the Securities and the payment of
the principal of, or premium, if any, or interest (including Liquidated Damages,
if any) on, each and all of the Securities (including, but not limited to, the
Redemption Price with respect to the Securities to be called for redemption in
accordance with Article XI or the Repurchase Price with respect to Securities
submitted for repurchase in accordance with Article XIV), are hereby expressly
made subordinate and subject in right of payment to the prior payment in full of
all Senior Debt.
SECTION 13.2 No Payment in Certain Circumstances, Payment over of Proceeds upon
Dissolution, Etc.
No payment shall be made with respect to the principal of, or premium,
if any, or interest (including Liquidated Damages, if any) on the Securities
(including, but not limited to, the Redemption Price with respect to the
Securities to be called for redemption in accordance with Article XI or the
Repurchase Price with respect to Securities submitted for repurchase in
accordance with Article XIV), except payments and distributions made by the
Trustee as permitted by Section 13.9, if:
(i) a default in the payment of principal, premium, if any, or
interest (including a default under any repurchase or redemption obligation) or
other amounts with respect to any Senior Debt occurs and is continuing (or, in
the case of Senior Debt for which there is a period of grace, in the event of
such a default that continues beyond the period of grace, if any, specified in
the instrument or lease evidencing such Senior Debt) unless and until such
default shall have been cured or waived or shall have ceased to exist; or
(ii) any other event of default occurs and is continuing with
respect to Designated Senior Debt that then permits holders of such Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice of the
default (a "Payment Blockage Notice") from a Representative or holder of
Designated Senior Debt or the Company.
If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section unless and until (A) at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice, and (B) all scheduled payments of principal, premium, if any,
and interest on the Securities that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
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The Company may and shall resume payments on and distributions in
respect of the Securities upon the earlier of:
(1) in the case of a default referred to in clause (i) above, the
date upon which the default is cured or waived or ceases to exist, or
(2) in the case of a default referred to in clause (ii) above, the
date upon which the default is cured or waived or ceases to exist or 179 days
pass after notice is received if the maturity of such Designated Senior Debt has
not been accelerated, unless this Article XIII otherwise prohibits the payment
or distribution at the time of such payment or distribution.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets and liabilities of the Company, then and in any
such event the holders of Senior Debt shall be entitled to receive payment in
full of all amounts due or to become due on or in respect of all Senior Debt in
cash before the Holders of the Securities are entitled to receive any payment on
account of principal of (or premium, if any) or interest (including any
Liquidated Damages) on the Securities or on account of the purchase, redemption
or other acquisition of Securities, and to that end the holders of Senior Debt
shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities, which may be payable or deliverable in respect of the Securities in
any such case, proceeding, dissolution, liquidation or other winding up or
event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Debt is paid in
full, and if such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
For purposes of this Article only, the words "cash, securities or other
property" shall not be deemed to include shares of capital stock of the Company
as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, which
shares of stock or securities are subordinated in right of payment to all then
outstanding Senior Debt to substantially the same extent as, or to a greater
extent than, the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon
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the terms and conditions set forth in Article VII shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for the benefit
of creditors or marshaling of assets and liabilities of the Company for the
purposes of this Section if the Person formed by such consolidation or into
which the Company is merged or which acquires by conveyance or transfer such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance or transfer, comply with the
conditions set forth in Article VII.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company, in the case of the Trustee, or the Trustee,
in the case of such Holder.
SECTION 13.3 Prior Payment to Senior Debt upon Acceleration of Securities.
In the event of the acceleration of the Securities because of an Event
of Default, no payment or distribution shall be made to the Trustee or any
holder of Securities in respect of the principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Securities (including,
but not limited to, the Redemption Price with respect to the Securities called
for redemption in accordance with Article XI or the Repurchase Price with
respect to the Securities submitted for repurchase in accordance with Article
XIV), except payments and distributions made by the Trustee as permitted by
Section 13.9, until all Senior Debt has been paid in full in cash or other
payment satisfactory to the holders of Senior Debt or such acceleration is
rescinded in accordance with the terms of this Indenture. If payment of the
Securities is accelerated because of an Event of Default, the Company shall
promptly notify holders of Senior Debt of the acceleration.
SECTION 13.4 Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other winding
up, assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in Section 13.2, or during the
circumstances referred to in the first paragraph of Section 13.2, or under the
conditions described in Section 13.3, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any) or interest
on the Securities or the retention of such payment by the Holders, if, at the
time of such application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article.
SECTION 13.5 Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all Senior Debt, the Holders of the
Securities shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Article to the rights of the holders of such Senior Debt to receive payments and
distributions of cash, property and securities applicable to the Senior Debt
until the
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principal of (and premium, if any) and interest on the Securities shall be paid
in full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Debt by Holders of the Securities or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Debt and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Debt.
SECTION 13.6 Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Debt on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (i) impair, as among the Company, its creditors other than 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 (ii) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Debt; or (iii) 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 to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
SECTION 13.7 Trustee to Effectuate Subordination.
Each Holder of a Security by its acceptance thereof authorizes and
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee its attorney-in-fact for any and all such purposes.
SECTION 13.8 No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders of the Securities, without
incurring responsibility to the Holders of the Securities and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior Debt, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt or any instrument
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evidencing the same or any agreement under which Senior Debt is outstanding;
(ii) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in
any manner for the collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 13.9 Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company that would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Company or a Representative or a holder of Senior Debt
(including, without limitation, a holder of Designated Senior Debt) and, prior
to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 6.1, shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have received
the notice provided for in this Section 13.9 at least two Business Days prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of (and
premium, if any) or interest (including Liquidated Damages, if any) on any
Security), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such money and to apply
the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within one
Business Day prior to such date.
Notwithstanding anything in this Article XIII to the contrary, nothing
shall prevent any payment by the Trustee to the Holders of monies deposited with
it pursuant to Section 4.1, and any such payment shall not be subject to the
provisions of Section 13.2 or 13.3.
Subject to the provisions of Section 6.1, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a Representative or a holder of Senior Debt (including, without
limitation, a holder of Designated Senior Debt) to establish that such notice
has been given by a Representative or a holder of Senior Debt (including,
without limitation, a holder of Designated Senior Debt). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Debt to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Debt held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
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SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Debt and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Debt shall be entitled by virtue of this Article or otherwise.
SECTION 13.12 Reliance by Holders of Senior Debt on Subordination Provisions.
Each Holder by accepting a Security acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Debt, whether such Senior Debt
was created or acquired before or after the issuance of the Securities, to
acquire and continue to hold, or to continue to hold, such Senior Debt and such
holder of Senior Debt shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Debt, and no amendment or modification of the provisions
contained herein shall diminish the rights of such holders of Senior Debt unless
such holders shall have agreed in writing thereto.
SECTION 13.13 Rights of Trustee as Holder of Senior Debt; Preservation of
Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Debt which may at
any time be 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 in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.7.
SECTION 13.14 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case
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(unless the context otherwise requires) be construed as extending to and
including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article in addition to or in
place of the Trustee; provided, however, that Section 13.13 shall not apply to
the Company or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
SECTION 13.15 Certain Conversions and Repurchases Deemed Payment.
For the purposes of this Article only, (i) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article XII
or upon the repurchase of Securities in accordance with Article XIV shall not be
deemed to constitute a payment or distribution on account of the principal of or
premium or interest (including Liquidated Damages, if any) on Securities or on
account of the purchase or other acquisition of Securities, and (ii) the
payment, issuance or delivery of cash (except in satisfaction of fractional
shares pursuant to Section 12.3 or 14.3(7)), property or securities (other than
junior securities) upon conversion of a Security shall be deemed to constitute
payment on account of the principal of such Security. For the purposes of this
Section, the term "junior securities" means (a) shares of any stock of any class
of the Company and securities into which the Securities are convertible pursuant
to Article XII and (b) securities of the Company which 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 than, the Securities are so subordinated as provided in this Article.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its creditors
other than holders of Senior Debt and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article XII or to exchange such Security for
Common Stock in accordance with Article XIV if the Company elects to satisfy the
obligations under Article XIV by the delivery of Common Stock.
ARTICLE XIV
REPURCHASE OF SECURITIES AT THE OPTION OF THE
HOLDER UPON A CHANGE IN CONTROL
SECTION 14.1 Right to Require Repurchase.
In the event that a Change in Control (as hereinafter defined) shall
occur, then each Holder shall have the right, at the Holder's option, but
subject to the provisions of Section 14.2, 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 U.S. $1,000 or any integral multiple
of U.S. $1,000 in excess 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 U.S. $1,000 or integral
multiples of U.S. $1,000 in excess thereof), on the date (the "Repurchase Date")
that is 45 days after the date of the Company Notice (as defined in Section
14.3) at a purchase price equal to 100% of the principal amount of the
Securities to be repurchased plus interest accrued to the Repurchase Date (the
"Repurchase Price"); provided, however, that installments of interest on
Securities whose Stated Maturity is on or prior to 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
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terms and the provisions of Section 3.7. Such right to require the repurchase of
the Securities shall not continue after a discharge of the Company from its
obligations with respect to the Securities in accordance with Article IV, unless
a Change in Control shall have occurred prior to such discharge. At the option
of the Company, the Repurchase Price may be paid in cash or, subject to the
fulfillment by the Company of the conditions set forth Section 14.2, by delivery
of shares of Common Stock having a fair market value equal to the Repurchase
Price. Whenever in this Indenture (including Sections 2.2, 3.1, 5.1(1) and 5.8)
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 of 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
XIII such reference shall be deemed to include reference to the Repurchase Price
only to the extent the Repurchase Price is payable in cash.
SECTION 14.2 Conditions to the Company's Election to Pay the Repurchase Price
in Common Stock.
The Company may elect to pay the Repurchase Price by delivery of shares
of Common Stock pursuant to Section 14.1 if and only if the following conditions
shall have been satisfied:
(1) The shares of Common Stock deliverable in payment of the
Repurchase Price shall have a fair market value as of the Repurchase Date of not
less than the Repurchase Price. For purposes of Section 14.1 and this Section
14.2, the fair market value of shares of Common Stock shall be determined by the
Company and shall be equal to 95% of the average of the Closing Prices Per Share
of the Common Stock for the five consecutive Trading Days immediately preceding
and including the third Trading Day prior to the Repurchase Date;
(2) The Repurchase Price shall be paid only in cash in the event any
shares of Common Stock to be issued upon repurchase of Securities hereunder (i)
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 and if such registration is not completed or does
not become effective prior to the Repurchase Date, and/or (ii) require
registration with or approval of any governmental authority under any state law
or any other federal law before such shares may be validly issued or delivered
upon repurchase and if such registration is not completed or does not become
effective or such approval is not obtained prior to the Repurchase Date;
(3) Payment of the Repurchase Price may not be made in Common Stock
unless such stock is, or shall have been, approved for quotation on the Nasdaq
National Market or listed on a national securities exchange, in either case,
prior to the Repurchase Date; and
(4) All shares of Common Stock that 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
non-assessable and free of any preemptive or similar rights.
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If all of the conditions set forth in this Section 14.2 are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.
SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc.
(1) Unless the Company shall have theretofore called for redemption
all of the Outstanding Securities, on or before the 30th day after the
occurrence of a Change in Control, the Company or, at the request and expense of
the Company on or before the 15th day after such occurrence, the Trustee, shall
give to all Holders of Securities, in the manner provided in Section 1.6, notice
(the "Company Notice") of the occurrence of the Change of Control and of the
repurchase right set forth herein arising as a result thereof and the Company
shall issue a Press Release including the information required to be included in
such Company Notice hereunder. The Company shall also deliver a copy of such
Company Notice to the Trustee.
Each Company Notice shall state:
(i) the Repurchase Date,
(ii) the date by which the repurchase right must be exercised,
(iii) the Repurchase Price, and whether the Repurchase Price
shall be paid by the Company in cash or by delivery of shares of Common Stock,
(iv) a description of the procedure that 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 interest
(including Liquidated Damages, if any), if any to the Repurchase Date,
(v) that on the Repurchase Date the Repurchase Price, and
accrued interest (including liquidated Damages, if any), if any to the
Repurchase Date, 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,
(vi) 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 or places where such Securities may be surrendered for
conversion, and
(vii) the place or places that the Security certificate with the
Election of Holder to Require Repurchase as specified in Section 2.2 shall be
delivered, and if the Security is a Restricted Securities Certificate the place
or places that the Surrender Certificate required by Section 14.3(9) shall be
delivered.
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.
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If any of the foregoing provisions or other provisions of this Article
XIV are inconsistent with applicable law, such law shall govern.
(2) To exercise a repurchase right, a Holder shall deliver to the
Trustee on or before the 30th day after the date of the Company Notice (i)
irrevocable 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 repurchased in part, the serial
number thereof, the portion of the principal amount thereof to be repurchased
and the name of the Person in which the portion thereof to remain Outstanding
after such repurchase is to be registered) 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 (ii) 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.
(3) 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 with respect to the
Securities as to which the repurchase right has been exercised; provided,
however, that installments of interest that mature on or prior to 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.
(4) 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 Date at
the rate of 5 3/4% per annum, 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.
(5) Any Security that 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.
(6) 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
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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.
(7) No fractions of shares shall be issued upon repurchase of
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 that shall be issuable upon such repurchase shall be computed on
the basis of the aggregate principal amount of the Securities so repurchased.
Instead of any fractional share of Common Stock that would otherwise be issuable
on the repurchase of any Security or Securities, the Company will deliver to the
applicable Holder its check for the current market value of such fractional
share. The current market value of a fraction of a share is determined by
multiplying the current market price of a full share by the fraction, and
rounding the result to the nearest cent. For purposes of this Section, the
current market price of a share of Common Stock is the Closing Price Per Share
of the Common Stock on the Trading Day immediately preceding the Repurchase
Date.
(8) 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 that 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 and until the Person 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.
(9) If shares of Common Stock to be delivered upon repurchase of a
Security are to be registered in a name other than that of the beneficial owner
of such Security, then such Holder must deliver to the Trustee a Surrender
Certificate, dated the date of surrender of such Restricted Security and signed
by such beneficial owner, as to compliance with the restrictions on transfer
applicable to such Restricted Security. Neither the Trustee nor any Registrar or
Transfer Agent or other agents shall be required to register in a name other
than that of the beneficial owner shares of Common Stock issued upon repurchase
of any such Restricted Security not so accompanied by a properly completed
Surrender Certificate.
(10) 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 3.9.
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SECTION 14.4 Certain Definitions.
For purposes of this Article XIV,
(1) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Commission pursuant to the Exchange Act;
(2) a "Change in Control" shall be deemed to have occurred at the
time, after the original issuance of the Securities, of:
(i) 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 the 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
(ii) any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company,
or any conveyance, sale, transfer or lease of all or substantially all of the
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 the holders of 50% or more of the total voting power of all
shares of the Company's capital stock entitled to vote generally in the election
of directors 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 entitled to vote generally in the election of directors
of the continuing or surviving corporation 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 into solely shares of common
stock); provided, however, that a Change in Control shall not be deemed to have
occurred if (I) the Closing 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 in Control or the public announcement of the
Change in Control (in the case of a Change in Control under clause (i) above) or
the period of 10 consecutive Trading Days ending immediately before the Change
in Control (in the case of a Change in Control under clause (ii) above) shall,
in the case of each of such five Trading Days, equal or exceed 105% of the
Conversion Price of the Securities in effect on each of such five Trading Days
or (II) all of the consideration (excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights) in a merger or
consolidation otherwise constituting a Change of Control under clause (i) and/or
clause (ii) above consists of shares of common stock traded on a national
securities exchange or quoted on the Nasdaq National Market (or will be so
traded or quoted immediately following such merger or consolidation) and as a
result of such merger or consolidation the notes become convertible into such
common stock.
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(3) the term "Conversion Price" shall equal U.S.$1,000 divided by the
Conversion Rate (rounded to the nearest cent); and
(4) for purposes of Section 14.4(2)(i), 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, as in effect on the date of the original
execution of this Indenture.
SECTION 14.5 Consolidation, Merger, etc.
In the case of any merger, consolidation, conveyance, sale, transfer or
lease of all or substantially all of the assets of the Company to which Section
12.11 applies, in which the Common Stock of the Company is changed or exchanged
as a result into the right to receive shares of stock and other securities or
property or assets (including cash) which includes shares of Common Stock of the
Company or common stock of another Person that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United States
and such shares constitute at the time such change or exchange becomes effective
in excess of 50% of the aggregate fair market value of such shares of stock and
other securities, property and assets (including cash) (as determined by the
Company, which determination shall be conclusive and binding), then the Person
formed by such consolidation or resulting from such merger or combination or
which acquires the properties or assets (including cash) of the Company, as the
case may be, shall execute and deliver to the Trustee a supplemental indenture
(which shall comply with the Trust Indenture Act as in force at the date of
execution of such supplemental indenture) modifying the provisions of this
Indenture relating to the right of Holders to cause the Company to repurchase
the Securities following a Change in Control, including without limitation the
applicable provisions of this Article XIV and the definitions of the Common
Stock and Change in Control, as appropriate, and such other related definitions
set forth herein as determined in good faith by the Company (which determination
shall be conclusive and binding), to make such provisions apply in the event of
a subsequent Change in Control to the common stock and the issuer thereof if
different from the Company and Common Stock of the Company (in lieu of the
Company and the Common Stock of the Company).
ARTICLE XV
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE
SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(1) semi annually, not more than 15 days after the Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders of Securities as of such Regular Record Date, and
(2) at such other times as the Trustee may reasonably request in
writing, within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
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<PAGE> 107
provided, however, that no such list need be furnished so long as the
Trustee is acting as Security Registrar.
SECTION 15.2 Preservation of Information.
(1) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 15.1 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list, if any, furnished to it as provided
in Section 15.1 upon receipt of a new list so furnished.
(2) After this Indenture has been qualified under the Trust Indenture
Act, the rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights, and duties of the Trustee, shall be as provided by the Trust Indenture
Act.
(3) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 15.3 Reserved.
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SECTION 15.4 Reports by Trustee.
(1) After this Indenture has been qualified under the Trust Indenture
Act, the Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.
(2) After this Indenture has been qualified under the Trust Indenture
Act, a copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 15.5 Reports by Company.
After this Indenture has been qualified under the Trust Indenture Act,
the Company shall file with the Trustee and the Commission, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided that any such information,
documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with
the Trustee within 15 days after the same is so required to be filed with the
Commission.
ARTICLE XVI
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 16.1 Indenture and Securities Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or
interest on any Security and no recourse under or upon any obligation, covenant
or agreement of the Company in this Indenture or in any supplemental indenture
or in any Security, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, employee, agent,
officer, or director or subsidiary, as such, past, present or future, of the
Company or of any successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
waived and released as a condition of, and as a consideration for, the execution
of this Indenture and the issue of the Securities.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
CRITICAL PATH, INC.
By: /s/ David Thatcher
-----------------------------------
Name: David A. Thatcher
Title: President and Secretary
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee
By: /s/ Stephen Rivero
-----------------------------------
Name: Stephen Rivero
Title: Vice President
<PAGE> 110
ANNEX A -- Form of Unrestricted Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Securities Legend pursuant to Section 3.5(3))
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
Corporate Trust Department
633 West 5th Street - 12th Floor
Los Angeles, CA 90071
RE: 5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE April 1, 2005 OF CRITICAL
PATH, INC. (THE "SECURITIES")
Reference is made to the Indenture, dated as of March 31, 2000
(the "Indenture"), from CRITICAL PATH, INC. (the "Company") to STATE STREET BANK
AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee. Terms used herein and defined
in the Indenture or in Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to U.S.$_______________ principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No. 22674VAA8
CERTIFICATE No(s). _________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
exchanged for Securities bearing no Restricted Securities Legend pursuant to
Section 3.5(3) of the Indenture. In connection with such exchange, the Owner
hereby certifies that the exchange is occurring after a period of at least two
years has elapsed since the date the Specified Securities were acquired from the
Company or from an "affiliate" (as such term is defined in Rule 144) of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the
<PAGE> 111
Company. The Owner also acknowledges that any future transfers of the Specified
Securities must comply with all applicable securities laws of the states of the
United States and other jurisdictions.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated: ______________
(Print the name of the Undersigned, as such term is defined in the second
paragraph of this certificate.)
By: _______________________________
Name: _____________________________
Title: ____________________________
(If the Undersigned is a corporation, partnership or fiduciary, the title of the
person signing on behalf of the Undersigned must be stated.)
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<PAGE> 112
ANNEX B -- Form of Surrender Certificate
In connection with the certification contemplated by Section 12.2
or 14.3(9) relating to compliance with certain restrictions relating to
transfers of Restricted Securities, such certification shall be provided
substantially in the form of the following certificate, with only such changes
thereto as shall be approved by the Company and Goldman, Sachs & Co.:
CERTIFICATE
CRITICAL PATH, INC.
5 3/4% CONVERTIBLE NOTES DUE April 1, 2005
This is to certify that as of the date hereof with respect to
U.S. $______ principal amount of the above-captioned securities surrendered on
the date hereof (the "Surrendered Securities") for registration of transfer, or
for conversion or repurchase where the securities issuable upon such conversion
or repurchase are to be registered in a name other than that of the undersigned
Holder (each such transaction being a "transfer"), the undersigned Holder (as
defined in the Indenture) certifies that the transfer of Surrendered Securities
associated with such transfer complies with the restrictive legend set forth on
the face of the Surrendered Securities for the reason checked below:
_________ The transfer of the Surrendered Securities complies with Rule 144A
under the Securities Act; or
_________ The transfer of the Surrendered Securities complies with Rule 144
under the United States Securities Act of 1933, as amended (the
"Securities Act"); or
_________ The transfer of the Surrendered Securities has been made to an
institution that is an "accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act in a
transaction exempt from the registration requirements of the
Securities Act and a signed letter containing certain representations
and agreements relating to restrictions on transfer of the Securities
(and if such transfer is for an aggregate principal amount less than
$250,000, an opinion of counsel acceptable to the Company if
requested by the Company, that such transfer is exempt from
registration; or
_________ The transfer of the Surrendered Securities has been made pursuant to
an exemption from registration under the Securities Act and an
opinion of counsel has been delivered to the Company with respect to
such transfer.
[TO COME]
<PAGE> 113
[Name of Holder]
Dated: _____________
*To be dated the date of surrender
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<PAGE> 1
EXHIBIT 10.28
SECURED PROMISSORY NOTE
U.S. $100,000 San Francisco, California
January 18, 2000
FOR VALUE RECEIVED, the undersigned, Mark Rubash an individual residing
in California (the "Borrower"), hereby promises to pay to the order of Critical
Path, Inc., a California corporation with mailing address at 320 First Street,
San Francisco, CA 94105, or its successors or assigns (the "Lender"), the
principal sum of One Hundred Thousand Dollars ($100,000) together with simple
interest thereon at the rate of six and eight tenths percent (6.8%) per annum
from the date hereof, in such coin or currency of the United States of America
as at the time of payment shall be legal tender. Notwithstanding the foregoing,
interest will accrue and be payable at a per annum rate equal to the lesser of
(i) the aforementioned rate of interest plus three percent (3%) or (ii) the
maximum interest rate allowed by law, on all past-due principal from the due
dates thereof until the obligations of the undersigned with respect to the
payment hereof shall have been discharged in full.
Principal and interest shall be payable hereunder as follows:
(i) On the earlier of January 18, 2005 or thirty (30) days following
termination of the Borrower's employment with the Lender, the undersigned shall
pay the Lender the entire outstanding principal amount hereof, together with all
accrued and unpaid interest hereon.
(ii) Notwithstanding the foregoing, so long as there is then no uncured
default hereunder and no Maturity Event (as hereinafter defined) has occurred,
the original principal amount hereof and all of the then outstanding interest
shall be forgiven on a yearly basis, over a two year period beginning the date
hereof, as a portion of the Borrower's bonus described in the offer letter dated
January 18, 2000 from Lender to Borrower attached hereto as Exhibit A and the
undersigned shall be released and relieved from the obligation to repay such
amount of reduction to the holder hereof accordingly.
All payments made pursuant hereto, regardless of when made, shall be
first applied to reduce accrued and unpaid interest on the past-due principal
hereof, and any remaining portion of such payments shall then be applied to
reduce the principal hereof. All payments hereunder shall be tendered at the
aforementioned address of the Lender to the attention of the President or at
such other place as the holder hereof may designate in writing from time to
time. This Note may be prepaid in whole or in any part without premium or
penalty. All payments made hereunder shall be made by the undersigned free and
clear of, and without deduction for, any and all present and future taxes,
levies, charges, deductions and withholdings. The undersigned shall pay upon
demand any stamp or other taxes, levies or charges of any jurisdiction with
respect to the execution, delivery, performance and enforcement of this Note.
<PAGE> 2
In the event that (a) the undersigned fails to pay when due the
principal hereof or interest hereon as hereinabove provided and such failure has
not been remedied within five (5) days after Lender shall have given the
undersigned notice thereof, or (b) the undersigned shall fail to pay, perform or
otherwise satisfy when due any other obligation or liability to the Lender under
any document or instrument now or hereafter given as security for the payment of
this Note and such failure has not been remedied within five (5) days after the
Lender shall have given the undersigned notice thereof, or (c) the employment of
the undersigned with the Lender shall terminate or cease for any reason, whether
voluntarily or involuntarily and whether with cause or without cause, or (d)
there shall be filed any petition or there shall be taken any action by or
against undersigned under the provisions of any bankruptcy, insolvency or
similar law affecting creditors' rights generally, or (e) the undersigned shall
make an assignment for the benefit of his creditors, or (f) a court or other
competent authority shall appoint (or the undersigned shall consent to the
appointment of) a custodian, receiver, trustee or other person with similar
powers to take control of the undersigned or any material part of his respective
property or assets, then, in any such event (each a "Maturity Event"), at the
option of the holder of this Note, the entire principal amount then outstanding
hereunder and all accrued and unpaid interest hereon shall become immediately
due and payable.
The indebtedness evidenced by this Note and the obligations created
hereby will be secured by shares of the Lender's common stock purchased pursuant
to the undersigned's option to purchase 475,000 shares of the Lender's common
stock; provided that the value of the shares used to secure the obligations
created hereby shall not exceed the amount outstanding under this Note.
The undersigned hereby makes the following representations and
warranties to the Lender and acknowledges that the Lender is relying on such
representations in making the loan:
(i) Borrower shall have good and marketable title to the shares of
common stock issuable upon exercise of the option free and clear of any security
interests, liens or encumbrances.
(ii) There are no actions, proceedings, claims or disputes pending or,
to the undersigned's knowledge, threatened against or affecting the undersigned.
This Note may be amended or modified, and provisions hereof may be
waived, only by a written agreement executed by the undersigned and the holder
hereof. No delay or omission by the holder hereof in exercising any of its
rights, remedies, powers or privileges hereunder or at law or in equity and no
course of dealing between the holder hereof and the undersigned or any other
person shall be deemed a waiver by the holder of any such rights, remedies,
powers or privileges, even if such delay or omission is continuous or repeated,
nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise thereof by the holder hereof or
the exercise of any other right, remedy, power or privilege by the holder
hereof. Should this instrument or any part of the indebtedness hereby be
collected by law or through an attorney-at-law, the holder hereof shall, if
permitted by applicable law, be entitled to collect from the undersigned
reasonable attorneys' fees and all other costs of collection. The undersigned
hereby waives presentment, demand, protest and notice of any kind, including
notice of presentment, demand, protest, dishonor and non-payment. This Note
shall be binding upon the undersigned and his respective heirs, legal
-2-
<PAGE> 3
representatives, successors and assigns. The rights and remedies of the holder
hereof described herein and in any documents or instruments delivered as
security for the performance of the undersigned's obligations hereunder shall be
cumulative and not restrictive of any other rights or remedies available under
any other instrument, at law or in equity. This Note and the obligations created
hereby are not assignable by the undersigned.
In the event that the holder hereof, in enforcing its rights hereunder,
determines that the charges and fees incurred in connection with this Note may
under applicable law cause the interest rate to exceed the maximum rate allowed
by law, then such interest shall be calculated and any excess over the maximum
permitted by said law shall be credited to the then outstanding principal amount
hereof to reduce said balance by the amount of any such excess. It is the intent
of the parties hereto that under no circumstance shall the undersigned be
required to pay, nor shall the holder be entitled to collect, any interest which
exceeds the maximum rate permitted under applicable laws relative to usury.
The validity, construction, effect, performance and enforcement of this
Note shall be governed in all respects by the laws of the State of California.
Every provision of this Note is intended to be severable. Whenever possible,
each provision of this Note shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Note.
THIS NOTE AND ALL RELATED DOCUMENTATION ARE EXECUTED VOLUNTARILY AND
WITHOUT ANY DURESS OR UNDUE INFLUENCE ON THE PART OF OR ON BEHALF OF THE PARTIES
HERETO, WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND SECURITY INTERESTS
DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT: (A) THEY HAVE READ
SUCH DOCUMENTS; (B) THEY HAVE BEEN REPRESENTED IN THE PREPARATION, NEGOTIATION
AND EXECUTION OF SUCH DOCUMENTS BY LEGAL COUNSEL OF THEIR OWN CHOICE OR THAT
THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (C) THEY UNDERSTAND THE
TERMS AND CONSEQUENCES OF THIS NOTE AND ALL RELATED DOCUMENTS AND THE
OBLIGATIONS THEY CREATE; AND (D) THEY ARE FULLY AWARE OF THE LEGAL AND BINDING
EFFECT OF THIS NOTE AND THE OTHER DOCUMENTS CONTEMPLATED HEREOF.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Note, intending
to be bound personally hereby, as of the day and year first above written.
____________________________________
MARK RUBASH
BORROWER
-4-
<PAGE> 5
EXHIBIT A
OFFER LETTER DATED JANUARY 18, 2000
-5-
<PAGE> 6
SECURITY AGREEMENT
This Security Agreement is made as of January 18, 2000 between Critical
Path, Inc., a California corporation ("Pledge"), and Mark Rubash ("Pledgor").
Recitals
On January 18, 2000, Pledgor delivered a promissory note (the "Note") to
Pledgee in connection with Pledgee's loan to Pledgor in the principal amount of
$100,000.
Pursuant to the terms of the Note, Pledgor agrees to grant Pledgee a
security interest in shares of Pledgee's Common Stock (the "Shares") issued
upon exercise of Pledgor's stock options granted under the option agreement
dated January 18, 2000 between Pledger and Pledgee (the "Option Agreement").
The Note is attached hereto as Exhibit A.
NOW THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by a certain stock
certificate(s) issued upon exercise of Pledgor's stock options granted under
the Option Agreement, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Note, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without
the prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock is
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations
<PAGE> 7
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
stock dividend reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, Pledgor, Pledgee and Pledgeholder
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. In the event of a Maturity Event (as that term is defined
in the Note), Pledgee shall be entitled to pursue its remedies under the
California Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Notes or upon forgiveness of the Note. The number of the pledged Shares which
shall be released shall be that number of full Shares which bears the same
proportion to the initial number of Shares pledged hereunder as the payment of
principal bears to the initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment or
forgiveness of all indebtedness secured hereby, at which time the remaining
pledged stock shall be promptly delivered to Pledgor, subject to the provisions
for prior release of a portion of the Collateral as provided in paragraph 7
above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for
the property of Pledgor, or if Pledgor makes an
-2-
<PAGE> 8
assignment for the benefit of creditors, the entire amount unpaid on the Note
shall become immediately due and payable, and Pledgee may proceed as provided
in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of the State of California.
-3-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR"
--------------------------------
Signature
--------------------------------
Print Name
Address:
--------------------------------
--------------------------------
"PLEDGEE" Critical Path, Inc.,
a California corporation
--------------------------------
Signature
--------------------------------
Print Name
--------------------------------
Title
"PLEDGEHOLDER"
--------------------------------
Secretary of Critical Path, Inc.
-4-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 348,377
<SECURITIES> 12,699
<RECEIVABLES> 27,149
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<INVENTORY> 0
<CURRENT-ASSETS> 382,035
<PP&E> 97,967
<DEPRECIATION> 31,090
<TOTAL-ASSETS> 1,681,883
<CURRENT-LIABILITIES> 70,547
<BONDS> 310,967
0
0
<COMMON> 62
<OTHER-SE> 1,238
<TOTAL-LIABILITY-AND-EQUITY> 1,681,883
<SALES> 24,553
<TOTAL-REVENUES> 24,553
<CGS> 15,347
<TOTAL-COSTS> 18,344
<OTHER-EXPENSES> 83,775
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<INTEREST-EXPENSE> 274
<INCOME-PRETAX> (76,582)
<INCOME-TAX> 360
<INCOME-CONTINUING> (76,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,942)
<EPS-BASIC> (1.52)
<EPS-DILUTED> (1.52)
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