<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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[ ] 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 0-11103
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CENTOCOR, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2117202
- --------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Great Valley Parkway Malvern, Pennsylvania 19355-1307
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(Address of principal executive offices) (Zip Code)
610-651-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Shares of Common Stock outstanding at May 1, 1998 were 70,363,045.
<PAGE>
PART I: FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
- --------------------------------------- ---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 4 and 8) $157,295 $ 85,565
Short-term investments (Note 4) 120,526 109,108
Accounts and contracts receivable 38,958 26,459
Interest receivable 1,286 1,394
Inventory (Note 5) 30,612 27,777
Prepaid expenses 2,285 3,053
Other current assets 1,613 1,489
-------- --------
352,575 254,845
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 68,552 68,957
Equipment, furniture, fixtures, improvements
and construction in progress 101,358 87,483
-------- --------
169,910 156,440
Less accumulated depreciation (79,952) (79,426)
-------- --------
89,958 77,014
LONG-TERM INVESTMENTS (NOTE 4) 23,334 11,957
INTANGIBLE AND OTHER ASSETS (NOTE 6) 259,583 61,288
-------- --------
TOTAL ASSETS $725,450 $405,104
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D.)
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
- --------------------------------------- ----------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,843 $ 15,651
Accrued expenses 66,612 54,203
Notes payable (Note 8) 5,769 5,940
Current portion of long-term debt (Note 8) 54,765 --
Other current liabilities (Note 7) 15,800 15,800
---------- ----------
154,789 91,594
LONG-TERM DEBT (NOTE 8) 460,000 54,765
OTHER LIABILITIES 1,060 910
SHAREHOLDERS' EQUITY (NOTES 2, 4 AND 8):
Preferred Stock, $.01 par value,
10,000 shares authorized, none issued -- --
Common Stock, $.01 par value,
100,000 shares authorized and
70,193 and 70,146 issued and
outstanding at March 31, 1998 and
December 31, 1997, respectively 702 701
Additional paid-in capital 1,061,337 1,060,158
Accumulated deficit (950,779) (810,472)
Unrealized gain on marketable
securities (Note 12) -- 7,894
Cumulative foreign currency
translation adjustments (Note 12) (1,659) (446)
---------- ----------
109,601 257,835
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 725,450 $ 405,104
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
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For the three months ended March 31, 1998 1997
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<S> <C> <C>
REVENUES:
Sales $56,505 $44,936
Contracts 360 100
---------- -------
56,865 45,036
COSTS AND EXPENSES:
Cost of sales 20,760 17,806
Research and development 19,913 14,337
Marketing, general and administrative 15,867 9,796
Special charges (Note 11) 145,405 --
---------- -------
201,945 41,939
OTHER INCOME (EXPENSES):
Interest income 4,164 2,154
Interest expense (2,687) (997)
Litigation settlement (Note 2) (3,430) --
Gain on sale of investment (Note 4) 6,931 --
Other (55) (913)
---------- -------
4,923 244
---------- -------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (140,157) 3,341
Provision for income taxes (Note 9) 150 70
---------- -------
NET INCOME (LOSS) ($140,307) $ 3,271
========== =======
BASIC EARNINGS (LOSS) PER SHARE ($2.00) $ 0.05
========== =======
DILUTED EARNINGS (LOSS) PER SHARE ($2.00) $ 0.05
========== =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 70,185 69,517
========== =======
WEIGHTED AVERAGE COMMON AND DILUTIVE
EQUIVALENT SHARES OUTSTANDING 70,185 71,659
========== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
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For the three months ended March 31, 1998 1997
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<S> <C> <C>
Cash flows used for operating activities:
Net income (loss) ($140,307) $ 3,271
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Provisions for depreciation and amortization 5,158 3,894
Special charges (Note 11) 145,405 --
Gain on sale of investment (6,931) --
Other -- (1,126)
Changes in assets and liabilities:
Accounts and contracts receivable (12,259) (6,733)
Interest receivable 105 181
Inventory (3,546) (1,793)
Prepaid expenses (259) 325
Other current assets (170) (261)
Intangible and other assets (7,412) (13,909)
Accounts payable (2,114) (1,570)
Accrued expenses and other 7,174 3,164
liabilities
Other long-term liabilities 150 (57)
--------- ---------
Net cash used for operating activities (15,006) (14,614)
Cash flows used for investing activities:
Purchases of investments (58,209) (116,695)
Sales of investments 51,373 102,869
Retavase acquisition and related costs (337,039) --
Purchases of fixed assets (17,881) (1,856)
--------- ---------
Net cash used for investing activities (361,756) (15,682)
Cash flows from financing activities:
Net proceeds from issuances of Common Stock 306 3,958
Net proceeds from issuance of long-term debt 448,500 --
--------- ---------
Net cash from financing activities 448,806 3,958
Effect of foreign currency translation (314) 237
--------- ---------
Net increase (decrease) in cash and cash equivalents 71,730 (26,101)
Beginning cash and cash equivalents 85,565 55,953
--------- ---------
Ending cash and cash equivalents $ 157,295 $ 29,852
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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NOTE 1
BASIS OF PRESENTATION
Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical company
the mission of which is to develop or otherwise acquire and commercialize novel
therapeutic products that solve critical needs in human health care, with a
primary technological focus on monoclonal antibodies and DNA-based products.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
periods. These financial statements do not include all disclosures required for
annual financial statements and should be read in conjunction with the more
complete disclosures contained in Centocor, Inc.'s audited financial statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The statements reflect, in the opinion of management, all adjustments of a
normal and recurring nature necessary to present fairly the Company's
consolidated financial position at March 31, 1998 and December 31, 1997 and the
consolidated results of operations and cash flows for the three months ended
March 31, 1998 and 1997. The results of operations and the cash flows are not
necessarily indicative of the results to be expected for the entire year.
NOTE 2
COMMITMENTS AND CONTINGENCIES
Liquidity and Capital Resources
The Company, since inception, has incurred significant operating expenses
attempting to develop therapeutic and diagnostic products. The Company has also
incurred significant special charges. Consequently, the Company had experienced
substantial net cash outflows, which have been only partially offset by
significant contract revenues received through collaborative alliances with
pharmaceutical companies and the Company's financing activities.
On March 13, 1998, the Company completed the acquisition of the U.S. and
Canadian product rights for Retavase (TM) (reteplase), a leading acute-care
cardiovascular drug, from Roche Healthcare Limited ("Roche Healthcare"), a
subsidiary of Roche Holding Ltd. ("Roche"), for $335,000,000 in cash. Centocor
was able to acquire Retavase because Roche was required to divest Retavase as a
condition of Roche's acquisition of Corange Limited, the parent company of
Boehringer Mannheim GmbH ("Boehringer Mannheim").
As part of the Company's agreements with Roche Healthcare, $20,000,000 of the
Retavase puchase price (the "Escrow Amount") has been placed in escrow and is
classified as a long-term investment. Centocor is entitled to recover all or a
portion of the Escrow Amount upon the sucessful completion of certain milestones
in the transfer of the manufacturing of Retavase from Boehringer Mannheim to
Centocor.
6
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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The Company financed the acquisition through the issuance of $460,000,000
principal amount of 4 3/4% Convertible Subordinated Debentures due February 15,
2005 ("the 4 3/4% Debentures") in February 1998.
The Company believes a potential advantage of the acquisition of Retavase lies
in the possibility that ReoPro(R) (abciximab) and Retavase, administered in
combination, may prove to have a therapeutic advantage over monotherapy for
acute myocardial infarction patients. Two Phase II clinical trials currently are
underway to evaluate the approach of using ReoPro in conjunction with a
fibrinolytic product in the management of heart attack patients. There can be no
assurance, however, that a ReoPro/Retavase combination therapy will prove to be
safe and effective, will receive U.S. Food and Drug Administration ("FDA")
approval or, even if approved, ultimately will achieve market acceptance.
The Company's future financial condition is dependent upon the Company's rate
of net cash inflows and, ultimately, upon the achievement of significant and
sustained levels of therapeutic product sales. Under the Company's collaborative
alliances with established pharmaceutical companies, the Company generally
shares sales revenues from products covered by such arrangements with its
partners. The level of future sales of the Company's products will be dependent
upon several factors, including, but not limited to, the timing and extent of
future regulatory approvals of those products, approval and commercialization of
competitive products and the degree of acceptance of the Company's products in
the marketplace. There can be no assurance that the FDA or other regulatory
authorities will approve expanded labeling for ReoPro and other products or will
approve any other of the Company's product candidates under development for
commercial sale. Failure to obtain additional timely FDA or other regulatory
approval for the Company's products and product candidates may have a material
adverse effect on the Company.
7
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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Legal Proceedings
In October 1992, the Company was served with a complaint filed by the Velos
Group, a Maryland partnership ("Velos") in the U.S. District Court for the
District of Maryland. The complaint primarily alleged that the Company breached
certain provisions of a license agreement between Velos and the Company pursuant
to which the Company has exclusive rights to U.S. Patent No. 5,057,598, as well
as various patent applications and foreign patents. The complaint sought
declaratory relief and monetary relief in excess of $100,000,000, and requested
that the Company place in escrow one-half of the amounts received by the Company
in 1992 pursuant to its agreements with Eli Lilly and Company ("Lilly"). On
February 20, 1998, the Company and Velos entered into a comprehensive settlement
agreement resolving all claims between them. Upon the execution and delivery of
the settlement agreement, the Company paid to Velos $4,750,000 in full and final
satisfaction of any and all obligations that the Company may have owed as the
result of any claims that had been brought by Velos, or that it may have owed in
the future under the provisions of the license agreement, including the future
minimum annual royalty payments that would become due. The Company and Velos
exchanged general releases and both parties filed stipulations dismissing all
litigation between them (including appeals). The Company granted to Velos a
fully-paid exclusive license to United States Patent No. 5,057,598 (which had
been assigned to the Company on November 7, 1990 and has no applicability to any
of the Company's products or product candidates); and the parties terminated the
license agreement. As a result of the completion of the comprehensive settlement
agreement in February 1998, the Company recorded a one-time charge to earnings
of $3,430,000 primarily representing the portion of the payment due to Velos
which had not been previously expensed.
8
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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In July 1995, PaineWebber Development Corporation, a wholly-owned subsidiary
of Paine Webber Group Inc., caused suits to be filed against the Company by two
research and development partnerships formed in the mid-1980s by PaineWebber and
managed by it since then. The two PaineWebber partnerships (PaineWebber R&D
Partners, L.P. and PaineWebber R&D Partners II, L.P.) were, respectively,
investors in Centocor Partners II, L.P. ("CPII") and Centocor Partners III, L.P.
("CPIII"), research partnerships for which PaineWebber acted as the sales agent
and in other capacities. The Company purchased the limited partners' interests
in CPII in February 1992 and that partnership was then dissolved. The Company
purchased the Class A and Class C limited partners' interests in CPIII in
January 1997 and purchased the Class B limited partnership interest in CPIII in
May 1997.
The suit by PaineWebber R&D Partners, L.P., was filed in the Supreme Court of
the State of New York, County of New York, and was brought as a class action on
behalf of all former limited partners of CPII. The complaint charges that some
portion of the $100,000,000 paid by Lilly to the Company in July 1992
constituted revenues to the Company for the licensing, sublicensing or sale of
HA-1A (Centoxin) and that the Company is obligated to pay a percentage thereof
to the former limited partners of CPII, in addition to amounts already paid.
The Company moved to dismiss the New York suit on the ground that it was brought
in an inconvenient forum and that motion was granted. The suit was then refiled
in the Delaware Superior Court. Prior to the New York action, a similar suit
was filed by another former CPII partner, Jerome J. Petrisko, in the Court of
Common Pleas of Chester County, Pennsylvania. Petrisko was subsequently allowed
to intervene in the Delaware action and the Chester County action was dismissed.
The PaineWebber and Petrisko actions were consolidated and the action was
certified as a class action. The Company filed an affirmative defense and
counterclaim based on unjust enrichment which seeks an offset on any recovery by
the class. Discovery has been completed. In November 1997, Centocor filed a
motion for summary judgment as to certain claims asserted in plaintiffs'
complaint. In February 1998, the Court granted the Company's motion with
respect to the claim seeking fifty percent of approximately $71,000,000 of the
$100,000,000 paid to Centocor by Lilly; and, it granted the motion insofar as it
sought dismissal of the claim based on an alleged breach of a covenant of good
faith and fair dealing. Finally, the Court denied the Company's motion as to
plaintiffs' claim for an 8% royalty on approximately $71,000,000, but expressly
reserved the Company's right to renew its motion for judgment as to this claim.
A trial in this action is scheduled to commence on June 8, 1998. The Company
believes that this action is without merit and intends to defend it vigorously.
The suit by PaineWebber R&D II, L.P. ("PWR&DII") was filed in the Court of
Chancery of the State of Delaware. In the complaint in this action, the
plaintiff seeks to sue derivatively on behalf of CPIII. CPIII is named as a
nominal defendant and the Company and Centocor Development Corporation III
("CDCIII"), a wholly owned subsidiary of the Company which acted as the general
9
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
partner of CPIII, are named as defendants against whom relief is sought. The
claim in this case is that at least $25,000,000 of the money paid by Lilly to
the Company in 1992 represented profits from the marketing of ReoPro, obligating
the Company to pay a portion thereof to CPIII, and that the Company is obligated
to pay an increased percentage of the profits from ReoPro to the former CPIII
limited partners going forward. The Company answered the complaint in the
Delaware action and filed a cross-claim against nominal defendant CPIII and a
third-party complaint against PaineWebber Group Inc. and PaineWebber Development
Corporation. The cross-claim seeks an offset against any damages awarded the
partners based on theories of unjust enrichment and quasi contract. The third-
party claims (later amended to add additional theories of liability and to make
PaineWebber, Inc. an additional third-party defendant) seek to hold the
PaineWebber entities liable for some or all of any alleged injury to the
partnership. On November 1, 1995, an additional suit was commenced in the
Delaware Court of Chancery by John E. Abdo, a limited partner of CPIII, against
the Company, CDCIII and certain of their officers and directors. The complaint,
filed derivatively on behalf of CPIII, asserts claims, inter alia, for breach of
contract, breach of fiduciary duty, common law fraud, and conspiracy and aiding
and abetting. The Company answered this complaint and also filed a cross-claim
against nominal defendant CPIII and a third party complaint against PaineWebber
Group Inc. and PaineWebber Development Corporation, later amended to add
additional theories of liability and to name PaineWebber, Inc. as a further
third-party defendant. Abdo moved to amend his complaint to assert claims
against the persons appointed by PaineWebber to the CDCIII Board of Directors.
That motion was granted. Motions to disqualify PWR&DII from serving as the
derivative plaintiff were filed in July 1996 by CPIII and in August 1996 by
Centocor and CDCIII. Abdo joined those motions. No decision has been issued on
those motions. The case brought by PWR&DII has been settled, subject to final
approval of the settlement by the Court. Abdo and Pharmaceutical Partners II,
L.P., a limited partnership which has purchased CPIII limited partnership
interests, objected to the settlement. They were permitted to take discovery
regarding the settlement and have sought to take additional discovery. A
hearing on the adequacy and fairness of the settlement was held on September 4,
1997. No decision has been rendered.
On January 19, 1998, a purported class action captioned Surgener v. Centocor,
Inc. and David P. Holveck was filed in the United States District Court for the
Eastern District of Pennsylvania. Other similar suits were filed thereafter.
The complaints in these actions charge the Company and its chief executive
officer with having violated the federal securities laws. Plaintiffs seek to
represent a class of those who purchased Centocor stock between December 2,
1997, and December 16, 1997, inclusive, and allege that defendants made false
and misleading statements in connection with earnings forecasts. Damages in an
unspecified amount are sought. The Company believes these actions are without
merit and intends to defend them vigorously.
10
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Pursuant to the Asset Purchase Agreement between the Company and Roche
Healthcare Limited, entered into in connection with the Company's acquisition of
the U.S. and Canadian product rights for Retavase (the "Purchase Agreement"),
the Company has assumed responsibility for certain Retavase patent litigation
instituted by Genentech, Inc. against Boehringer Mannheim GmbH and Boehringer
Mannheim Corporation in the United States and Germany. The Purchase Agreement
also provides that the cost of the Retavase patent litigation (in the United
States and Germany) is to be shared equally by Roche and the Company and Roche
is committed to assist the Company in the litigation by making available, at
Roche's expense, witnesses and documents. If, as a result of (i) a binding
determination (including a permanent, temporary or preliminary injunction for so
long as such injunction is not stayed or vacated) in connection with the
Retavase patent litigation (a "Binding Determination") or (ii) a settlement of
the Retavase patent litigation (a "Settlement"), the Company is unable during
the life of the relevant Genentech patents to engage in the manufacture or sale
of Retavase in the United States and Canada, Roche Healthcare would be required
to reimburse to the Company up to 100% of the purchase price under the Purchase
Agreement (excluding the $20,000,000 placed in escrow at the closing of the
Purchase Agreement depending upon the length of the period for which the
Company's manufacturing and sale activities are prohibited. Furthermore, Roche
Healthcare would be required under the Purchase Agreement to indemnify the
Company for (i) any damages (including lost profits) and (ii) any reasonable
royalty payments, for which the Company may become liable to Genentech as a
result of a Binding Determination or a Settlement. Roche Healthcare's total
purchase price reimbursement and indemnification obligations relating to the
Retavase patent litigation are limited to an aggregate of 125% of the total
purchase price under the Purchase Agreement, excluding any portion of the Escrow
Amount previously returned to the Company. In the event the governance agreement
between Roche and Genentech allows Roche to control Genentech or in the event
Roche obtains 100% of the stock of Genentech, Roche will cause the patent
litigation to be dismissed with prejudice and will cause Genentech not to
institute any additional infringement litigation relating to Retavase.
In a suit filed in the United States District Court for the District of
Massachusetts, Genentech charges Boehringer Mannheim GmbH and Boehringer
Mannheim Corporation with infringement of five patents. Genentech seeks
judgment of infringement, an injunction, treble damages, and costs including
attorney's fees. The defendants have denied infringement and raised various
affirmative defenses and counterclaims. Defendants seek a declaration of
invalidity, unenforceability and non-infringement, damages under the antitrust
laws and a state statute and costs, including attorney's fees. The Court
directed the parties to address initially three of the patents (United States
Patents
11
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Nos. 4,342,832, 5,034,225 and 4,511,502), reserving two for later disposition
(United States Patents Nos. 5,221,619 and 5,185,259). The Court has conducted a
Markman hearing as to the first three patents to be considered in order to
construe the claims of the patents. It subsequently issued an opinion which has
limited the construction of the claims asserted by Genentech in certain
instances, while not accepting all of defendants' arguments as to construction.
Thereafter, the Court entertained argument on the motions by the defendants for
summary judgment of noninfringement as to the same three patents, but has not
yet issued an opinion. On March 27, 1998, the Company moved to intervene as a
named defendant in the litigation pending in the District of Massachusetts. The
Court thereafter joined the Company as a party without prejudice to Genentech's
opposition to the transfer of an action recently filed by Genentech against
Centocor in the United States District Court for the Northern District of
California, which is described below. There can be no assurance that the
defendants will prevail in obtaining a judgment of noninfringement as a result
of the summary judgment proceedings. Moreover, there can be no assurance that
the defendants will prevail in obtaining a judgment of non-infringement,
invalidity, or unenforceability of the patents in any subsequent trial or
appeal. An adverse determination in these proceedings could have a material
adverse effect on the Company's ability to market Retavase.
The patent litigation in Germany consists of a number of different
proceedings: 1) an infringement suit by Genentech and its licensee against
Boehringer Mannheim GmbH based on the European patent EP 0 093 619 and an
extension based on patents EP 0 217 379 and EP 0 228 862; 2) a nullity suit by
Boehringer Mannheim against the patent EP 0 093 619; 3) a nullity suit by
Boehringer Mannheim against the patent EP 0 217 379; and 4) an appeal by
Boehringer Mannheim from the decision of the European Patent Office arising from
Boehringer Mannheim's opposition to the patent EP 0 228 862. The nullity suits
and the opposition appeal challenge the validity of the patents in issue or seek
construction of the claims in a manner which would exclude Retavase. The
infringement suit based on the patent EP 0 093 619 has been stayed pending the
outcome of the corresponding nullity action. A hearing that was to have taken
place in that nullity action in February, 1998 has been postponed until July,
1998. The Court in the infringement action based on patents EP 0 217 379 and EP
0 228 862 has directed certain questions to an expert yet to be appointed. No
report is expected from the expert until at least the end of 1998. A July, 1998
hearing date has been fixed on Boehringer Mannheim's nullity suit against the
patent EP 0 217 379. No date has been set for a hearing on the appeal in the
opposition proceedings with regard to patent EP 0 228 862. If any of the German
patent proceedings remain pending at the date when the Company is no longer
dependent on Boehringer Mannheim for the supply of Retavase, the defense and
risk of the remaining proceedings will revert to Boehringer Mannheim. An
adverse determination in these proceedings could have a material adverse effect
on the Company's ability to market Retavase.
On March 17, 1998, two additional patents were issued to Genentech, United
States Patent Nos. 5,728,565 (the "'565 Patent") and 5,728,566 (the "'566
Patent"). The '565 and '566 Patents issued
12
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
from the same original application as United States Patent No. 5,185,259, one of
the patents at issue in the suit that Genentech brought in the District of
Massachusetts. That same day, March 17, 1998, Genentech brought suit against the
Company (but not Boehringer Mannheim GmbH or Boehringer Mannheim Corporation)
for infringement of the '565 and '566 Patents in the United States District
Court for the Northern District of California. In that suit, as in
Massachusetts, Genentech seeks judgment of infringement, an injunction, damages,
and costs including attorney's fees. Because of the close relationship between
the '565 and '566 Patents and certain of the patents in suit in the District of
Massachusetts, on April 2, 1998, the Company filed a motion to transfer the case
from the Northern District of California to the District of Massachusetts. No
decision on the motion has been rendered. In addition to filing the motion to
transfer, the Company has answered the complaint, denying infringement of the
'565 and '566 Patents and raising various affirmative defenses concerning
invalidity of those patents. There can be no assurance that the Company will
prevail in its motion to transfer. If it does not, the Company will have to
defend infringement claims concerning the '565 and '566 Patents in California,
as well as defending the pending litigation in Massachusetts. Moreover, there
can be no assurance that the Company will prevail in its defense of the suit
concerning the '565 and '566 Patents. An adverse determination in these
proceedings could have a material adverse effect on the Company's ability to
market Retavase.
In addition to the indemnification and purchase price reimbursement
arrangements under the Purchase Agreement relating to the Genentech litigation
that was pending at the time of the Purchase Agreement, Roche Healthcare agreed
to indemnify the Company against certain other future infringement actions,
subject to certain limitations; and Roche Healthcare further agreed that it will
not institute Retavase-related claims based on any Roche patents or patent
applications existing as of the closing date of the Purchase Agreement. Roche
has confirmed its understanding that the suit that Genentech brought against the
Company in the Northern District of California is covered by the indemnification
and reimbursement provisions of the Purchase Agreement.
While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not have
a material adverse effect on the Company.
Royalties
In January 1997, the Company exercised its option to acquire the limited
partnership interests in CPIII and made an advance payment of approximately
$13,598,000 in cash to the Class A and Class C limited partners of CPIII. The
Company recorded this payment as a prepaid royalty in January 1997. In
addition, the Company is required to make future royalty payments to the former
limited partners of CPIII based upon future sales of ReoPro.
The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses
and/or options to license certain technology resulting from the research,
generally require the Company to pay royalties to such institutions on the sales
of any products that utilize the licensed technology. Further, the Company has
licenses
13
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
under certain patents, patent applications and technology and pays the licensors
or their licensees royalties under such agreements.
The Company has entered into indemnity agreements with the former limited
partners of Centocor Cardiovascular Imaging Partners, L.P., CPII and CPIII
pursuant to which the Company would be obligated, under certain circumstances,
to compensate these parties for the fair market value of their respective
interests under any license agreements with the Company relating to their
respective products which are lost through the exercise by the U.S. government
of any of its rights relating to the licensed technology. The amount of any
such loss would be determined annually by independent appraisal.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.
Product Liability and Product Recall
The testing and marketing of medical products entails an inherent risk of
product liability. There is also a risk that circumstances might develop
requiring a product recall. The Company maintains limited product liability and
does not maintain product recall or product tampering insurance coverage.
Centocor's business may be materially adversely affected by a successful product
liability claim in excess of any insurance coverage. There can be no assurance
that product liability insurance coverage will continue to be available to
Centocor in the future on reasonable terms or at all.
NOTE 3
COLLABORATIVE ARRANGEMENTS
Relationship with Eli Lilly and Company
In July 1992, Centocor and Lilly entered into a Sales and Distribution
Agreement later amended in June 1993. Under that Agreement, as amended,
Centocor is principally responsible for developing and manufacturing ReoPro, and
Lilly will assist Centocor in the regulatory filings and continued development
of ReoPro for various clinical indications. Also, in the event Centocor cannot
manufacture ReoPro or under certain other circumstances, such as material breach
of the agreement by or the bankruptcy of Centocor, Lilly has the option to
assume the manufacture of ReoPro and assure the continued supply of the product,
even to the extent of acquiring Centocor's related manufacturing assets at their
independently appraised values.
In June 1996, the Company and Lilly further amended its Sales and Distribution
Agreement,
14
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
pursuant to which Lilly no longer has the right to buy ReoPro for resale in
Japan, but Lilly retains its exclusive right to buy and resell ReoPro in the
rest of the world.
Because of the complementary nature of Retavase and ReoPro in the
cardiovascular field, the Company believes the joint promotion of Retavase and
ReoPro could result in increased market penetration for ReoPro. Accordingly, the
Company and Lilly will jointly promote ReoPro through Lilly's existing ReoPro
sales force and the Company's Retavase sales force.
Relationship with Fujisawa Pharmaceutical Co., Ltd.
In August 1996, Centocor entered into an agreement with Fujisawa
Pharmaceutical Co., Ltd., appointing Fujisawa as the exclusive distributor of
ReoPro in Japan. The Company and Fujisawa will co-develop ReoPro in Japan and
jointly file for Japanese product approval. Fujisawa shall bear all external
costs associated with the clinical development of ReoPro in Japan and may make
future milestone payments to the Company.
Relationship with Glaxo Wellcome plc
In November 1993, Centocor and Glaxo Wellcome entered into an agreement for
the development and marketing of certain of Centocor's monoclonal antibody-based
cancer therapeutic products, including Panorex(R) (edrecolomab). In November
1994, Centocor and Glaxo Wellcome amended their agreement and Glaxo Wellcome
became the exclusive worldwide distributor for Panorex. Under the agreement,
Glaxo Wellcome is responsible principally for the continuing clinical
development of Panorex, and Centocor is responsible principally for
manufacturing Panorex and securing regulatory approvals.
Relationship with Roche Healthcare Limited
The Retavase Asset Purchase Agreement requires that Centocor establish and
qualify, either directly or through contract manufacturers, arrangements for the
manufacture of Retavase for sale in the United States within four years of the
consummation of the acquisition (subject to extension by the United States
Federal Trade Commission (the "FTC") for up to two additional one year periods
if it appears that the required FDA approvals are likely to be obtained within
such extended time period) (the "Transfer Period"). Under the Purchase
Agreement, Centocor is entitled to recover all or a portion of the Escrow Amount
upon the achievement of certain manufacturing milestones. Roche will cooperate
in Centocor's establishment of manufacturing arrangements by providing training
and other assistance and has agreed to maintain assets sufficient to supply
Retavase for the Transfer Period. Centocor must be successful in establishing
such manufacturing arrangements by the end of the Transfer Period or the
Retavase assets will revert to Roche, which must then divest
15
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
them to another party.
Relationship with Boehringer Mannheim GmbH and Boehringer Mannheim Corporation
During the Transfer Period Boehringer Mannheim GmbH will continue to supply
Retavase to Centocor from its facilities in Germany at an agreed price per unit
pursuant to a Supply Agreement. Boehringer Mannheim GmbH has represented and
warranted that the products supplied to Centocor will meet FDA approved
specifications and has provided the Company with customary indemnities,
including for damages that result from the failure of the product to meet FDA
approved specifications.
Under a Transition Services Agreement, for a period of up to six months after
closing of the transaction, completed in March 1998, Boehringer Mannheim
Corporation has and will provide certain transition services to Centocor,
including accepting orders and invoices on behalf of Centocor, collection
services and customer complaints and inquiries, to facilitate the transfer of
responsibility for the sale and distribution of the product.
Relationship with The DuPont Merck Pharmaceutical Company
Boehringer Mannheim Corporation and The DuPont Merck Pharmaceutical Company
("DuPont Merck") entered into an agreement in December 1996 pursuant to which
Boehringer Mannheim Corporation granted DuPont Merck the right to co-promote
Retavase in the United States. That agreement was assigned to Centocor in
connection with its acquisition of the Retavase assets and DuPont Merck is
continuing to co-promote Retavase in the United States.
16
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4
CASH EQUIVALENTS AND INVESTMENTS
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that the Company has both
the intent and ability to hold to maturity are carried at amortized cost.
Securities that the Company does not intend to hold to maturity are classified
either as "available for sale" or as "trading" and are carried at fair value.
Unrealized gains and losses on securities classified as available for sale are
carried as a separate component of shareholders' equity. Unrealized gains and
losses on specific securities classified as trading are reported as a component
of other income (expenses).
At March 31, 1998, securities classified as trading, available for sale and
held to maturity are summarized below (in thousands).
<TABLE>
<CAPTION>
Unrealized
Carrying --------------------------------- Fair
Value Gains (Losses) Value
------------ ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Trading securities:
Securities and obligations of
the U.S. Treasury and other
U.S. government agencies $ 31,925 $ 119 $ (16) $ 32,028
Other short-term obligations 97,330 - - 97,330
Corporate bonds and
commercial paper 25,146 5 (70) 25,081
------- ------- --------- -------
$154,401 $ 124 $ (86) $154,439
======= ======= ========= =======
Unrealized
Adjusted -------------------------------- Carrying
Cost Gains (Losses) Value
---------- ------------- ------------ ---------
Investments available for sale:
Equity securities $ 3,334 $ - $ - $ 3,334
======= =========== ============ =======
</TABLE>
17
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Carrying ------------------------------ Fair
Value Gains (Losses) Value
----------- ------------ ------------- -------
<S> <C> <C> <C> <C>
Investments held to maturity:
Securities and obligations of
the U.S. Treasury and other
U.S. government agencies $ 91,058 $ 15 $ (20) $ 91,053
Certificates of deposit 6,126 4 - 6,130
------- --------- ---------- -------
$ 97,184 $ 19 $ (20) $ 97,183
======= ========= ========== =======
At March 31, 1998, these securities were classified as follows (in thousands):
Cash equivalents $131,097
Short-term investments 120,526
Long-term investments 3,334
-------
$254,957
=======
</TABLE>
The Company has agreed to maintain investments with fair values of
$5,836,000 as of March 31, 1998 at the lending bank as collateral for loans from
that bank. See Note 8--Debt.
As part of the Company's agreements with Roche Healthcare, the Escrow
Amount has been placed in escrow and is classified as a long-term investment.
Centocor is entitled to recover all or a portion of the Escrow Amount upon the
successful completion of certain milestones in the transfer of the manufacturing
of Retavase from Boehringer Mannheim to Centocor.
In February, 1998, Centocor Diagnostics, Inc., a wholly owned subsidiary of
Centocor, Inc. ("Centocor Diagnostics"), sold an equity investment in
ChromaVision Medical Systems, Inc. consisting of 962,740 shares classified as
available for sale resulting in a realized gain of $6,931,000.
18
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5
INVENTORY
Inventory, net of reserves, consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 5,905 $ 4,646
Work in process 18,253 12,850
Finished goods 6,454 10,281
---------- -----------
$ 30,612 $ 27,777
========== ===========
</TABLE>
Inventories have various expiration dates. The Company continually
evaluates the extent of inventory reserves considered necessary based upon the
future regulatory and commercial status of such products. There can be no
assurance that additional reserves for inventories will not be required in the
future.
NOTE 6
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -------------
<S> <C> <C>
Acquired regulatory licenses $ 86,598 $ -
Goodwill 38,665 -
Prepaid royalties related to CPIII 29,398 29,398
Deferred charges 20,381 23,084
Debt issuance costs 13,190 598
Other licenses 12,189 5,339
All other 59,162 2,869
-------- ----------
$ 259,583 $ 61,288
======== ==========
</TABLE>
Intangible and other assets related to the acquisition of Retavase,
consisting primarily of goodwill and acquired regulatory licenses, are being
amortized over periods ranging from six to fifteen years.
19
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Prepaid royalties related to CPIII represent an advance payment of
approximately $13,600,000 in cash paid to the former limited partners of CPIII
in connection with the purchase of the limited partnership interests in CPIII
and an additional $15,800,000 payable to the former limited partners of CPIII in
connection with the revision of future royalties. See Note 2--Commitments and
Contingencies and Note 7--Other Current Liabilities.
Deferred charges include a prepayment of certain future royalties and a
prepayment associated with the commercialization and market development of
ReoPro.
Intangible and other assets are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amount of the
asset may not be recoverable. Impairment is evaluated by using identified or
expected cash flows.
NOTE 7
OTHER CURRENT LIABILITIES
In June 1997, the Company announced that it has reached an agreement to
settle the litigation brought by PaineWebber R&D Partners II, L.P. on behalf of
CPIII, against Centocor arising out of Centocor's Sales and Distribution
Agreement with Lilly with respect to ReoPro. See Note 2--Commitments and
Contingencies. The settlement is conditional on Delaware Chancery Court
approval. The agreement provides, among other things, for Centocor to pay the
former limited partners of CPIII $10,800,000 from which attorney's fees and
expenses will be deducted, an additional $5,000,000, if and when cumulative
world-wide sales of ReoPro exceed $600 million and a revision to the royalties
payable to the former limited partners of CPIII. The Company has recorded a
current liability for the $15,800,000 for these probable payments to the former
limited partners of CPIII.
NOTE 8
DEBT
Notes Payable
Notes payable at March 31, 1998 and December 31, 1997 consists of
$5,769,000 and $5,940,000, respectively, of borrowings under short-term notes at
an interest rate of 3.9 % per annum at March 31, 1998, payable in Dutch guilders
no later than September 30, 1998. These borrowings are secured by investments at
the lending bank of $5,836,000.
20
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Long-term debt
Long-term debt consists of the following:
4 3/4% Convertible Subordinated Debentures $ 460,000
6 3/4% Convertible Subordinated Debentures 54,765
---------
514,765
Less: current portion of long-term debt (54,765)
---------
$ 460,000
=========
4 3/4% Convertible Subordinated Debentures
On February 20, 1998, the Company issued $460,000,000 aggregate principal
amount of the 4 3/4% Convertible Subordinated Debentures (the "4 3/4%
Debentures") due February 15, 2005. The 4 3/4% Debentures are convertible by the
holders into approximately 9,338,000 shares of the Company's Common Stock at an
initial conversion price of $49.261 per share, subject to adjustment in certain
circumstances. The 4 3/4% Debentures are not redeemable by the Company prior to
February 21, 2001. After February 21, 2001, the 4 3/4% Debentures will be
redeemable by the Company at a redemption price of 102.714% of the principal
amount of the 4 3/4% Debentures and declining annually. The holders of the
4 3/4% Debentures will be entitled at any time after 90 days following the date
of original issuance thereof through the close of business on the final maturity
date of the 4 3/4% Debentures, subject to prior redemption, to convert any of
the 4 3/4% Debentures or portions thereof into Common Stock of the Company,
subject to the terms of the Indenture. At March 31, 1998, the aggregate amount
of senior obligations outstanding amounted to $5,769,000 and the aggregate
amount of indebtedness of the Company that would rank pari passu with the 4 3/4%
Debentures was approximately $54,765,000.
The 4 3/4% Debentures have not been registered under the Securities Act of
1933, as amended (the "Securities Act"). Accordingly, the 4 3/4% Debentures may
not be offered or sold in the United States, absent registration or an
applicable exemption from the Securities Act registration requirements.
6 3/4% Convertible Subordinated Debentures
On October 16, 1991, the Company issued $125,000,000 principal amount of 6
3/4% Convertible Subordinated Debentures (the "6 3/4% Debentures") due October
16, 2001. The 6 3/4% Debentures were initially convertible by the holders into
approximately 2,049,000 shares of the
21
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Company's Common Stock at a conversion price of $61.00 per share at any time
prior to redemption or maturity. The 6 3/4% Debentures were redeemable by the
Company for cash in whole or in part until October 16, 2001 at amounts ranging
up to 102 percent of the principal amount of the 6 3/4% Debentures.
In the second quarter of 1996, the Company purchased $70,235,000 of the
6 3/4% Debentures which were subsequently retired. At March 31, 1998 and
December 31, 1997, $54,765,000 of the 6 3/4% Debentures remained outstanding and
were convertible into approximately 898,000 shares of the Company's Common
Stock.
On April 16, 1998, the 6 3/4% Debentures were redeemed at par and were
subsequently retired.
NOTE 9
INCOME TAXES
A provision for income taxes of $150,000 and $70,000 was recorded for the
three months ended March 31, 1998 and March 31, 1997, respectively, representing
current federal and state income taxes.
The Company has accumulated certain tax attributes such as net operating
loss carryforwards and tax credit carryforwards which are assets in the sense
that they may provide the Company with future cash flows from the reduction in
future tax payments. However, the realization of such assets is not assured as
it depends upon future taxable income. Under Statement of Financial Accounting
Standard No. 109 ("SFAS 109"), the Company is required to recognize all or a
portion of its net deferred tax assets with corresponding increases to net
income, when the Company believes, given the weight of all available evidence,
that it is more likely than not that all or a portion of the benefits of net
operating loss carryforwards and other credits will be realized.
Centocor has approximately $348,500,000 of deferred tax assets consisting
primarily of the future tax benefit from net operating loss carryforwards. The
Company presently has not concluded that it is more likely than not that it will
realize all, or a portion of the benefit of such tax assets. Accordingly, the
Company has recorded a 100% valuation allowance against the asset. If the
Company determines that all or a part of these deferred tax assets are more
likely than not to be realized through sufficient future profitability based on
the outcome of certain future events, then the Company will reverse all or part
of such valuation allowance and recognize a tax benefit. Until such tax benefit
is recognized, the Company's effective tax rate is reflective of the utilization
of its net operating loss carryforwards on an annual basis and therefore such
rate is expected to be substantially lower than the statutory rate. Should all
such deferred tax assets be recognized, the Company expects that its effective
tax rate in future periods will approximate the applicable statutory
22
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
rates.
The recognition of these deferred tax assets under SFAS 109 has no impact
on the Company's cash flows for income taxes despite the change in the Company's
effective tax rate. The recognition of these deferred tax assets will impact
reported earnings per share due to the benefit recorded to the statement of
operations from the reduction in the Company's valuation allowance.
NOTE 10
SUPPLEMENTAL INFORMATION ON CASH FLOWS
There was no interest paid for the three months ended March 31, 1998 and
1997.
Income tax payments for the three months ended March 31, 1998 and 1997 were
approximately $12,000 and $81,000, respectively.
In February, 1998, Centocor Diagnostics sold an equity investment in
ChromaVision Medical Systems, Inc. consisting of 962,740 shares classified as
available for sale resulting in a gain of $6,931,000.
NOTE 11
SPECIAL CHARGES
In the first quarter of 1998, the Company recorded special charges of
$145,405,000 consisting of the following:
ACQUISITION OF RETAVASE
On March 13, 1998, the Company completed the acquisition of the U.S. and
Canadian product rights for Retavase, an acute-care cardiovascular drug, from
Roche Healthcare for $335,000,000 in cash. In addition, the Company has
employed many of the U.S. based sales and marketing personnel, formerly employed
by Boehringer Mannheim Corporation, to commercialize the product.
Retavase is a recombinant biologic cardiology care product administered for
the treatment of acute myocardial infarction (heart attack) to improve blood
flow to the heart. It is among the class of fibrinolytic drugs known as "clot
busters." Retavase received marketing authorization from the FDA in October
1996 and was launched in January 1997.
23
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Charges relating to the acquisition of Retavase consist of (in thousands):
<TABLE>
<S> <C>
Charge for acquired research and development
related to the acquisition of Retavase $ 134,495
One-time transitional expenses related to the
integration of Retavase into Centocor 4,943
---------
$ 139,438
=========
</TABLE>
The pro forma unaudited comparative Statement of Operations data excluding
the special charges related to the Retavase acquisition and the Centocor
Diagnostics restructuring and assuming that the acquisition was consummated as
of January 1, 1997, would have been as follows:
<TABLE>
<CAPTION>
Statement of For the three months
Operations Data ended March 31,
- --------------------------------- ------------------------
1998 1997
-------- ---------
<S> <C> <C>
Revenues $ 67,061 $ 53,036
Net loss $ (2,767) $(11,046)
Diluted loss per share $ (.04) $ (.16)
</TABLE>
CENTOCOR DIAGNOSTICS, INC. RESTRUCTURING
Given the Company's strong emphasis on the pharmaceutical business
following the Retavase acquisition, the continuing success of ReoPro and the
anticipated market launch of Avakine, the Company is currently evaluating
strategic options for Centocor Diagnostics, including possible divestiture.
Charges related to the Centocor Diagnostics, Inc. restructuring consist of
(in thousands):
<TABLE>
<S> <C>
Severance $ 3,142
Asset impairments 2,825
---------
$ 5,967
=========
</TABLE>
24
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 12
COMPREHENSIVE INCOME
In January, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of Statement 130 had no impact on the
Company's net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive income
(loss).
Total comprehensive income (loss) was approximately ($149,414,000) and
$705,000 for the three months ended March 31, 1998 and 1997, respectively.
The components of comprehensive income (loss) are (in thousands):
<TABLE>
<CAPTION>
For the three months ended
-----------------------------
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
Net income (loss) $ (140,307) $ 3,271
Foreign currency translation adjustments (1,213) (2,483)
Unrealized loss on marketable securities (963) (83)
Reclassification adjustment - realized
gain on available for sale security (6,931) -
----------- ----------
Subtotal other comprehensive loss (9,107) (2,566)
----------- ----------
Total comprehensive income (loss) $ (149,414) $ 705
=========== ==========
</TABLE>
25
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
The components of accumulated other comprehensive income (loss) are as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Cumulative foreign currency translation
adjustments $ (1,659) $ (446)
Unrealized gain on marketable securities - 7,894
-------- ---------
Other comprehensive income (loss) $ (1,659) $ 7,448
======== =========
</TABLE>
NOTE 13
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("Statement 128"),
which was effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Statement 128 establishes
standards for computing and presenting earnings per share ("EPS") and applies to
entities with publicly held common stock or potential common stock. Statement
128 simplifies the standards for computing earnings per share previously found
in Accounting Principles Board Opinion No. 15, Earnings Per Share, and makes
them comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator for the basic EPS computation to the numerator and denominator
of the diluted EPS computation. This Statement requires restatement of all prior
period EPS data presented. The Company adopted Statement 128 in December 1997.
The adoption of Statement 128 did not have a significant effect on its financial
statements.
26
<PAGE>
Centocor, Inc. And Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
For the quarter ended March 31, 1998 no exercise of options and warrants or
other common stock equivalents is assumed since their effect is antidilutive,
resulting from the Company reporting a loss for this period.
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1997
-----------------------------------------
Income Shares
(in thousands) (in thousands) Per Share
(Numerator) (Denominator) Amount
-------------- -------------------------
<S> <C> <C> <C>
Basic EPS $ 3,271 69,517 $ 0.05
Incremental shares from assumed
exercise of dilutive options and
warrants -- 2,142
-------------- ------------
Diluted EPS $ 3,271 71,659 $ 0.05
============== ============
</TABLE>
NOTE 14
SUBSEQUENT EVENT
International Distribution Agreement for Avakine(TM) (infliximab)
On April 6, 1998, Schering-Plough Corporation and the Company announced an
agreement giving Schering-Plough Ltd. exclusive worldwide distribution rights,
excluding the United States, Japan and portions of the Far East, to Avakine(TM)
(infliximab), a novel monoclonal antibody in development for the treatment of
Crohn's disease and rheumatoid arthritis.
Under terms of the agreement, the Company received a $20,000,000 non-
refundable payment in April 1998 and could receive additional payments of up to
$30,000,000 upon the achievement of certain milestones. In addition, Schering-
Plough and Centocor will divide profits related to Avakine and have agreed to
share certain internal and external development expenses related to the product.
The Company retains U.S. distribution rights for Avakine for all indications,
but reserves the right to co-promote with Schering-Plough. The Company
previously granted distribution rights to Avakine in Japan and portions of the
Far East to Tanabe Seiyaku Co, Ltd.
27
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
General
This quarterly report on Form 10-Q contains forward-looking statements that
have been made pursuant to the provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based on current
expectations, estimates and projections about the Company's business and
industry, management's beliefs and certain assumptions made by the Company's
management. Investors are cautioned that matters subject to forward-looking
statements involve risks and uncertainties including economic, competitive,
governmental, technological and other factors which may affect the Company's
business and prospects. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict. Such risks
and uncertainties include, but are not limited to, those associated with (i) the
timing, completion and outcome of clinical trials for, regulatory approval of,
and market acceptance of the Company's products; (ii) the strength of the
Company's patent position and the patent position of others; (iii) the Company's
forward integration into direct commercialization of certain products; (iv) the
Company's ability to construct and maintain manufacturing facilities that meet
regulatory requirements and satisfy the Company's inventory needs; (v) the
Company's dependence on its collaborative partners; (vi) uncertainties regarding
health care reform and reimbursement from third party payors; (vii) changes in
the competitive environment in which the Company operates; (viii) the outcome of
pending litigation and (ix) the potential for product liability claims.
Therefore, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements. Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Centocor is a biopharmaceutical company the mission of which is to develop
or otherwise acquire and commercialize novel therapeutic products that solve
critical needs in human health care, with a primary technological focus on
monoclonal antibodies and DNA-based products.
The Company, since inception, has incurred significant operating expenses
developing therapeutic and diagnostic products. The Company has also incurred
significant special charges. Consequently, the Company had experienced
substantial operating losses. The Company's financial results progressively
improved throughout 1996 culminating with the Company achieving profitability in
the fourth quarter of 1996 and profitability in each quarter of 1997. The
Company expects that its sales of therapeutic and diagnostic products in 1998
will provide sufficient revenues to cover operating expenses and provide net
income for the year, excluding the impact of certain one-time events. The
Company's results for the three months ended March 31, 1998 have been affected
by various significant one-time events. Significant one-time events for the
three months
28
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
ended March 31, 1998 include the special charges, the litigation settlement and
the gain on sale of investment. Excluding such significant one-time events, the
Company's reported earnings per share would have been $.02 for the three months
ended March 31, 1998.
On March 13, 1998, the Company completed the acquisition of the U.S. and
Canadian product rights for Retavase(TM) (reteplase), a leading acute-care
cardiovascular drug, from Roche Healthcare for $335,000,000 in cash.
Retavase is a recombinant biologic cardiology care product administered for
the treatment of acute myocardial infarction (heart attack) to improve blood
flow to the heart. It is among the class of fibrinolytic drugs known as "clot
busters." Retavase received marketing authorization from the U.S. Food and Drug
Administration ("FDA") in October 1996 and was launched in January 1997.
Because of the complementary nature of Retavase and ReoPro(R) (abciximab)
in the cardiovascular field, the Company believes the joint promotion of
Retavase and ReoPro could result in increased market penetration for ReoPro.
Accordingly, the Company and Lilly are jointly promoting ReoPro through Lilly's
existing ReoPro sales force and the Company's Retavase sales force. The Company
is co-promoting Retavase in the United States with DuPont Merck pursuant to an
assignment of DuPont Merck's pre-divestiture agreement with Boehringer Mannheim
Corporation.
The Company financed the acquisition through the issuance of $460,000,000
principal amount of its 4 3/4% Convertible Subordinated Debentures due February
15, 2005 (the "4 3/4% Debentures") in February 1998.
The Company believes a further advantage of the acquisition of Retavase
lies in the possibility that ReoPro and Retavase, administered in combination,
may prove to have a therapeutic advantage over monotherapy for acute myocardial
infarction patients. Two Phase II clinical trials currently are underway to
evaluate the approach of using ReoPro in conjunction with a fibrinolytic
product in the management of heart attack patients. There can be no assurance,
however, that a ReoPro/Retavase combination therapy will prove to be safe and
effective, will receive FDA approval or, even if approved, ultimately will
achieve market acceptance.
The Company has two other therapeutic products approved for sale and
several product candidates in various stages of development. ReoPro is marketed
by Lilly and sold in the United States and Europe for the reduction of acute
ischemic cardiac complications in patients undergoing percutaneous coronary
intervention ("PCI") such as angioplasty procedures, and for those patients with
unstable angina who are refactory to conventional therapy for whom PCI is
planned within twenty-four hours. Panorex(R) (edrecolomab) is marketed by Glaxo
Wellcome plc ("Glaxo Wellcome") and sold in Germany as an adjuvant therapy in
the treatment of post-operative colorectal cancer. The Company has filed a
Biologics License Application ("BLA") with the FDA and an application with the
European Medicines Evaluation Agency for Avakine(TM) (infliximab) for the
29
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
treatment of moderate to severe Crohn's disease, including fistulizing Crohn's
disease. The Company has been notified by the FDA that its BLA for Avakine has
been accepted and will receive a priority review. The FDA's Gastrointestinal
Drugs Advisory Committee will discuss Avakine at its meeting on May 28, 1998.
The Company also is conducting studies for Avakine in the treatment of
rheumatoid arthritis. Panorex, Retavase and Avakine are trademarks of
Centocor. ReoPro is a trademark of Lilly. The Company also markets several
diagnostic products for cancer in the United States, Europe and Japan.
The Company has accumulated certain tax attributes such as net operating
loss carryforwards and tax credit carryforwards which are assets in the sense
that they may provide the Company with future cash flows from the reduction in
future tax payments. However, the realization of such assets is not assured as
it depends upon future taxable income. Under Statement of Financial Accounting
Standard 109 ("SFAS 109"), the Company is required to recognize all or a portion
of its net deferred tax assets with corresponding increases to net income, when
the Company believes, given the weight of all available evidence, that it is
more likely than not that all or a portion of the benefits of net operating loss
carryforwards and other credits will be realized.
Centocor has approximately $348,500,000 of deferred tax assets consisting
primarily of the future tax benefit from net operating loss carryforwards. The
Company presently has not concluded that it is more likely than not that it will
realize all, or a portion of the benefit of such tax assets. Accordingly, the
Company has recorded a 100% valuation allowance against the asset. If the
Company determines that all or a part of these deferred tax assets are more
likely than not to be realized through sufficient future profitability based on
the outcome of certain future events, then the Company will reverse all or part
of such valuation allowance and recognize a tax benefit. Until such tax benefit
is recognized, the Company's effective tax rate is reflective of the utilization
of its net operating loss carryforwards on an annual basis and therefore such
rate is expected to be substantially lower than the statutory rate. Should all
such deferred tax assets be recognized, the Company expects that its effective
tax rate in future periods will approximate the applicable statutory rates.
The recognition of these deferred tax assets under SFAS 109 has no impact
on the Company's cash flows for income taxes despite the change in the Company's
effective tax rate. The recognition of these deferred tax assets will impact
reported earnings per share due to the benefit recorded to the statement of
operations from the reduction in the Company's valuation allowance.
Three months ended March 31, 1998 compared to the three months ended March
31, 1997
The increase in sales for the three months ended March 31, 1998 as compared
to the three months ended March 31, 1997 is principally due to the increase in
sales of ReoPro.
For the three months ended March 31, 1998, ReoPro sales to Lilly were
$45,688,000 and
30
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Lilly's announced sales to end-users were $70,000,000. For the three months
ended March 31, 1997 sales to Lilly were $35,263,000 and Lilly's announced sales
to end-users were $51,700,000. For the three months ended March 31, 1998, the
Company's sales of Panorex to Glaxo Wellcome were $1,390,000 as compared to
$929,000 for the three months ended March 31, 1997. The Company's sales of
Retavase for the period beginning March 16, 1998 through March 31, 1998 were
$2,300,000.
The level of the Company's sales of ReoPro to Lilly and of Panorex to Glaxo
Wellcome is dependent upon the orders placed and the levels of inventory
maintained by each of these marketing partners. The Company expects ReoPro end-
sales to increase in 1998 as market acceptance continues to grow. Therefore,
the Company expects its sales of ReoPro to Lilly to increase in 1998 over 1997
levels. Retavase sales are also expected to grow in 1998 as the development of
the Company's salesforce and related infrastructure is completed. Panorex sales
to Glaxo Wellcome in 1998 are not expected to have a significant impact on the
Company's financial results.
Diagnostic product sales for the three months ended March 31, 1998 were
$7,507,000 as compared to $8,744,000 for the three months ended March 31, 1997.
Diagnostic product sales in 1998 are expected to be at about the same level or
slightly lower than sales levels achieved in 1997.
The level of future sales of the Company's products will be dependent upon
several factors, including, but not limited to, the timing and extent of future
regulatory approvals, the availability of production capacity, as well as the
continued availability of necessary raw materials and intermediate inputs into
the production process, approval and commercialization of competitive products
and ultimately, the degree of acceptance of the Company's products in the
marketplace.
Given the Company's strong emphasis on the pharmaceutical business
following the Retavase acquisition, the continuing success of ReoPro and the
anticipated market launch of Avakine, the Company is currently evaluating
strategic options for Centocor Diagnostics, including possible divestiture.
Cost of sales increased for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997 due primarily to the increased
sales of ReoPro. The Company is required to make certain royalty payments, based
on sales of products. These payments represent a significant percentage of cost
of sales. The Company expects an increase in cost of sales in 1998, the extent
of which will depend primarily on the amount and mix of products sold. Other
factors that can influence cost of sales include, but are not limited to,
exchange rate fluctuations, unplanned production losses, cell line yields,
increases in royalty obligations, costs of raw materials and production
interruptions due to plant upgrades.
Research and development expenses for the three months ended March 31, 1998
increased as compared to the three months ended March 31, 1997 due principally
to increased clinical trial
31
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
activities to expand the indications for ReoPro and the continued development of
Avakine. The level of the Company's total research and development expenses in
future periods will be dependent upon the extent of clinical trial-related
activities. Research and development expenses are expected to increase in 1998
as compared to 1997 due to clinical trial activities in connection with the
continued expansion of ReoPro use for additional indications including, but not
limited to, acute myocardial infarction and in stroke. In addition, clinical
trial activities for Avakine, primarily Phase III trials for the Crohn's disease
and severe rheumatoid arthritis indications are expected to continue throughout
1998.
Marketing, general and administrative expenses for the three months ended
March 31, 1998 increased as compared to the three months ended March 31, 1997
due principally to the integration of the Centocor Retavase sales force and
related infrastructure into the organization, amortization of the cost of
acquired intangibles and continued ReoPro and Avakine market development
efforts. Marketing, general and administrative expenses are expected to
increase in 1998 as compared to 1997 due primarily to the Company's increased
investment in the direct promotion and sale of Retavase and Avakine.
For the three months ended March 31, 1998, the Company recorded one-time
special charges of $145,405,000 consisting of a charge of $139,438,000 relating
to the acquisition of Retavase and a charge of $5,967,000 relating to the
restructuring of Centocor Diagnostics. These items are more fully described in
Note 11 to the Centocor, Inc. and Subsidiaries Condensed Notes to Consolidated
Financial Statements (Unaudited).
Interest income increased for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997 due principally to the
increase in the level of the Company's investments as a result of the proceeds
from the offering of the 4 3/4% Debentures completed in February 1998. Interest
income in future periods will depend primarily on the level of the Company's
investments and the rates of return obtained on such investments.
Interest expense increased for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997 due principally to the
issuance of the 4 3/4% Debentures. Interest expense in 1998 is expected to
increase as a result of the interest on the 4 3/4% Debentures but will be
partially offset by the redemption of the Company's remaining 6 3/4% Convertible
Subordinated Debentures due 2001 (the "6 3/4% Debentures") completed April 16,
1998. Interest expense in future periods will depend upon the level of debt
outstanding.
In February 1998, the Company recorded a one-time charge of $3,430,000
representing the settlement of litigation more fully described in Note 2 to the
Centocor, Inc. and Subsidiaries Condensed Notes to Consolidated Financial
Statements (Unaudited).
In February 1998, Centocor Diagnostics sold an equity investment in
ChromaVision Medical
32
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Systems, Inc. consisting of 962,740 shares classified as available for sale
resulting in a realized gain of $6,931,000.
Other income (expenses) decreased for the three months ended March 31, 1998
as compared to the three months ended March 31, 1997 due to the Company's
recording its share of the 1997 losses of a company in which Centocor has
invested. Centocor does not expect the future share in the income or losses of
this investee company to have a material impact on the Company.
The Company expects its effective tax rate in 1998 to be approximately 7 %.
The effective tax rate in 1998 is heavily influenced by the ability of the
Company to use net operating loss carryforwards or other potential tax benefits
from prior years to offset its future tax liability.
PER SHARE CALCULATIONS
At March 31, 1998, approximately 4,603,000 shares of the Company's Common
Stock were issuable upon exercise of outstanding options and warrants and upon
vesting of restricted stock awards. The Company uses the weighted average number
of shares outstanding in calculating basic per share data. When dilutive,
options and warrants are included as share equivalents using the treasury stock
method and are included in the calculation of diluted per share data. The
approximately 9,338,000 shares issuable upon conversion of the 4 3/4% Debentures
and the 898,000 shares that were issuable upon conversion of the 6 3/4%
Debentures are not considered Common Stock equivalents and are not included in
the calculation of basic or diluted per share data but would be included in the
calculation of diluted per share data if their effect is dilutive.
No Common Stock equivalents or shares issuable upon conversion of the 4
3/4% Debentures and the 6 3/4% Debentures were included in the per share
calculations for any period presented since to do so would have been
antidilutive. Depending upon the market value of the Company's Common Stock and
its results of operations for such periods, the Company may be required to
include its then outstanding Common Stock equivalents as well as shares issuable
upon the conversion of the 4 3/4% Debentures in its calculations of per share
data for such periods if the effect would be dilutive.
LIQUIDITY AND CAPITAL RESOURCES
The Company, since inception, has incurred significant operating expenses
attempting to develop therapeutic and diagnostic products. The Company has also
incurred significant special charges. Consequently, the Company had experienced
substantial net cash outflows, which have been only partially offset by
significant contract revenues received through collaborative alliances with
pharmaceutical companies and the Company's financing activities.
The Company's future financial condition is dependent upon the Company's
rate of net cash
33
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
inflows and, ultimately, upon the achievement of significant and sustained
levels of therapeutic product sales. Under the Company's collaborative alliances
with established pharmaceutical companies, the Company generally shares sales
revenues from products covered by such arrangements with its partners. The level
of future sales of the Company's products will be dependent upon several
factors, including, but not limited to, the timing and extent of future
regulatory approvals of those products, approval and commercialization of
competitive products and the degree of acceptance of the Company's products in
the marketplace. There can be no assurance that FDA or other regulatory
authorities will approve expanded labeling for ReoPro and other products or will
approve any other of the Company's product candidates under development for
commercial sale. Failure to obtain, on a timely basis, initial or expanded
regulatory approvals for the Company's products and product candidates will have
a material adverse effect on the Company.
At March 31, 1998, the Company had cash, cash equivalents and investments
of $301,155,000, including equity investments of $3,334,000. For the three
months ended March 31, 1998, the Company had negative cash flows from operations
of $15,006,000. The Company's total cash flows for the three months ended March
31, 1998 included the receipt of $448,500,000 representing the net proceeds from
the 4 3/4% Debentures, $7,701,000 representing the proceeds from the sale of an
equity investment in ChromaVision Medical Systems, Inc. and $306,000 from the
exercise of options to purchase shares of the Company's Common Stock. The extent
and timing of future option exercises, if any, are primarily dependent upon the
market price of the Company's Common Stock and general financial market
conditions, as well as the exercise prices and expiration dates of the options.
At March 31, 1998 the Company had a note payable of $5,769,000 which is secured
by investments at the lending bank of $5,836,000, and $20,000,000 of its cash is
held in escrow and is restricted based upon the successful completion of certain
milestones in the transfer of the manufacturing of Retavase from Boehringer
Mannheim to Centocor. The Company's total cash, cash equivalents and
investments increased by $94,525,000 from December 31, 1997, principally as a
result of the issuance of the 4 3/4% Debentures partially offset by an outflow
of $337,039,000 from the acquisition of Retavase and related costs. The Company
believes that its cash, cash equivalents and investments will be sufficient to
fund its operations through at least the end of 1999.
Accounts Receivable at March 31, 1998 increased as compared to December 31,
1997 due to increased sales of ReoPro to Lilly and sales of Retavase commencing
on March 16, 1998.
Inventory at March 31, 1998 increased as compared to December 31, 1997 due
primarily to increased ReoPro and Avakine production activities.
Gross property, plant and equipment at March 31, 1998 increased as compared
to December 31, 1997, principally due to the investment of $17,881,000 for the
purchase of property and equipment, partially offset by the impact of exchange
rates on property and equipment denominated in foreign currencies. The Company
expects its total investments in property, plant and equipment to increase in
1998 by an amount up to approximately $100,000,000 for its manufacturing
capacity
34
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
expansion plans in Europe and the establishment of a U.S. biopharmaceutical
manufacturing facility to support ReoPro and Avakine production requirements.
The Company continually evaluates the future needs for its facilities and
equipment. There can be no assurance that losses resulting from sales, or
reserves to reduce the carrying value, of certain fixed assets will not be
required in the future.
Long-term investments at March 31, 1998 increased as compared to December
31, 1997 principally due to the $20,000,000 placed in escrow as part of the
Company's agreement with Roche Healthcare, partially offset by the sale of an
equity investment in ChromaVision Medical Systems, Inc., classified as available
for sale, by Centocor Diagnostics, Inc.
Intangible and other assets at March 31, 1998 increased as compared to
December 31, 1997 resulting primarily from the acquisition of the U.S. and
Canadian product rights for Retavase in March of 1998. The intangibles acquired
primarily represent goodwill and acquired regulatory licenses related to
Retavase.
The Company has entered into indemnity agreements with the former limited
partners of CCIP, CPII and CPIII pursuant to which the Company would be
obligated, under certain circumstances, to compensate these parties for the fair
market value of their respective interests under any license agreements with the
Company relating to their respective products which are lost through the
exercise by the U.S. government of any of its rights relating to the licensed
technology. The amount of any such loss would be determined annually by
independent appraisal.
LEGAL PROCEEDINGS
The Company is subject to certain litigation, as more fully described in
Note 2 to the Centocor, Inc. and Subsidiaries Condensed Notes to Consolidated
Financial Statements (Unaudited). While it is not possible to predict with
certainty the eventual outcome of these matters, the Company believes that the
foregoing proceedings will not have a material adverse effect on the Company.
FOREIGN CURRENCY
Certain of the Company's sales are denominated in currencies other than the
U.S. dollar. Additionally, the Company conducts operations in countries other
than the United States, primarily its manufacturing facility in Leiden, The
Netherlands. The Company's consolidated financial statements are denominated in
U.S. dollars, and accordingly, changes in the exchange rate between foreign
currencies and the U.S. dollar will affect the translation of financial results
of foreign subsidiaries into U.S. dollars for purposes of reporting the
Company's consolidated financial results. To date, exchange rate fluctuations
have not had a material net effect on the Company's financial results. The
Company does not currently engage in any derivatives transactions as a hedge
against foreign currency fluctuations.
35
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches. The "Year 2000"
problem is pervasive; virtually every computer operation may be affected in some
way by the rollover of the two digit year value to 00. The risk is that computer
systems will not properly recognize date sensitive information when the year
changes to 2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail, resulting in business
interruption.
The Year 2000 issue is expected to affect the systems of various entities
with which the Company interacts, including the Company's marketing partners,
suppliers, and various vendors, and the Company is coordinating its efforts to
address the Year 2000 issue with those entities. However, there can be no
assurances that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.
With respect to its own computer systems, the Company is upgrading,
generally, in order to meet the demands of its expanding business. In the
process the Company is taking steps to identify, correct or reprogram and test
its existing systems for Year 2000 compliance. It is anticipated that all new
system upgrades or reprogramming efforts will be completed by mid 1999, allowing
adequate time for testing. The Company presently believes that with modification
to existing software and conversions to new software, the Year 2000 issue can be
mitigated. However, given the complexity of the Year 2000 issue, there can be no
assurances that the Company will be able to address the problem without costs
and uncertainties that might affect future financial results or cause reported
financial information not to be necessarily indicative of future operating
results or future financial condition.
Since the Company currently plans to upgrade or replace the majority of its
systems regardless of the Year 2000 problem, management has not separately
assessed any additional Year 2000 compliance expense and related potential
effect on the Company's earnings.
The mid-1999 date by which the Company plans to complete its upgrades and
Year 2000 modifications is management's best estimate, which was derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurances that this estimate will be achieved
and actual results could differ materially from those plans. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
36
<PAGE>
Part II OTHER INFORMATION
Item 1: Legal Proceedings
See Note 2 to the Centocor, Inc. and Subsidiaries Condensed Notes to
Consolidated Financial Statements (Unaudited), which is attached
hereto and incorporated herein by reference.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
--------
4.1 Indenture by and between the Company and the United States
Trust Company of New York, as Trustee, dated February 20,
1998.
4.2 Form of 4 3/4% Convertible Subordinated Debentures due
2005 (included in Exhibit 4.1 hereto).
10.1 Registration Rights Agreement, dated as of February 13,
1998.
10.2 Distribution Agreement between Centocor, Inc. and Schering
Plough Ltd. dated April 3, 1998. (The Registrant has
requested confidential treatment from the Securities and
Exchange Commission for portions of this Agreement.)
27.0 Centocor, Inc. and subsidiaries Financial Data Schedule
for the three months ended March 31, 1998.
27.1 Centocor, Inc. and subsidiaries Restated Financial Data
Schedule for the three months ended March 31, 1997.
27.2 Centocor, Inc. and subsidiaries Restated Financial Data
Schedules for the years ended December 31, 1996 and 1995.
(b) Reports on Form 8-K
-------------------
The Registrant has filed the following reports on Form 8-K since
the beginning of the quarter ended March 31, 1998:
Date of Report Item Covered
-------------- ------------
January 21, 1998 5
February 12, 1998 5
February 20, 1998 5
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Centocor, Inc.
(Registrant)
Date: May 11, 1998 /s/ David P. Holveck
------------------------------
David P. Holveck
Chief Executive Officer
(principal executive officer)
Date: May 11, 1998 /s/ Dominic J. Caruso
------------------------------
Dominic J. Caruso
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
<PAGE>
Exhibit 4.1
CENTOCOR, INC.
TO
UNITED STATES TRUST COMPANY OF NEW YORK
TRUSTEE
INDENTURE
DATED AS OF FEBRUARY 20, 1998
4 3/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2005
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
ARTICLE I
<S> <C>
Definitions 1
SECTION 1.1. DEFINITIONS......................................... 1
ARTICLE II
Issue, Description, Execution, Registration and Exchange of Debentures 9
SECTION 2.1. DESIGNATION AMOUNT AND ISSUE OF DEBENTURES.......... 9
SECTION 2.2. FORM OF DEBENTURES.................................. 9
SECTION 2.3. DATE AND DENOMINATION OF DEBENTURES; PAYMENTS
INTEREST............................................ 10
SECTION 2.4. EXECUTION OF DEBENTURES............................. 12
SECTION 2.5. EXCHANGE AND REGISTRATION OF TRANSFER OF
DEBENTURES; RESTRICTIONS ON TRANSFER; DEPOSITARY.... 12
SECTION 2.6. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES..... 20
SECTION 2.7. TEMPORARY DEBENTURES................................ 21
SECTION 2.8. CANCELLATION OF DEBENTURES PAID, ETC................ 21
SECTION 2.9. CUSIP NUMBERS....................................... 22
ARTICLE III
Redemption of Debentures 22
SECTION 3.1. REDEMPTION PRICES................................... 22
SECTION 3.2. NOTICE OF REDEMPTION; SELECTION OF DEBENTURES....... 22
SECTION 3.3. PAYMENT OF DEBENTURES CALLED FOR REDEMPTION......... 24
SECTION 3.4. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION....... 24
SECTION 3.5. REDEMPTION AT OPTION OF HOLDERS..................... 25
ARTICLE IV
Subordination of Debentures 27
SECTION 4.1. AGREEMENT OF SUBORDINATION.......................... 27
SECTION 4.2. PAYMENTS TO DEBENTUREHOLDERS........................ 27
SECTION 4.3. SUBROGATION OF DEBENTURES........................... 30
SECTION 4.4. AUTHORIZATION TO EFFECT SUBORDINATION............... 31
SECTION 4.5. NOTICE TO TRUSTEE................................... 31
SECTION 4.6. TRUSTEE'S RELATION TO SENIOR OBLIGATIONS............ 32
SECTION 4.7. NO IMPAIRMENT OF SUBORDINATION...................... 32
SECTION 4.8. CERTAIN CONVERSIONS NOT DEEMED PAYMENT.............. 32
SECTION 4.9. ARTICLE APPLICABLE TO PAYING AGENTS................. 33
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
SECTION 4.10. SENIOR OBLIGATIONS ENTITLED TO RELY............... 33
SECTION 4.11. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT................................. 33
ARTICLE V
Particular Covenants of the Company 34
SECTION 5.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST........ 34
SECTION 5.2. MAINTENANCE OF OFFICE OR AGENCY................... 34
SECTION 5.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S
OFFICE............................................ 35
SECTION 5.4. PROVISIONS AS TO PAYING AGENT..................... 35
SECTION 5.5. EXISTENCE......................................... 36
SECTION 5.6. MAINTENANCE OF PROPERTIES......................... 36
SECTION 5.7. PAYMENT OF TAXES AND OTHER CLAIMS................. 36
SECTION 5.8. RULE 144A INFORMATION REQUIREMENT................. 37
SECTION 5.9. STAY, EXTENSION AND USURY LAWS.................... 37
SECTION 5.10. COMPLIANCE CERTIFICATE............................ 37
ARTICLE VI
Debentureholders' Lists and Reports by the Company and the Trustee 38
SECTION 6.1. DEBENTUREHOLDERS' LISTS........................... 38
SECTION 6.2. PRESERVATION AND DISCLOSURE OF LISTS.............. 38
SECTION 6.3. REPORTS BY TRUSTEE................................ 39
SECTION 6.4. REPORTS BY COMPANY................................ 39
ARTICLE VII
Remedies of the Trustee and Debentureholders on an Event of Default 39
SECTION 7.1. EVENTS OF DEFAULT................................. 39
SECTION 7.2. PAYMENTS OF DEBENTURES ON DEFAULT; SUIT
THEREFOR.......................................... 41
SECTION 7.3. APPLICATION OF MONIES COLLECTED BY TRUSTEE........ 43
SECTION 7.4. PROCEEDINGS BY DEBENTUREHOLDER.................... 43
SECTION 7.5. PROCEEDINGS BY TRUSTEE............................ 44
SECTION 7.6. REMEDIES CUMULATIVE AND CONTINUING................ 44
SECTION 7.7. DIRECTION OF PROCEEDINGS AND WAIVER OF
DEFAULTS BY MAJORITY OF DEBENTUREHOLDERS.......... 45
SECTION 7.8. NOTICE OF DEFAULTS................................ 45
SECTION 7.9. UNDERTAKING TO PAY COSTS.......................... 45
ARTICLE VIII
Concerning the Trustee 46
SECTION 8.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE............ 46
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
SECTION 8.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC.............. 48
SECTION 8.3. NO RESPONSIBILITY FOR RECITALS, ETC............... 49
SECTION 8.4. TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR
REGISTRAR MAY OWN DEBENTURES...................... 49
SECTION 8.5. MONIES TO BE HELD IN TRUST........................ 49
SECTION 8.6. COMPENSATION, EXPENSES AND INDEMNITY OF TRUSTEE... 49
SECTION 8.7. OFFICERS' CERTIFICATE AS EVIDENCE................. 50
SECTION 8.8. CONFLICTING INTERESTS OF TRUSTEE.................. 50
SECTION 8.9. ELIGIBILITY OF TRUSTEE............................ 50
SECTION 8.10. RESIGNATION OR REMOVAL OF TRUSTEE................. 50
SECTION 8.11. ACCEPTANCE BY SUCCESSOR TRUSTEE................... 52
SECTION 8.12. SUCCESSION BY MERGER, ETC......................... 52
SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS................. 53
SECTION 8.14. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE
COMPANY........................................... 53
ARTICLE IX
Concerning the Debentureholders 53
SECTION 9.1. ACTION BY DEBENTUREHOLDERS........................ 53
SECTION 9.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS............ 54
SECTION 9.3. WHO ARE DEEMED ABSOLUTE OWNERS.................... 54
SECTION 9.4. COMPANY-OWNED DEBENTURES DISREGARDED.............. 54
SECTION 9.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND...... 55
ARTICLE X
Debentureholders' Meetings 55
SECTION 10.1. PURPOSE OF MEETINGS............................... 55
SECTION 10.2. CALL OF MEETINGS BY TRUSTEE....................... 56
SECTION 10.3. CALL OF MEETINGS BY COMPANY OR DEBENTUREHOLDERS... 56
SECTION 10.4. QUALIFICATIONS FOR VOTING......................... 56
SECTION 10.5. REGULATIONS....................................... 56
SECTION 10.6. VOTING............................................ 57
SECTION 10.7. NO DELAY OF RIGHTS BY MEETING..................... 57
ARTICLE XI
Supplemental Indentures 58
SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
DEBENTUREHOLDERS.................................. 58
SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF
DEBENTUREHOLDERS.................................. 59
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SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURE.................. 60
SECTION 11.4. NOTATION ON DEBENTURES............................ 60
SECTION 11.5. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO
BE FURNISHED TO TRUSTEE........................... 61
ARTICLE XII
Consolidation, Merger, Sale, Conveyance and Lease 61
SECTION 12.1. COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS..... 61
SECTION 12.2. SUCCESSOR CORPORATION TO BE SUBSTITUTED........... 61
SECTION 12.3. OPINION OF COUNSEL TO BE GIVEN TRUSTEE............ 62
ARTICLE XIII
Satisfaction and Discharge of Indenture 62
SECTION 13.1. DISCHARGE OF INDENTURE............................ 62
SECTION 13.2. DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE... 63
SECTION 13.3. PAYING AGENT TO REPAY MONIES HELD................. 63
SECTION 13.4. RETURN OF UNCLAIMED MONIES........................ 63
SECTION 13.5. REINSTATEMENT..................................... 63
ARTICLE XIV
Immunity of Incorporators, Stockholders, Officers and Directors 64
SECTION 14.1. INDENTURE AND DEBENTURES SOLELY CORPORATE
OBLIGATIONS....................................... 64
ARTICLE XV
Conversion of Debentures
SECTION 15.1. RIGHT TO CONVERT.................................. 64
SECTION 15.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF
COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR
INTEREST OR DIVIDENDS............................. 65
SECTION 15.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES........ 66
SECTION 15.4. CONVERSION PRICE.................................. 67
SECTION 15.5. ADJUSTMENT OF CONVERSION PRICE.................... 67
SECTION 15.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE........................................... 75
SECTION 15.7. TAXES ON SHARES ISSUED............................ 76
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SECTION 15.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING
OF COMMON STOCK.................................. 77
SECTION 15.9. RESPONSIBILITY OF TRUSTEE........................ 77
SECTION 15.10. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS....... 78
ARTICLE XVI
Miscellaneous Provisions 79
SECTION 16.1. PROVISIONS BINDING ON COMPANY'S SUCCESSORS....... 79
SECTION 16.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION........... 79
SECTION 16.3. ADDRESSES FOR NOTICES, ETC....................... 79
SECTION 16.4. GOVERNING LAW.................................... 80
SECTION 16.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE.......................... 80
SECTION 16.6. LEGAL HOLIDAYS................................... 80
SECTION 16.7. TRUST INDENTURE ACT.............................. 80
SECTION 16.8. NO SECURITY INTEREST CREATED..................... 81
SECTION 16.9. BENEFITS OF INDENTURE............................ 81
SECTION 16.10. TABLE OF CONTENTS, HEADINGS, ETC................. 81
SECTION 16.11. AUTHENTICATING AGENT............................. 81
SECTION 16.12. EXECUTION IN COUNTERPARTS........................ 82
EXHIBIT A FORM OF DEBENTURE................................................ A-1
EXHIBIT B ACCREDITED INVESTOR LETTER....................................... B-1
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INDENTURE
INDENTURE, dated as of February 20, 1998, between Centocor, Inc., a
Pennsylvania corporation (hereinafter sometimes called the "Company," as more
fully set forth in Section 1.1), and United States Trust Company of New York, a
bank and trust company organized under the New York Banking Law, as trustee
hereunder (hereinafter sometimes called the "Trustee," as more fully set forth
in Section 1.1).
WITNESSETH:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its 4 3/4% Convertible Subordinated Debentures due 2005
(hereinafter sometimes called the "Debentures"), in an aggregate principal
amount not to exceed $460,000,000 and, to provide the terms and conditions upon
which the Debentures are to be authenticated, issued and delivered, the Company
has duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Debentures, the certificate of authentication to be borne
by the Debentures, a form of assignment, a form of option to elect repayment
upon a Fundamental Change, and a form of conversion notice to be borne by the
Debentures are to be substantially in the forms hereinafter provided for; and
WHEREAS, all acts and things necessary to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Debentures have in
all respects been duly authorized.
NOW THEREFORE THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Debentures are,
and are to be, authenticated, issued and delivered, and in consideration of the
premises and of the purchase and acceptance of the Debentures by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the
Debentures (except as otherwise provided below) as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The terms defined in this Section 1.1 (except
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
terms used in this Indenture that are defined in the Trust Indenture
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Act or which are by reference therein defined in the Securities Act (except as
herein otherwise expressly provided or unless the context otherwise requires)
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
Indenture. The words "herein," "hereof," "hereunder" and words of similar import
refer to this Indenture as a whole and not to any particular Article, Section or
other Subdivision. The terms defined in this Article include the plural as well
as the singular.
AFFILIATE: The term "Affiliate" of any specified Person shall mean
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For the purposes
of this definition, "control," when used with respect to any specified Person
means, the power to direct or cause the direction of the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
BOARD OF DIRECTORS: The term "Board of Directors" shall mean the
Board of Directors of the Company or a committee of such Board duly authorized
to act for it hereunder.
BUSINESS DAY: The term "Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York or the city in which the Corporate Trust
Office is located are authorized or obligated by law or executive order to close
or be closed.
CLOSING PRICE: The term "Closing Price" shall have the meaning
specified in Section 15.5(h)(1).
COMMISSION: The term "Commission" shall mean the Securities and
Exchange Commission.
COMMON STOCK: The term "Common Stock" shall mean the common stock,
par value $.01 per share, of the Company, as it exists on the date of this
Indenture, or any other class or classes of capital stock of the Company
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which are not subject to redemption by the Company; provided that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.
COMPANY: The term "Company" shall mean Centocor, Inc., a Pennsylvania
corporation, having its principal office at 200 Great Valley Parkway, Malvern,
PA 19355-1307 and subject to the provisions of Article XII, shall include its
successors and assigns.
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CONVERSION PRICE: The term "Conversion Price" shall have the meaning
specified in Section 15.4.
CORPORATE TRUST OFFICE: The term "Corporate Trust Office" or other
similar term, shall mean the principal corporate trust office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office is, at the date as of which this Indenture is dated,
located at 770 Broadway, New York, New York 10003, Attention: Corporate Trust
Department.
CUSTODIAN: The term "Custodian" shall mean United States Trust
Company of New York, as custodian with respect to the Debentures in global form,
or any successor entity thereto.
DEBENTURE OR DEBENTURES: The terms "Debenture" or "Debentures" shall
mean any Debenture or Debentures, as the case may be, authenticated and
delivered under this Indenture, including the Global Debenture.
DEBENTUREHOLDER OR HOLDER: The terms "Debentureholder" or "holder" as
applied to any Debenture, or other similar terms (but excluding the term
"beneficial holder"), shall mean any Person in whose name at the time a
particular Debenture is registered on the Debenture registrar's books.
DEBENTURE REGISTER: The term "Debenture register" shall have the
meaning specified in Section 2.5.
DEFAULT: The term "default" shall mean any event that is, or after
notice or passage of time, or both, would be, an Event of Default.
DEPOSITARY: The term "Depositary" shall mean, with respect to the
Debentures issuable or issued in whole or in part in global form, the person
specified in Section 2.5(d) as the Depositary with respect to such Debentures,
until a successor shall have been appointed and become such pursuant to the
applicable provisions of this Indenture, and thereafter, "Depositary" shall mean
or include such successor.
DESIGNATED SENIOR OBLIGATIONS: The term "Designated Senior
Obligations" shall mean Senior Obligations 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 Obligations shall be "Designated Senior Obligations" for purposes of
this Indenture (provided that such instrument, agreement or other document may
place limitations and conditions on the right of such Senior Obligations to
exercise the rights of Designated Senior Obligations). If any payment made to
any holder of any Designated Senior Obligations or its Representative with
respect to such Designated Senior Obligations is rescinded or must otherwise be
returned by such holder or Representative upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, the reinstated Indebtedness of the
Company
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arising as a result of such rescission or return shall constitute Designated
Senior Obligations effective as of the date of such rescission or return.
EXCHANGE ACT: The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, as in effect from time to time.
EVENT OF DEFAULT: The term "Event of Default" shall mean any event
specified in Section 7.1(a), (b), (c), (d) or (e).
FUNDAMENTAL CHANGE: The term "Fundamental Change" shall mean the
occurrence of any transaction or event in connection with which all or
substantially all of the outstanding Common Stock shall be exchanged for, be
converted into, be acquired for, or constitute in all material respects solely
the right to receive, consideration which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, will be) listed on a United States national securities
exchange or approved for quotation on the Nasdaq National Market or any similar
United States system of automated dissemination of quotations of securities
prices (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise).
INDEBTEDNESS: The term "Indebtedness" shall mean, with respect to any
Person, and without duplication, (a) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person for borrowed money
(including obligations of the Company in respect of overdrafts, foreign exchange
contracts, currency exchange agreements, interest rate protection agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments, and all commitment, stand by and other fees due and payable
to financial institutions with respect to credit facilities available to such
Person) or evidenced by bonds, debentures, notes or similar instruments (whether
or not the recourse of the lender is to the whole of the assets of such Person
or to only a portion thereof) (other than any account payable or other accrued
current liability or obligation incurred in the ordinary course of business in
connection with the obtaining of materials or services);
(b) all reimbursement obligations and other liabilities (contingent or
otherwise) of such Person with respect to letters of credit, bank guarantees or
bankers' acceptances;
(c) all obligations and liabilities (contingent or otherwise) in
respect of leases of real or personal property or other assets of such Person
required, in conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person and all obligations and other liabilities (contingent or otherwise) under
any lease or related document (including a purchase agreement) in connection
with the lease of real property which provides that such Person is contractually
obligated to purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to the lessor
and the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase such leased property;
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(d) all obligations of such Person (contingent or otherwise) with
respect to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange, purchase or
similar instrument or agreement;
(e) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or otherwise)
of such Person to purchase or otherwise acquire or otherwise assure a creditor
against loss in respect of indebtedness, obligations or liabilities of another
Person of the kind described in clauses (a) through (d);
(f) any indebtedness or other obligations described in clauses (a)
through (e) secured by any mortgage, pledge, lien or other encumbrance existing
on property which is owned or held by such Person, regardless of whether the
indebtedness or other obligation secured thereby shall have been assumed by such
Person; and (g) any and all deferrals, renewals, extensions and refundings of,
or amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (a) through (f).
INDENTURE: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
INITIAL PURCHASER: The term "Initial Purchaser" shall mean Morgan
Stanley & Co. Incorporated.
INSTITUTIONAL ACCREDITED INVESTOR: The term "Institutional Accredited
Investor" shall mean an institutional "accredited investor" within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
LIQUIDATED DAMAGES: The term "Liquidated Damages" shall have the
meaning specified in Section 2(f) of the Registration Rights Agreement.
NON-U.S. PERSON: The term Non-U.S. Person shall mean a person other
than a U.S. Person (as defined in Regulation S).
OFFICERS' CERTIFICATE: The term "Officers' Certificate," when used
with respect to the Company, shall mean a certificate signed by both (a) the
President or Chief Executive Officer or any Executive or Senior Vice President
or any Vice President (whether or not designated by a number or numbers or word
or words added before or after the title "Vice President") and (b) by the
Treasurer or any Assistant Treasurer or Secretary or any Assistant Secretary of
the Company.
OPINION OF COUNSEL: The term "Opinion of Counsel" shall mean an
opinion in writing signed by legal counsel, who may be an employee of or counsel
to the Company, or other counsel reasonably acceptable to the Trustee.
OUTSTANDING: The term "outstanding," when used with reference to
Debentures, shall, subject to the provisions of Section 9.4, mean, as of any
particular time, all Debentures authenticated and delivered by the Trustee under
this Indenture, except:
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(a) Debentures theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Debentures, or portions thereof, (i) for the redemption of which
monies in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or (ii) which shall
have been otherwise defeased in accordance with Article XIII;
(c) Debentures in lieu of which, or in substitution for which, other
Debentures shall have been authenticated and delivered pursuant to the terms of
Section 2.6; and
(d) Debentures converted into Common Stock pursuant to Article XV and
Debentures deemed not outstanding pursuant to Article III.
PAYMENT BLOCKAGE NOTICE: The term "Payment Blockage Notice" shall
have the meaning specified in Section 4.2.
PERSON: The term "Person" shall mean a corporation, an association, a
partnership, a limited liability company, an individual, a joint venture, a
joint stock company, a trust, an unincorporated organization or a government or
an agency or a political subdivision thereof.
PORTAL MARKET: The term "The Portal Market" shall mean The Private
Offerings, Resales and Trading through Automated Linkages Market operated by the
National Association of Securities Dealers, Inc. or any successor thereto.
PURCHASE AGREEMENT: The term "Purchase Agreement" shall mean the
Purchase Agreement dated February 13, 1998 (as the same may be amended from time
to time by the parties thereto) by and between the Company and the Initial
Purchaser.
PREDECESSOR DEBENTURE: The term "Predecessor Debenture" of any
particular Debenture shall mean every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for the purposes of this definition, any Debenture authenticated and delivered
under Section 2.6 in lieu of a lost, destroyed or stolen Debenture shall be
deemed to evidence the same debt as the lost, destroyed or stolen Debenture that
it replaces.
QIB: The term "QIB" shall mean a "qualified institutional buyer" as
defined in Rule 144A.
REGISTRATION RIGHTS AGREEMENT: The term "Registration Rights
Agreement" shall mean that certain Registration Rights Agreement, dated as of
February 13, 1998, between the Company and the Initial Purchaser, as amended
from time to time in accordance with its terms, a copy of which is attached as
Exhibit C hereto.
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REGULATION S: The term "Regulation S" shall mean Regulation S as
promulgated under the Securities Act.
REPRESENTATIVE: The term "Representative" shall mean the (a)
indenture trustee or other trustee, agent or representative for any Senior
Obligations or (b) with respect to any Senior Obligations that do not have any
such trustee, agent or other representative, (i) in the case of such Senior
Obligations issued pursuant to an agreement providing for voting arrangements as
among the holders or owners of such Senior Obligations, any holder or owner of
such Senior Obligations acting with the consent of the required persons
necessary to bind such holders or owners of such Senior Obligations and (ii) in
the case of all other such Senior Obligations, the holder or owner of such
Senior Obligations.
RESPONSIBLE OFFICER: The term "Responsible Officer," when used with
respect to the Trustee, shall mean any managing director, vice president,
assistant vice president, assistant treasurer, assistant secretary or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Indenture, and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
REPURCHASE DATE: The term "Repurchase Date" shall have the meaning
specified in Section 3.5.
RESTRICTED SECURITIES: The term "Restricted Securities" shall have
the meaning specified in Section 2.5.
RULE 144A: The term "Rule 144A" shall mean Rule 144A as promulgated
under the Securities Act.
SECURITIES ACT: The term "Securities Act" shall mean the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder,
as in effect from time to time.
SENIOR OBLIGATIONS: The term "Senior Obligations" shall mean the
principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowable as a claim in any such
proceeding) and rent payable on or in connection with, and all fees, costs,
expenses and other amounts accrued or due on or in connection with, Indebtedness
of the Company, whether outstanding on the date of this Indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by the Company
(including all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless in the case of any
particular Indebtedness the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to the Debentures or expressly provides that
such Indebtedness is "pari passu" or "junior" to the Debentures.
Notwithstanding the foregoing, the term Senior Obligations
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shall not include the outstanding principal amount of the Company's 6 3/4%
Convertible Subordinated Debentures due 2001 or any Indebtedness of the Company
to any subsidiary of the Company, all of the outstanding voting stock of which
is owned, directly or indirectly, by the Company. If any payment made to any
holder of any Senior Obligations or its Representative with respect to such
Senior Obligations is rescinded or must otherwise be returned by such holder or
Representative upon the insolvency, bankruptcy or reorganization of the Company
or otherwise, the reinstated Indebtedness of the Company arising as a result of
such rescission or return shall constitute Senior Obligations effective as of
the date of such rescission or return.
SUBSIDIARY: The term "Subsidiary" shall mean, with respect to any
Person, (i) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or managing general partner of which is such Person or a
subsidiary of such Person or (b) the only general partners of which are such
Person or one or more subsidiaries of such Person (or any combination thereof).
TRADING DAY: The term "Trading Day" shall have the meaning specified
in Section 15.5(h)(5).
TRIGGER EVENT: The term "Trigger Event" shall have the meaning
specified in Section 15.5(d).
TRUST INDENTURE ACT: The term "Trust Indenture Act" shall mean the
Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture, except as provided in Sections 11.3 and 15.6;
provided, however, that in the event the Trust Indenture Act of 1939 is amended
after the date hereof, the term "Trust Indenture Act" shall mean, to the extent
required by such amendment, the Trust Indenture Act of 1939 as so amended.
TRUSTEE: The term "Trustee" shall mean United States Trust Company of
New York, and its successors and any corporation resulting from or surviving any
consolidation or merger to which it or its successors be a party and any
successor trustee at the time serving as successor trustee hereunder.
The definitions of certain other terms are as specified in Sections
2.5 and 3.5 and Article XV.
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ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES
SECTION 2.1. DESIGNATION AMOUNT AND ISSUE OF DEBENTURES. The Debentures
shall be designated as "4 3/4% Convertible Subordinated Debentures due 2005."
Debentures not to exceed the aggregate principal amount of $460,000,000 (except
pursuant to Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof), upon the execution of
this Indenture, or from time to time thereafter, may be executed by the Company
and delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Debentures to or upon the written order of the
Company, signed by its (a) Chief Executive Officer, President, any Executive or
Senior Vice President or any Vice President (whether or not designated by a
number or numbers or word or words added before or after the title "Vice
President") and (b) Treasurer or Assistant Treasurer or its Secretary or any
Assistant Secretary, without any further action by the Company hereunder.
In authenticating any Debentures, the Trustee shall be entitled to
receive prior to the first authentication of any Debentures, and shall be fully
protected in relying upon, unless and until such documents have been superseded
or revoked:
(1) an Officers' Certificate setting forth the form or forms and terms
of the Debentures, stating that the form or forms and terms of the
Debentures have been, or will be when established in accordance with such
procedures as shall be referred to therein, established in compliance with
this Indenture; and
(2) an Opinion of Counsel substantially to the effect that the form or
forms and terms of the Debentures have been, or will be when established in
accordance with such procedures as shall be referred to therein,
established in compliance with this Indenture and that the supplemental
indenture, to the extent applicable, and Debentures have been duly
authorized and, if executed and authenticated in accordance with the
provisions of the Indenture and delivered to and duly paid for by the
purchasers thereof on the date of such opinion, would be entitled to the
benefits of the Indenture and would be valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization,
receivership, moratorium and other similar laws affecting creditors' rights
generally, general principles of equity, and such other matters as shall be
specified therein.
SECTION 2.2. FORM OF DEBENTURES. The Debentures and the Trustee's
certificate of authentication to be borne by such Debentures shall be
substantially in the form set forth in Exhibit A, which is incorporated in and
made a part of this Indenture.
Any of the Debentures may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law
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or with any rule or regulation made pursuant thereto or with any rule or
regulation of any securities exchange or automated quotation system on which the
Debentures may be listed, or to conform to usage.
Any Debenture in global form shall represent such of the outstanding
Debentures as shall be specified therein and shall provide that it shall
represent the aggregate amount of outstanding Debentures from time to time
endorsed thereon and that the aggregate amount of outstanding Debentures
represented thereby may from time to time be increased or reduced to reflect
transfers or exchanges permitted hereby. Any endorsement of a Debenture in
global form to reflect the amount of any increase or decrease in the amount of
outstanding Debentures represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in such manner and upon written
instructions given by the holder of such Debentures in accordance with this
Indenture. Payment of principal of and interest and premium, if any, on any
Debenture in global form shall be made to the holder of such Debenture.
The terms and provisions contained in the form of Debenture attached
as Exhibit A hereto shall constitute, and are hereby expressly made, a part of
this Indenture and the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.3. DATE AND DENOMINATION OF DEBENTURES; PAYMENTS OF INTEREST.
The Debentures shall be issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof. Every
Debenture shall be dated the date of its authentication and shall bear interest
from the applicable date in each case as specified on the face of the form of
Debenture attached as Exhibit A hereto. Interest on the Debentures shall be
computed on the basis of a 360-day year comprised of twelve (12) 30-day months
and shall be payable semi-annually on each of February 15 and August 15 of each
year.
The Person in whose name any Debenture (or its Predecessor Debenture)
is registered on the Debenture register at the close of business on any record
date with respect to any interest payment date shall be entitled to receive the
interest payable on such interest payment date, except (i) that the interest
payable upon redemption (unless the date of redemption is an interest payment
date) will be payable to the person to whom principal is payable and (ii) as set
forth in the next succeeding sentence. In the case of any Debenture (or portion
thereof) which is converted into Common Stock of the Company during the period
from (but excluding) a record date for any interest payment date to (but
excluding) such interest payment date either (i) if such Debenture (or portion
thereof) has been called for redemption on a redemption date which occurs during
such period, or is to be redeemed in connection with a Fundamental Change on a
Repurchase Date which occurs during such period, the Company shall not be
required to pay interest on such interest payment date in respect of any such
Debenture (or portion thereof) except to the extent required to be paid upon
redemption of such Debenture or portion thereof pursuant to Section 3.3 or 3.5
hereof or (ii) if otherwise, any such Debenture (or portion thereof) submitted
for conversion during such period shall be accompanied by New York Clearing
House funds equal to the interest payable on such interest payment date on the
principal amount so
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converted. Interest may, as the Company shall specify to the paying agent in
writing by each record date, be paid either (i) by check mailed to the address
of the person entitled thereto as it appears in the Debenture register (provided
that a holder of Debentures with an aggregate principal amount in excess of
$2,000,000 shall, at the written election of such holder, be paid by wire
transfer in immediately available funds) or (ii) by transfer to an account
maintained by such person located in the United States; provided, however, that
payments to the Depositary will be made by wire transfer of immediately
available funds to the account of the Depositary or its nominee. The term
"record date" with respect to any interest payment date shall mean the February
1 or August 1 preceding said February 15 or August 15, respectively.
Any interest on any Debenture which is payable, but is not punctually
paid or duly provided for, on any said February 15 or August 15 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Debentureholder
on the relevant record date by virtue of his having been such Debentureholder;
and such Defaulted Interest shall be paid by the Company, at its election in
each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Debentures (or their respective
Predecessor Debentures) are registered at the close of business on a
special record date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest to be paid on each Debenture
and the date of the payment (which shall be not less than twenty-five (25)
days after the receipt by the Trustee of such notice, unless the Trustee
shall consent to an earlier date), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a special record date for
the payment of such Defaulted Interest which shall be not more than fifteen
(15) days and not less than ten (10) days prior to the date of the proposed
payment, and not more than ten (10) days after the receipt by the Trustee
of the notice of the proposed payment, the Trustee shall promptly notify
the Company of such special record date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the special record date therefor to be mailed,
first-class postage prepaid, to each Debentureholder at his address as it
appears in the Debenture register, not less than ten (10) days prior to
such special record date. Notice of the proposed payment of such Defaulted
Interest and the special record date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the
Debentures (or their respective Predecessor Debentures) were registered at
the close of business on such special record date and shall no longer be
payable pursuant to the following clause (2) of this Section 2.3.
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(2) The Company may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of any
securities exchange or automated quotation system on which the Debentures
may be listed or designated for issuance, and upon such notice as may be
required by such exchange or automated quotation system, if, after written
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause, such manner of payment shall be deemed practicable by the
Trustee.
SECTION 2.4. EXECUTION OF DEBENTURES. The Debentures shall be signed in
the name and on behalf of the Company by the facsimile signature of its Chief
Executive Officer or President or any Executive or Senior Vice President or any
Vice President (whether or not designated by a number or numbers or word or
words added before or after the title "Vice President") and attested by the
facsimile signature of its Secretary or any of its Assistant Secretaries or
Treasurer or any of its Assistant Treasurers (which may be printed, engraved or
otherwise reproduced thereon, by facsimile or otherwise). Only such Debentures
as shall bear thereon a certificate of authentication substantially in the form
set forth on the form of Debenture attached as Exhibit A hereto, manually
executed by the Trustee (or an authenticating agent appointed by the Trustee as
provided by Section 16.11), shall be entitled to the benefits of this Indenture
or be valid or obligatory for any purpose. Such certificate by the Trustee (or
such an authenticating agent) upon any Debenture executed by the Company shall
be conclusive evidence that the Debenture so authenticated has been duly
authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
In case any officer of the Company who shall have signed any of
the Debentures shall cease to be such officer before the Debentures so signed
shall have been authenticated and delivered by the Trustee, or disposed of by
the Company, such Debentures nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Debentures had not ceased to be
such officer of the Company; and any Debenture may be signed on behalf of the
Company by such persons as, at the actual date of the execution of such
Debenture, shall be the proper officers of the Company, although at the date of
the execution of this Indenture any such person was not such an officer.
SECTION 2.5. EXCHANGE AND REGISTRATION OF TRANSFER OF DEBENTURES;
RESTRICTIONS ON TRANSFER; DEPOSITARY.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency of the Company designated pursuant to Section 5.2 being herein
sometimes collectively referred to as the "Debenture register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Debentures and of transfers of Debentures. The
Debenture register shall be in written form or in any form capable of being
converted into written form within a reasonably prompt period of time. The
Trustee is hereby appointed "Debenture registrar" for the purpose of registering
Debentures and transfers of Debentures as herein provided. The Company may
appoint one or more co-registrars in accordance with Section 5.2.
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Upon surrender for registration of transfer of any Debenture to the
Debenture registrar or any co-registrar, and satisfaction of the requirements
for such transfer set forth in this Section 2.5, the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Debentures of any authorized
denominations and of a like aggregate principal amount and bearing such
restrictive legends as may be required by this Indenture.
Debentures may be exchanged for other Debentures of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Debentures to be exchanged at any such office or agency maintained by the
Company pursuant to Section 5.2. Whenever any Debentures are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Debentures which the Debentureholder making the exchange is
entitled to receive bearing registration numbers not contemporaneously
outstanding.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Debentures
surrendered upon such registration of transfer or exchange.
All Debentures presented or surrendered for registration of transfer
or for exchange, redemption or conversion shall (if so required by the Company
or the Debenture registrar) be duly endorsed, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company, and
the Debentures shall be duly executed by the Debentureholder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Debentures, but the Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Debentures.
Neither the Company nor the Trustee nor any Debenture registrar or any
Company registrar shall be required to exchange or register a transfer of (a)
any Debentures for a period of fifteen (15) days next preceding any selection of
Debentures to be redeemed or (b) any Debentures or portions thereof called for
redemption pursuant to Section 3.2 or (c) any Debentures or portion thereof
surrendered for conversion pursuant to Article XV or (d) any Debentures or
portions thereof tendered for redemption (and not withdrawn) pursuant to Section
3.5.
(b) So long as the Debentures are eligible for book-entry settlement
with the Depositary, or unless otherwise required by law, all Debentures that
upon initial issuance are beneficially owned by QIBs and all Debentures that are
beneficially owned by Non-U.S. Persons as a result of a sale or transfer after
initial issuance will be represented by one or more Debentures in global form
registered in the name of the Depositary or the nominee of the Depositary (each,
a "Global Debenture"), except as otherwise specified below. The transfer and
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exchange of beneficial interests in any such Global Debenture shall be effected
through the Depositary in accordance with this Indenture and the procedures of
the Depositary therefor. The Trustee shall make appropriate endorsements to
reflect increases or decreases in the principal amounts of any such Global
Debenture as set forth on the face of the Debenture ("Principal Amount") to
reflect any such transfers. Except as provided below, beneficial owners of a
Global Debenture shall not be entitled to have certificates registered in their
names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and will not be considered holders of such
Debentures in global form.
(c) So long as the Debentures are eligible for book-entry settlement,
or unless otherwise required by law, upon any transfer of a definitive Debenture
to a QIB in accordance with Rule 144A or to a Non-U.S. Person in accordance with
Regulation S, and upon receipt of the definitive Debenture or Debentures being
so transferred, together with a certification, substantially in the form on the
reverse of the Debenture, from the transferor that the transfer is being made in
compliance with Rule 144A or to a Non-U.S. Person in accordance with Regulation
S (or other evidence satisfactory to the Trustee), the Trustee shall make an
endorsement on the applicable Global Debenture to reflect an increase in the
aggregate Principal Amount of the Debentures represented by such Debenture in
global form, the Trustee shall cancel such definitive Debenture or Debentures in
accordance with the standing instructions and procedures of the Depositary, the
aggregate Principal Amount of Debentures represented by such Debenture in global
form to be increased accordingly; provided that no definitive Debenture, or
portion thereof, in respect of which the Company or an Affiliate of the Company
held any beneficial interest shall be included in such Debenture in global form
until such definitive Debenture is freely tradeable in accordance with Rule
144(k); provided further that the Trustee shall issue Debentures in definitive
form upon any transfer of a beneficial interest in the Debenture in global form
to the Company or any Affiliate of the Company.
Upon any sale or transfer of a Debenture to an Institutional
Accredited Investor (other than pursuant to a registration statement that has
been declared effective under the Securities Act), such Institutional Accredited
Investor shall, prior to such sale or transfer, furnish to the Company and the
Trustee a signed letter containing representations and agreements relating to
restrictions on transfer substantially in the form set forth in Exhibit B to
this Indenture.
Any Debenture in global form may be endorsed with or have incorporated
in the text thereof such legends or recitals or changes not inconsistent with
the provisions of this Indenture as may be required by the Custodian, the
Depositary or by the National Association of Securities Dealers, Inc. in order
for the Debentures to be tradeable on The Portal Market or as may be required
for the Debentures to be tradeable on any other market developed for trading of
securities pursuant to Rule 144A or Regulation S or required to comply with any
applicable law or any regulation thereunder or with the rules and regulations of
any securities exchange or automated quotation system upon which the Debentures
may be listed or traded or to conform with any usage with respect thereto, or to
indicate any special limitations or restrictions to which any particular
Debentures are subject.
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(d) Every Debenture that bears or is required under this Section
2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any
Common Stock issued upon conversion of the Debentures and required to bear the
legend set forth in Section 2.5(e), collectively, the "Restricted Securities")
shall be subject to the restrictions on transfer set forth in this Section
2.5(d) (including those set forth in the legend set forth below) unless such
restrictions on transfer shall be waived by written consent of the Company, and
the holder of each such Restricted Security, by such holder's acceptance
thereof, agrees to be bound by all such restrictions on transfer. As used in
Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge,
transfer or other disposition whatsoever of any Restricted Security.
Until the expiration of the holding period applicable to sales thereof
under Rule 144(k) under the Securities Act (or any successor provision), any
certificate evidencing such Debenture (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof, which shall bear the legend set forth in Section 2.5(e), if
applicable) shall bear a legend in substantially the following form, unless such
Debenture has been sold pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be effective
at the time of such transfer), or unless otherwise agreed by the Company in
writing, with written notice thereof to the Trustee:
THE DEBENTURE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C)
IT IS NOT A U.S. PERSON AND IS ACQUIRING THE DEBENTURE EVIDENCED
HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT,
PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF
THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE
TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO
CENTOCOR, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A UNDER
THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3), OR (7) UNDER THE SECURITIES
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ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE UNITED STATES
TRUST COMPANY OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE
DEBENTURE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH
CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3)
PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
2(F) ABOVE), IT WILL FURNISH TO THE UNITED STATES TRUST COMPANY
OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE)
AND THE COMPANY, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS SUCH TRUSTEE AND THE COMPANY MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE DEBENTURE
EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT
TO CLAUSE 2(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE
EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE DEBENTURE EVIDENCED HEREBY UNDER RULE
144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISIONS) THE
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE UNITED STATES TRUST COMPANY OF NEW YORK, AS
TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER
WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE UNITED STATES TRUST COMPANY OF NEW YORK,
AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH
TRUSTEE AND THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
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REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE DEBENTURE EVIDENCED
HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR UPON ANY TRANSFER OF THE
DEBENTURE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES
ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
Any Debenture (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired in
accordance with their terms or as to which the conditions for removal of the
foregoing legend set forth therein have been satisfied may, upon surrender of
such Debenture for exchange to the Debenture registrar in accordance with the
provisions of this Section 2.5, be exchanged for a new Debenture or Debentures,
of like tenor and aggregate principal amount, which shall not bear the
restrictive legend required by this Section 2.5(d).
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in Section 2.5(c) and in this Section 2.5(d)), a Debenture
in global form may not be transferred as a whole or in part except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the Debentures in global form. Initially,
Global Debentures shall be issued to the Depositary, registered in the name of
Cede & Co., as the nominee of the Depositary, and deposited with the Custodian
for Cede & Co.
If at any time the Depositary for a Debenture in global form notifies
the Company that it is unwilling or unable to continue as Depositary for such
Debenture, the Company may appoint a successor Depositary with respect to such
Debenture. If a successor Depositary is not appointed by the Company within
ninety (90) days after the Company receives such notice, the Company will
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Debentures, will authenticate and deliver,
Debentures in certificated form, in aggregate principal amount equal to the
principal amount of such Debenture in global form, in exchange for such
Debenture in global form.
If a Debenture in certificated form is issued in exchange for any
portion of a Debenture in global form after the close of business at the office
or agency where such exchange occurs on any record date and before the opening
of business at such office or agency on the next succeeding interest payment
date, interest will not be payable on such interest payment date in
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respect of such Debenture, but will be payable on such interest payment date,
subject to the provisions of Section 2.3, only to the person to whom interest in
respect of such portion of such Debenture in global form is payable in
accordance with the provisions of this Indenture.
Debentures in certificated form issued in exchange for all or a part
of a Debenture in global form pursuant to this Section 2.5 shall be registered
in such names and in such authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. Upon execution and authentication, the Trustee shall
deliver such Debentures in certificated form to the persons in whose names such
Debentures in certificated form are so registered.
At such time as all interests in a Debenture in global form have been
redeemed, converted, canceled, exchanged for Debentures in certificated form, or
transferred to a transferee who receives Debentures in certificated form
therefor, such Debenture in global form shall, upon receipt thereof, be canceled
by the Trustee in accordance with standing procedures and instructions existing
between the Depositary and the Custodian. At any time prior to such
cancellation, if any interest in a Debenture in global form is exchanged for
Debentures in certificated form, redeemed, converted, repurchased or canceled,
exchanged for Debentures in certificated form or transferred to a transferee who
receives Debentures in certificated form therefor or any Debenture in
certificated form is exchanged or transferred for part of a Debenture in global
form, the principal amount of such Debenture in global form shall, in accordance
with the standing procedures and instructions existing between the Depositary
and the Custodian, be appropriately reduced or increased, as the case may be,
and an endorsement shall be made on such Debenture in global form, by the
Trustee or the Custodian, at the direction of the Trustee, to reflect such
reduction or increase.
(e) Until the expiration of the holding period applicable to sales
thereof under Rule 144(k) under the Securities Act (or any successor provision),
any stock certificate representing Common Stock issued upon conversion of such
Debenture shall bear a legend in substantially the following form, unless such
Common Stock has been sold pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be effective
at the time of such transfer) or such Common Stock has been issued upon
conversion of Debentures that have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act, or unless
otherwise agreed by the Company in writing with written notice thereof to the
transfer agent:
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE
COMMON STOCK EVIDENCED
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HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE
TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO
CENTOCOR, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER, FURNISHES TO
BOSTON EQUISERVE LLP, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER
AGENT, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT OR A SUCCESSOR
TRANSFER AGENT, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH
TRANSFER); (2) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE 1(F) ABOVE), IT WILL FURNISH TO BOSTON
EQUISERVE LLP, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT,
AS APPLICABLE) AND THE COMPANY, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS SUCH TRANSFER AGENT AND THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK
EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT
TO CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE
1(F) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED
HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO
SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER
THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN,
THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
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Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms or as to which the conditions for
removal of the foregoing legend set forth therein have been satisfied may, upon
surrender of the certificates representing such shares of Common Stock for
exchange in accordance with the procedures of the transfer agent for the Common
Stock, be exchanged for a new certificate or certificates for a like number of
shares of Common Stock, which shall not bear the restrictive legend required by
this Section 2.5(e).
(f) Any Debenture or Common Stock issued upon the conversion or
exchange of a Debenture that, prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), is purchased or owned by the Company or any Affiliate
thereof may not be resold by the Company or such Affiliate unless registered
under the Securities Act or resold pursuant to an exemption from the
registration requirements of the Securities Act in a transaction which results
in such Debentures or Common Stock, as the case may be, no longer being
"restricted securities" (as defined under Rule 144).
SECTION 2.6. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. In case
any Debenture shall become mutilated or be destroyed, lost or stolen, the
Company in its discretion may execute, and upon its written request the Trustee
or an authenticating agent appointed by the Trustee shall authenticate and make
available for delivery, a new Debenture, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated Debenture, or in
lieu of and in substitution for the Debenture so destroyed, lost or stolen. In
every case the applicant for a substituted Debenture shall furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent such
security or indemnity as may be required by them to save each of them harmless
for any loss, liability, cost or expense caused by or connected with such
substitution, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent evidence to their satisfaction of the destruction, loss or
theft of such Debenture and of the ownership thereof.
Following receipt by the Company, the Trustee and, if applicable, such
authenticating agent, as the case may be, of satisfactory security or indemnity
and evidence, as described in the preceding paragraph, the Trustee or such
authenticating agent may authenticate any such substituted Debenture and make
available for delivery such Debenture. Upon the issuance of any substituted
Debenture, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses connected therewith. In case any Debenture which has matured or
is about to mature or has been called for redemption or has been tendered for
redemption (and not withdrawn) or is about to be converted into Common Stock
shall become mutilated or be destroyed, lost or stolen, the Company may, instead
of issuing a substitute Debenture, pay or authorize the payment of or convert or
authorize the conversion of the same (without surrender thereof except in the
case of a mutilated Debenture), as the case may be, if the applicant for such
payment or conversion shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them
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harmless for any loss, liability, cost or expense caused by or connected with
such substitution, and, in case of destruction, loss or theft, evidence
satisfactory to the Company, the Trustee and, if applicable, any paying agent or
conversion agent of the destruction, loss or theft of such Debenture and of the
ownership thereof.
Every substitute Debenture issued pursuant to the provisions of this
Section 2.6 by virtue of the fact that any Debenture is destroyed, lost or
stolen shall constitute an additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Debenture shall be found at any
time, and shall be entitled to all the benefits of (but shall be subject to all
the limitations set forth in) this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder. To the extent permitted by
law, all Debentures shall be held and owned upon the express condition that the
foregoing provisions are exclusive with respect to the replacement or payment or
conversion of mutilated, destroyed, lost or stolen Debentures and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or payment
or conversion of negotiable instruments or other securities without their
surrender.
SECTION 2.7. TEMPORARY DEBENTURES. Pending the preparation of Debentures
in certificated form, the Company may execute and the Trustee or an
authenticating agent appointed by the Trustee shall, upon the written request of
the Company, authenticate and deliver temporary Debentures (printed or
lithographed). Temporary Debentures shall be issuable in any authorized
denomination, and substantially in the form of the Debentures in certificated
form, but with such omissions, insertions and variations as may be appropriate
for temporary Debentures, all as may be determined by the Company. Every such
temporary Debenture shall be executed by the Company and authenticated by the
Trustee or such authenticating agent upon the same conditions and in
substantially the same manner, and with the same effect, as the Debentures in
certificated form. Without unreasonable delay the Company will execute and
deliver to the Trustee or such authenticating agent Debentures in certificated
form (other than in the case of Debentures in global form) and thereupon any or
all temporary Debentures (other than any such Debenture in global form) may be
surrendered in exchange therefor, at each office or agency maintained by the
Company pursuant to Section 5.2 and the Trustee or such authenticating agent
shall authenticate and make available for delivery in exchange for such
temporary Debentures an equal aggregate principal amount of Debentures in
certificated form. Such exchange shall be made by the Company at its own
expense and without any charge therefor. Until so exchanged, the temporary
Debentures shall in all respects be entitled to the same benefits and subject to
the same limitations under this Indenture as Debentures in certificated form
authenticated and delivered hereunder.
SECTION 2.8. CANCELLATION OF DEBENTURES PAID, ETC. All Debentures
surrendered for the purpose of payment, redemption, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Debenture registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Debentures shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. The
Trustee shall return such
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canceled Debentures to the Company. If the Company shall acquire any of the
Debentures, such acquisition shall not operate as a redemption or satisfaction
of the indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee for cancellation.
SECTION 2.9. CUSIP NUMBERS. The Company in issuing the Debentures may
use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to
Debentureholders; provided that any such notice may state that no representation
is made as to the correctness of such numbers either as printed on the
Debentures or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Debentures,
and any such redemption shall not be affected by any defect in or omission of
such numbers. The Company will promptly notify the Trustee in writing of any
change in the CUSIP numbers.
ARTICLE III
REDEMPTION OF DEBENTURES
SECTION 3.1. REDEMPTION PRICES. The Company may not redeem the
Debentures prior to February 21, 2001. At any time on or after February 21,
2001, the Company, at its option, may redeem all or from time to time any part
of the Debentures on any date prior to maturity, upon notice as set forth in
Section 3.2, and at the optional redemption prices set forth in the form of
Debenture attached as Exhibit A hereto, together with accrued interest to, but
excluding, the date fixed for redemption.
SECTION 3.2. NOTICE OF REDEMPTION; SELECTION OF DEBENTURES. In case the
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Debentures pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its written request received by the Trustee not fewer
than forty-five (45) days prior (or such shorter period of time as may be
acceptable to the Trustee) to the date fixed for redemption, the Trustee in the
name of and at the expense of the Company, shall mail or cause to be mailed a
notice of such redemption not less than thirty (30) nor more than sixty (60)
days prior to the date fixed for redemption to the holders of Debentures so to
be redeemed as a whole or in part at their last addresses as the same appear on
the Debenture register; provided that if the Company shall give such notice, it
shall also give written notice of the Debentures to be redeemed, to the Trustee.
Such mailing shall be by first class mail. The notice if mailed in the manner
herein provided shall be conclusively presumed to have been duly given, whether
or not the holder receives such notice. In any case, failure to give such
notice by mail or any defect in the notice to the holder of any Debenture
designated for redemption as a whole or in part shall not affect the validity of
the proceedings for the redemption of any other Debenture.
Each such notice of redemption shall specify the aggregate principal
amount of Debentures to be redeemed, the CUSIP numbers, the date fixed for
redemption (which shall be a Business Day), the redemption price at which
Debentures are to be redeemed, the place or places of payment, that payment will
be made upon presentation and surrender of such
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Debentures, that interest accrued to (but excluding) the date fixed for
redemption will be paid as specified in said notice, and that on and after said
date interest thereon or on the portion thereof to be redeemed will cease to
accrue. Such notice shall also state the current Conversion Price and the date
on which the right to convert such Debentures or portions thereof into Common
Stock will expire. If fewer than all the Debentures are to be redeemed, the
notice of redemption shall identify the Debentures to be redeemed (including
CUSIP numbers, if any). In case any Debenture is to be redeemed in part only,
the notice of redemption shall state the portion of the principal amount thereof
to be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Debenture, a new Debenture or Debentures in principal
amount equal to the unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section 3.2, the Company will deposit with
the Trustee or with one or more paying agents (or, if the Company is acting as
its own paying agent, set aside, segregate and hold in trust as provided in
Section 5.4) an amount of money sufficient to redeem on the redemption date all
the Debentures (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to (but excluding) the date
fixed for redemption; provided that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m. New York City time, on such date. If any Debenture called for
redemption is converted pursuant hereto, any money deposited with the Trustee or
any paying agent or so segregated and held in trust for the redemption of such
Debenture shall be paid to the Company upon its written request, or, if then
held by the Company, shall be discharged from such trust. Whenever any
Debentures are to be redeemed, the Company will give the Trustee written notice
in the form of an Officers' Certificate not fewer than forty-five (45) days (or
such shorter period of time as may be acceptable to the Trustee) prior to the
redemption date as to the aggregate principal amount of Debentures to be
redeemed.
If fewer than all the Debentures are to be redeemed, the Trustee shall
select the Debentures or portions thereof of the Global Debenture or the
Debentures in certificated form to be redeemed (in principal amounts of $1,000
or integral multiples thereof), by lot, on a pro rata basis or by another method
the Trustee deems fair and appropriate. If any Debenture selected for partial
redemption is converted in part after such selection, the converted portion of
such Debenture shall be deemed (so far as may be) to be the portion to be
selected for redemption. The Debentures (or portions thereof) so selected shall
be deemed duly selected for redemption for all purposes hereof, notwithstanding
that any such Debenture is converted as a whole or in part before the mailing of
the notice of redemption.
Upon any redemption of less than all Debentures, the Company and the
Trustee may (but need not) treat as outstanding any Debentures surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as outstanding any Debenture
authenticated and delivered during such period in exchange for the unconverted
portion of any Debenture converted in part during such period.
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SECTION 3.3. PAYMENT OF DEBENTURES CALLED FOR REDEMPTION. If notice of
redemption has been given as above provided, the Debentures or portion of
Debentures with respect to which such notice has been given shall, unless
converted into Common Stock pursuant to the terms hereof, become due and payable
on the date fixed for redemption and at the place or places stated in such
notice at the applicable redemption price, together with interest accrued to
(but excluding) the date fixed for redemption, and on and after said date
(unless the Company shall default in the payment of such Debentures at the
redemption price, together with interest accrued to said date), interest on the
Debentures or portion of Debentures so called for redemption shall cease to
accrue and such Debentures shall cease after the close of business on the
Business Day next preceding the date fixed for redemption to be convertible into
Common Stock and, except as provided in Sections 8.5 and 13.4, to be entitled to
any benefit or security under this Indenture, and the holders thereof shall have
no right in respect of such Debentures except the right to receive the
redemption price thereof and unpaid interest to (but excluding) the date fixed
for redemption. On presentation and surrender of such Debentures at a place of
payment in said notice specified, the said Debentures or the specified portions
thereof shall be paid and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to (but excluding) the date fixed
for redemption; provided that, if the applicable redemption date is an interest
payment date, the semi-annual payment of interest becoming due on such date
shall be payable to the registered holders of such Debentures on the relevant
record date for such interest payment.
Upon presentation of any Debenture redeemed in part only, the Company
shall execute and the Trustee shall authenticate and make available for delivery
to the holder thereof, at the expense of the Company, a new Debenture or
Debentures, of authorized denominations, in principal amount equal to the
unredeemed portion of the Debentures so presented.
Notwithstanding the foregoing, the Company shall not mail any notice
of optional redemption during the continuance of a default in payment of
interest or premium on the Debentures. If any Debenture called for redemption
shall not be so paid upon surrender thereof for redemption, the principal and
premium, if any, shall, until paid or duly provided for, bear interest from the
date fixed for redemption at the rate borne by the Debenture and such Debenture
shall remain convertible into Common Stock until the principal and premium, if
any, shall have been paid or duly provided for.
SECTION 3.4. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In connection
with any redemption of Debentures, the Company may arrange (in lieu of
redemption) for the purchase and conversion of any Debentures by an agreement
with one or more investment bankers or other purchasers to purchase such
Debentures by paying to the Trustee in trust for the Debentureholders, on or
before the close of business on the date fixed for redemption, an amount not
less than the applicable redemption price, together with interest accrued to
(but excluding) the date fixed for redemption, of such Debentures.
Notwithstanding anything to the contrary contained in this Article III, the
obligation of the Company to pay the redemption price of such Debentures,
together with interest accrued to (but excluding) the date fixed for redemption,
shall be deemed to be satisfied and discharged to the extent such amount is so
paid by such purchasers. If such an agreement is entered into, a copy of which
will be filed with the Trustee prior to the
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date fixed for redemption, any Debentures not duly surrendered for conversion by
the holders thereof may, at the option of the Company, be deemed, to the fullest
extent permitted by law, acquired by such purchasers from such holders and
(notwithstanding anything to the contrary contained in Article XV) surrendered
by such purchasers for conversion, all as of immediately prior to the close of
business on the date fixed for redemption (and the right to convert any such
Debentures shall be extended through such time), subject to payment of the above
amount as aforesaid. At the written direction of the Company, the Trustee shall
hold and dispose of any such amount paid to it in the same manner as it would
monies deposited with it by the Company for the redemption of Debentures.
Without the Trustee's prior written consent, no arrangement between the Company
and such purchasers for the purchase and conversion of any Debentures shall
increase or otherwise affect any of the powers, duties, responsibilities or
obligations of the Trustee as set forth in this Indenture.
SECTION 3.5. REDEMPTION AT OPTION OF HOLDERS.
(a) If there shall occur a Fundamental Change, then each
Debentureholder shall have the right, at such holder's option, to require the
Company to redeem all of such holder's Debentures, or any portion thereof that
is an integral multiple of $1,000 principal amount, that are outstanding on the
date (the "Repurchase Date") that is not more than thirty (30) days after the
date of the Company Notice (as defined in Section 3.5(b) below) of such
Fundamental Change (or, if such 30th day is not a Business Day, the next
succeeding Business Day). Such repayment shall be made at a price equal to 100%
of the principal amount to be redeemed. The Company shall also pay to such
holders accrued interest on the redeemed Debentures to, but excluding, the
Repurchase Date; provided that, if such Repurchase Date is an interest payment
date, the semi-annual payment of interest becoming due on such date shall be
payable to the registered holders of such Debentures on the relevant record date
for such interest payment.
Upon presentation of any Debenture redeemed in part only, the Company
shall execute and, upon the Company's written direction to the Trustee, the
Trustee shall authenticate and deliver to the holder thereof, at the expense of
the Company, a new Debenture or Debentures, of authorized denominations, in
principal amount equal to the unredeemed portion of the Debentures so presented.
(b) On or before the tenth day after the occurrence of a Fundamental
Change, the Company, or, at its written request (which must be received by the
Trustee at least five (5) Business Days prior to the date the Trustee is
requested to give notice as described below), the Trustee in the name of and at
the expense of the Company, shall mail or cause to be mailed to all holders of
record on the date of the Fundamental Change a notice (the "Company Notice") of
the occurrence of such Fundamental Change and of the redemption right at the
option of the holders arising as a result thereof. Such notice shall be mailed
in the manner and with the effect set forth in the first paragraph of Section
3.2. The Company shall also deliver a copy of the Company Notice to the Trustee
at such time as it is mailed to Debentureholders.
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Each Company Notice shall specify the circumstances constituting the
Fundamental Change, the Repurchase Date, the price at which the Company shall be
obligated to redeem Debentures, the latest time on the Repurchase Date, which
shall be thirty (30) days after the date of the Company Notice, by which the
holder must exercise the redemption right (the "Fundamental Change Expiration
Time"), that the holder shall have the right to withdraw any Debentures
surrendered prior to the Fundamental Change Expiration Time, a description of
the procedure which a Debentureholder must follow to exercise such redemption
right and to withdraw any surrendered Debentures, the place or places where the
holder is to surrender such holder's Debentures, and the amount of interest
accrued on each Debenture to the Repurchase Date.
No failure of the Company to give the foregoing notices and no defect
therein shall limit the Debentureholders' redemption rights or affect the
validity of the proceedings for the repurchase of the Debentures pursuant to
this Section 3.5.
(c) For a Debenture to be so redeemed at the option of the holder, the
Company must receive at the office or agency maintained by the Company pursuant
to Section 5.2, such Debenture with the form entitled "Option to Elect Repayment
Upon A Fundamental Change" on the reverse thereof duly completed, together with
such Debentures duly endorsed for transfer, on or before the Fundamental Change
Expiration Time. All questions as to the validity, eligibility (including time
of receipt) and acceptance of any Debenture for repayment shall be determined by
the Company, whose determination shall be final and binding absent manifest
error.
(d) On or prior to the Repurchase Date, the Company will deposit with
the Trustee or with one or more paying agents (or, if the Company is acting as
its own paying agent, set aside, segregate and hold in trust as provided in
Section 5.4) an amount of money sufficient to repay on the Repurchase Date all
the Debentures to be repaid on such date at the appropriate redemption price,
together with accrued interest to (but excluding) the Repurchase Date; provided
that if such payment is made on the Repurchase Date it must be received by the
Trustee or paying agent, as the case may be, by 10:00 a.m. New York City time,
on such date. Payment for Debentures surrendered for redemption (and not
withdrawn) prior to the Fundamental Change Expiration Time will be made promptly
(but in no event more than five (5) Business Days) following the Repurchase Date
by mailing checks for the amount payable to the holders of such Debentures
entitled thereto as they shall appear on the Debenture register of the Company.
(e) In the case of a reclassification, change, consolidation, merger,
combination, sale or conveyance to which Section 15.6 applies, in which the
Common Stock of the Company is changed or exchanged as a result into the right
to receive stock, securities or other property or assets (including cash), which
includes shares of Common Stock of the Company or 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 stock, securities or other property or assets
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(including cash), then the Person formed by such consolidation or resulting from
such merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture (accompanied by an Opinion of
Counsel that such supplemental indenture complies with the Trust Indenture Act
as in force at the date of execution of such supplemental indenture) modifying
the provisions of this Indenture relating to the right of holders of the
Debentures to cause the Company to repurchase the Debentures following a
Fundamental Change, including without limitation the applicable provisions of
this Section 3.5 and the definitions of Common Stock and Fundamental Change, as
appropriate, as determined in good faith by the Company, to make such provisions
apply 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).
(f) The Company will comply with the provisions of Rule 13e-4 and any
other tender offer rules under the Exchange Act to the extent then applicable in
connection with the redemption rights of the holders of Debentures in the event
of a Fundamental Change.
ARTICLE IV
SUBORDINATION OF DEBENTURES
SECTION 4.1. AGREEMENT OF SUBORDINATION. The Company covenants and
agrees, and each holder of Debentures issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Debentures shall be issued subject to
the provisions of this Article IV; and each Person holding any Debenture,
whether upon original issue or upon transfer, assignment or exchange thereof,
accepts and agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest
(including Liquidated Damages, if any) on all Debentures (including, but not
limited to, the redemption price with respect to Debentures called for
redemption in accordance with Section 3.2 or submitted for redemption in
accordance with Section 3.5, as the case may be, as provided herein) issued
hereunder shall, to the extent and in the manner hereinafter set forth, be
subordinated and subject in right of payment to the prior payment in full of all
Senior Obligations and that the subordination is for the benefit of the holders
of Senior Obligations.
No provision of this Article IV shall prevent the occurrence of any
default or Event of Default hereunder.
SECTION 4.2. PAYMENTS TO DEBENTUREHOLDERS. No payment shall be made with
respect to the principal of, premium, if any, or interest (including Liquidated
Damages, if any) on the Debentures (including, but not limited to, the
redemption price with respect to the Debentures to be called for redemption in
accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in this Indenture), except payments
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and distributions made by the Trustee as permitted by the first or second
paragraph of Section 4.5, if:
(a) a default in the payment of principal, premium, if any, interest,
rent or other obligations in respect of Senior Obligations occurs and is
continuing (a "Payment Default"), unless and until such Payment Default shall
have been cured or waived or shall have ceased to exist; or
(b) a default, other than a Payment Default, on any Designated Senior
Obligations (a "Non-Payment Default") occurs and is continuing that then permits
holders of such Designated Senior Obligations to accelerate its maturity and the
Trustee receives a written notice of the default (a "Payment Blockage Notice")
from a holder of Designated Senior Obligations, a Representative of Designated
Senior Obligations or the Company.
No Non-Payment 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.
The Company may and shall resume payments on and distributions in
respect of the Debentures, including any past scheduled payments of the
principal of, premium, if any, and interest (including Liquidated Damages, if
any) on such Debentures to which the holders of the Debentures would have been
entitled but for the provisions of this Article IV:
(1) in the case of a Payment Default, on the date upon which such
Payment Default is cured or waived or ceases to exist, and
(2) in the case of a Non-Payment Default, the earlier of (i) the date
upon which such default is cured or waived or ceases to exist or
(ii) 179 days after the Payment Blockage Notice is received by
the Trustee if the maturity of such Designated Senior Obligations
has not been accelerated and no Payment Default with respect to
any Senior Obligations has occurred which has not been cured or
waived or ceased to exist (in such event clause (1) above shall
instead be applicable),
unless this Article IV otherwise prohibits the payment or distribution at the
time of such payment or distribution.
Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Obligations shall first be paid in full in cash or other payment
satisfactory to the holders of such Senior Obligations, or payment thereof in
accordance with its terms provided for in cash or other payment satisfactory to
the holders of such Senior Obligations
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before any payment is made on account of the principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Debentures (except
payments made pursuant to Article XIII from monies deposited with the Trustee
pursuant thereto prior to commencement of proceedings for such dissolution,
winding up, liquidation or reorganization); and upon any such dissolution or
winding up or liquidation or reorganization of the Company or bankruptcy,
insolvency, receivership or other proceeding, any payment by the Company, or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the holders of the Debentures or the Trustee
would be entitled, except for the provision of this Article IV, shall (except as
aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the holders of the Debentures or by the Trustee under this Indenture if
received by them or it, directly to the holders of Senior Obligations (pro rata
to such holders on the basis of the respective amounts of Senior Obligations
held by such holders, or as otherwise required by law or a court order) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Obligations
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Senior Obligations in full, in cash or other payment
satisfactory to the holders of such Senior Obligations, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Obligations, before any payment or distribution is made to the holders of the
Debentures or to the Trustee.
For purposes of this Article IV, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article IV with respect
to the Debentures to the payment of all Senior Obligations which may at the time
be outstanding; provided that the Senior Obligations are assumed by the new
corporation, if any, resulting from any reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company into, another
corporation or the liquidation or dissolution of the Company following the
conveyance or transfer of its property as an entirety, or substantially as an
entirety, to another corporation upon the terms and conditions provided for in
Article XII shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 4.2 if such other corporation
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions stated in Article XII.
In the event of the acceleration of the Debentures because of an Event
of Default, no payment or distribution shall be made to the Trustee or any
holder of Debentures in respect of the principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Debentures (including,
but not limited to, the redemption price with respect to the Debentures called
for redemption in accordance with Section 3.2 or submitted for redemption in
accordance with Section 3.5, as the case may be, as provided in the Indenture),
except payments and distributions made by the Trustee as permitted by the first
or second paragraph of Section 4.5, until all Senior Obligations have been paid
in full in cash or other payment satisfactory to the holders of Senior
Obligations or such acceleration is rescinded in accordance with the terms of
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this Indenture. If payment of the Debentures is accelerated because of an Event
of Default, the Company shall promptly notify holders of Senior Obligations of
the acceleration.
In the event that, notwithstanding the foregoing provisions, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (including, without limitation, by way
of setoff or otherwise), prohibited by the foregoing provisions in this Section
4.2, shall be received by the Trustee or the holders of the Debentures before
all Senior Obligations are paid in full in cash or other payment satisfactory to
the holders of such Senior Obligations, or provision is made for such payment
thereof in accordance with its terms in cash or other payment satisfactory to
the holders of such Senior Obligations, such payment or distribution shall be
held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Obligations or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Obligations may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of any Senior Obligations remaining unpaid to the extent necessary to
pay all Senior Obligations in full in cash or other payment satisfactory to the
holders of such Senior Obligations, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Obligations.
Nothing in this Section 4.2 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject
to the further provisions of Section 4.5.
SECTION 4.3. SUBROGATION OF DEBENTURES. Subject to the payment in full
of all Senior Obligations, the rights of the holders of the Debentures shall be
subrogated, to the extent of the payments or distributions made to the holders
of such Senior Obligations pursuant to the provisions of this Article IV
(equally and ratably with the holders of all indebtedness of the Company which
by its express terms is subordinated to other indebtedness of the Company to
substantially the same extent as the Debentures are subordinated and is entitled
to like rights of subrogation), to the rights of the holders of Senior
Obligations to receive payments or distributions of cash, property or securities
of the Company applicable to the Senior Obligations until the principal,
premium, if any, and interest (including Liquidated Damages, if any) on the
Debentures shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of the Senior Obligations of any cash,
property or securities to which the holders of the Debentures or the Trustee
would be entitled except for the provisions of this Article IV, and no payment
over pursuant to the provisions of this Article IV, to or for the benefit of the
holders of Senior Obligations by holders of the Debentures or the Trustee,
shall, as between the Company, its creditors other than holders of Senior
Obligations, and the holders of the Debentures, be deemed to be a payment by the
Company to or on account of the Senior Obligations; and no payments or
distributions of cash, property or securities to or for the benefit of the
holders of the Debentures pursuant to the subrogation provisions of this Article
IV, which would otherwise have been paid to the holders of Senior Obligations
shall be deemed to be a payment by the Company to or for the account of the
Debentures. It is understood that the provisions of this Article IV are and are
intended solely for the purposes of defining the relative
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rights of the holders of the Debentures, on the one hand, and the holders of the
Senior Obligations, on the other hand.
Nothing contained in this Article IV or elsewhere in this Indenture or
in the Debentures is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Obligations, and the holders of the
Debentures, the obligation of the Company, which is absolute and unconditional,
to pay to the holders of the Debentures the principal of, premium, if any, and
interest (including Liquidated Damages, if any) on the Debentures as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the Debentures
and creditors of the Company other than the holders of the Senior Obligations,
nor shall anything herein or therein prevent the Trustee or the holder of any
Debenture from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article IV of the holders of Senior Obligations in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
SECTION 4.4. AUTHORIZATION TO EFFECT SUBORDINATION. Each holder of a
Debenture by the holder's acceptance thereof authorizes and directs the Trustee
on the holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article IV and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in the third paragraph of Section
7.2 hereof at least thirty (30) days before the expiration of the time to file
such claim, the holders of any Senior Obligations or their representatives are
hereby authorized to file an appropriate claim for and on behalf of the holders
of the Debentures.
SECTION 4.5. NOTICE TO TRUSTEE. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Company which would
prohibit the making of any payment of monies to or by the Trustee or any paying
agent in respect of the Debentures pursuant to the provisions of this Article
IV. Notwithstanding the provisions of this Article IV or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts which would prohibit the making of any payment of monies to or by
the Trustee in respect of the Debentures pursuant to the provisions of this
Article IV, unless and until a Responsible Officer of the Trustee shall have
received written notice thereof at the Corporate Trust Office from the Company
(in the form of an Officers' Certificate) or a Representative or a holder or
holders of Senior Obligations or from any trustee thereof; and before the
receipt of any such written notice, the Trustee shall be entitled in all
respects to assume that no such facts exist; provided that if on a date not less
than two (2) Business Days prior to the date upon which by the terms hereof any
such monies may become payable for any purpose (including, without limitation,
the payment of the principal of, or premium, if any, or interest (including
Liquidated Damages, if any) on any Debenture) the Trustee shall not have
received, with respect to such monies, the notice provided for in this Section
4.5, then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to apply monies received to the
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purpose for which they were received, and shall not be affected by any notice to
the contrary which may be received by it on or after such prior date.
Notwithstanding anything in this Article IV to the contrary, nothing
shall prevent any payment by the Trustee to the Debentureholders of monies
deposited with it pursuant to Section 13.1, provided such deposit was not in
violation of this Article IV, and any such payment shall not be subject to the
provisions of Section 4.1 or 4.2.
The Trustee shall be entitled to conclusively rely on the delivery to
it of a written notice by a Representative or a person representing himself or
herself to be a holder of Senior Obligations (or a trustee on behalf of such
holder) to establish that such notice has been given by a Representative or a
holder of Senior Obligations or a trustee on behalf of any such holder or
holders. The Trustee shall not be required to make any payment or distribution
to or on behalf of a holder of Senior Obligations pursuant to this Article IV
unless it has received reasonably satisfactory evidence as to the amount of
Senior Obligations held by such person, the extent to which such person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such person under this Article IV.
SECTION 4.6. TRUSTEE'S RELATION TO SENIOR OBLIGATIONS. The Trustee in
its individual capacity shall be entitled to all the rights set forth in this
Article IV in respect of any Senior Obligations at any time held by it, to the
same extent as any other holder of Senior Obligations, and nothing in Section
8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its
rights as such holder.
With respect to the holders of Senior Obligations, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Obligations shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Obligations.
SECTION 4.7. NO IMPAIRMENT OF SUBORDINATION. No right of any present or
future holder of any Senior Obligations to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof with which any such holder may have or otherwise be charged.
SECTION 4.8. CERTAIN CONVERSIONS NOT DEEMED PAYMENT. For the purposes of
this Article IV only, (1) the issuance and delivery of junior securities upon
conversion of Debentures in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of, premium, if
any, or interest (including Liquidated Damages, if any) on Debentures or on
account of the purchase or other acquisition of Debentures, and (2) the payment,
issuance or delivery of cash (except in satisfaction of fractional shares
pursuant to Section 15.3), property or securities (other than junior securities)
upon conversion of a Debenture
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shall be deemed to constitute payment on account of the principal of, premium,
if any, or interest (including Liquidated Damages, if any) on such Debenture.
For the purposes of this Section 4.8, the term "junior securities" means (a)
shares of any stock of any class of the Company or (b) securities of the Company
that are subordinated in right of payment to all Senior Obligations 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 Debentures
are so subordinated as provided in this Article. Nothing contained in this
Article IV or elsewhere in this Indenture or in the Debentures is intended to or
shall impair, as among the Company, its creditors (other than holders of Senior
Obligations) and the Debentureholders, the right, which is absolute and
unconditional, of the Holder of any Debenture to convert such Debenture in
accordance with Article XV.
SECTION 4.9. ARTICLE APPLICABLE TO PAYING AGENTS. If 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
(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 the first paragraph of Section 4.5
shall not apply to the Company or any Affiliate of the Company if it or such
Affiliate acts as paying agent.
The Trustee shall not be responsible for the actions or inactions of
any other paying agents (including the Company if acting as its own paying
agent) and shall have no control of any funds held by such other paying agents.
SECTION 4.10. SENIOR OBLIGATIONS ENTITLED TO RELY. The holders of Senior
Obligations (including, without limitation, Designated Senior Obligations) shall
have the right to rely upon this Article IV.
SECTION 4.11. 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 and the Debentureholders shall be entitled to
conclusively 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, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
person making such payment or distribution, delivered to the Trustee or to the
Debentureholders, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of Senior Obligations
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.
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ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company
covenants and agrees that it will pay or cause to be paid the principal of and
premium, if any (including upon redemption pursuant to Article III), and
interest (including Liquidated Damages, if any) on each of the Debentures at the
places, at the respective times and in the manner provided herein and in the
Debentures. Each installment of interest on the Debentures due on any semi-
annual interest payment date may be paid either (i) by check mailed to the
address of the person entitled thereto as it appears in the Debenture register;
provided that the holder of Debentures with an aggregate principal amount in
excess of $2,000,000 shall, at the written election of such holder, be paid by
wire transfer in immediately available funds; or (ii) by transfer to an account
maintained by such person located in the United States; provided, however, that
payments to the Depositary will be made by wire transfer of immediately
available funds to the account of Depositary or its nominee.
SECTION 5.2. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain
an office or agency in The Borough of Manhattan, The City of New York, where the
Debentures may be surrendered for registration of transfer or exchange or for
presentation for payment or for conversion or redemption and where notices and
demands to or upon the Company in respect of the Debentures 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 (which
shall initially be located at 770 Broadway, New York, New York 10003).
The Company may also from time to time designate co-registrars and one
or more other offices or agencies where the Debentures may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations. The Company will give prompt written notice of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby initially designates the Trustee as paying agent,
Debenture registrar, Custodian 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 (which shall initially be located at
770 Broadway, New York, New York 10003), shall be considered as one such office
or agency of the Company for each of the aforesaid purposes.
So long as the Trustee is the Debenture registrar, the Trustee agrees
to mail, or cause to be mailed, the notice set forth in Section 8.10(a) and, if
requested by the Company, the notice set forth in the third paragraph of Section
8.11. If co-registrars have been appointed in
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accordance with this Section, the Trustee shall mail such notices only to the
Company and the holders of Debentures it can identify from its records.
SECTION 5.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 5.4 PROVISIONS AS TO PAYING AGENT.
(a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, it will cause such
paying agent to execute and deliver to the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section
5.4:
(1) that it will hold all sums held by it as such agent for the
payment of the principal of and premium, if any, or interest (including
Liquidated Damages, if any) on the Debentures (whether such sums have been
paid to it by the Company or by any other obligor on the Debentures) in
trust for the benefit of the holders of the Debentures;
(2) that it will give the Trustee written notice of any failure
by the Company (or by any other obligor on the Debentures) to make any
payment of the principal of and premium, if any, or interest (including
Liquidated Damages, if any) on the Debentures when the same shall be due
and payable; and
(3) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it will forthwith pay to the Trustee
all sums so held in trust.
The Company shall, on or before each due date of the principal of,
premium, if any, or interest (including Liquidated Damages, if any) on the
Debentures, deposit with the paying agent a sum sufficient to pay such
principal, premium, if any, or interest (including Liquidated Damages, if any),
and (unless such paying agent is the Trustee) the Company will promptly notify
the Trustee of any failure to take such action; provided that if such deposit is
made on the due date, such deposit shall be received by the paying agent by
10:00 a.m. New York City time, on such date.
(b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Debentures, set aside, segregate
and hold in trust for the benefit of the holders of the Debentures a sum
sufficient to pay such principal, premium, if any, or interest (including
Liquidated Damages, if any) so becoming due and will notify the Trustee in
writing of any failure to take such action and of any failure by the Company (or
any other obligor under the Debentures) to make any payment of the principal of,
premium, if any, or interest (including Liquidated Damages, if any) on the
Debentures when the same shall become due and payable.
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(c) Anything in this Section 5.4 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by the Company or any paying agent hereunder
as required by this Section 5.4, such sums to be held by the Trustee upon the
trusts herein contained and upon such payment by the Company or any paying agent
to the Trustee, the Company or such paying agent shall be released from all
further liability with respect to such sums.
(d) Anything in this Section 5.4 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 5.4 is subject to
Sections 13.3 and 13.4.
The Trustee shall not be responsible for the actions of any other
paying agents (including the Company if acting as its own paying agent) and
shall have no control of any funds held by such other paying agents.
SECTION 5.5. EXISTENCE. Subject to Article XII, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence and rights (charter and statutory); provided, however, that
the Company shall not be required to preserve any such right if the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company.
SECTION 5.6. MAINTENANCE OF PROPERTIES. The Company will cause all
properties used or useful in the conduct of its business 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.
SECTION 5.7. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or
discharge, or cause to be paid or discharged, before the same become delinquent,
(i) all taxes, assessments and governmental charges levied or imposed upon the
Company or upon the income, profits or property of the Company, (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 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 Debentures or with respect to this Indenture;
provided, however, 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 effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company, (B) if the
amount, applicability or validity thereof is
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being contested in good faith by appropriate proceedings or (C) in connection
with any transfer or exchange of Debentures under Section 2.5.
SECTION 5.8. RULE 144A INFORMATION REQUIREMENT. Within the period prior
to the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to any holder or
beneficial holder of Debentures or any Common Stock issued upon conversion
thereof (other than a holder or beneficial holder of Debentures or any Common
Stock issued upon conversion thereof that is an Affiliate of the Company) which
continue to be Restricted Securities in connection with any sale thereof and any
prospective purchaser of Debentures or such Common Stock from such holder or
beneficial holder, the information required pursuant to Rule 144A(d)(4) under
the Securities Act upon the request of any holder or beneficial holder of the
Debentures or such Common Stock and it will take such further action as any
holder or beneficial holder of such Debentures or such Common Stock may
reasonably request, all to the extent required from time to time to enable such
holder or beneficial holder to sell its Debentures or Common Stock without
registration under the Securities Act within the limitation of the exemption
provided by Rule 144A, as such Rule may be amended from time to time. Upon the
request of any holder or any beneficial holder of the Debentures or such Common
Stock, the Company will deliver to such holder a written statement as to whether
it has complied with such requirements.
SECTION 5.9. STAY, EXTENSION AND USURY LAWS. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of, premium,
if any, or interest (including Liquidated Damages, if any) on the Debentures as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law has been enacted.
SECTION 5.10. COMPLIANCE CERTIFICATE. The Company shall deliver to the
Trustee, within one hundred twenty (120) days after the end of each fiscal year
of the Company, a certificate signed by either the principal executive officer,
principal financial officer or principal accounting officer of the Company,
stating whether or not to the best knowledge of the signer thereof the Company
is in default in the performance and observance of any of the terms, provisions
and conditions of this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Company shall be in
default, specifying all such defaults and the nature and status thereof of which
the signer may have knowledge.
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The Company will deliver to a Responsible Officer of the Trustee,
promptly upon becoming aware of any default in the performance or observance of
any covenant, agreement or condition contained in this Indenture, or any Event
of Default, an Officers' Certificate identifying with particularity such default
or Event of Default and further stating what action the Company has taken, is
taking or proposes to take with respect thereto.
Any notice required to be given under this Section 5.10 shall be
delivered to the Trustee at its Corporate Trust Office.
ARTICLE VI
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DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
SECTION 6.1. DEBENTUREHOLDERS' LISTS. In the event the Company serves as
the Debenture registrar, the Company covenants and agrees that it will furnish
or cause to be furnished to the Trustee, semiannually, not more than five (5)
days after each February 1 and August 1 in each year beginning with August 1,
1998, and at such other times as the Trustee may request in writing, within
thirty (30) days after receipt by the Company of any such request (or such
lesser time as the Trustee may reasonably request in order to enable it to
timely provide any notice to be provided by it hereunder), a list in such form
as the Trustee may reasonably require of the names and addresses of the holders
of Debentures as of a date not more than five (5) days (or such other date as
the Trustee may reasonably request in order to so provide any such notices)
prior to the time such information is furnished. The foregoing list shall be
furnished by the Trustee to the Company in the event that the Trustee is acting
as the sole Debenture registrar.
SECTION 6.2. PRESERVATION AND DISCLOSURE OF LISTS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 or maintained by the Trustee in its capacity as Debenture registrar
or co-registrar in respect of the Debentures, if so acting. The Trustee may
destroy any list furnished to it as provided in Section 6.1 upon receipt of a
new list so furnished.
(b) The rights of Debentureholders to communicate with other holders
of Debentures with respect to their rights under this Indenture or under the
Debentures, and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
(c) Every Debentureholder, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of Debentures
made pursuant to the Trust Indenture Act.
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SECTION 6.3. REPORTS BY TRUSTEE
(a) Within sixty (60) days after August 15 of each year commencing
with the year 1998, the Trustee shall transmit to holders of Debentures such
reports dated as of August 15 of the year in which such reports are made
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of such report shall, at the time of such transmission to
holders of Debentures, be filed by the Trustee with each stock exchange and
automated quotation system upon which the Debentures are listed and with the
Company. The Company will notify the Trustee in writing within a reasonable
time when the Debentures are listed on any stock exchange or automated quotation
system.
SECTION 6.4. REPORTS BY COMPANY. The Company shall file with the Trustee
(and the Commission if at any time after the Indenture becomes qualified under
the Trust Indenture Act), and transmit to holders of Debentures, such
information, documents and other reports and such summaries thereof, as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act, whether or not the Debentures are governed by
such Act; provided that any such information, documents or reports required to
be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within fifteen (15) days after the same is so
required to be filed with the Commission. Delivery of such reports, information
and documents to the Trustee is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to conclusively rely exclusively on
Officers' Certificates).
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON AN EVENT OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. In case one or more of the following
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
(a) default in the payment of any installment of interest (including
Liquidated Damages, if any) upon any of the Debentures as and when the same
shall become due and payable, and continuance of such default for a period of
thirty (30) days, whether or not such payment is permitted under Article IV
hereof; or
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(b) default in the payment of the principal of or premium, if any, on
any of the Debentures as and when the same shall become due and payable either
at maturity or in connection with any redemption pursuant to Article III, by
acceleration or otherwise, whether or not such payment is permitted under
Article IV hereof; or
(c) failure on the part of the Company to observe or perform any
other of the covenants or agreements on the part of the Company in the
Debentures or in this Indenture (other than a covenant or agreement a default in
whose performance or whose breach is elsewhere in this Section 7.1 specifically
dealt with), which failure has continued for a period of sixty (60) days after
the date on which written notice of such failure, requiring the Company to
remedy the same, shall have been given to the Company by the Trustee, or to the
Company and a Responsible Officer of the Trustee by the holders of at least
twenty-five percent (25%) in aggregate principal amount of the Debentures at the
time outstanding determined in accordance with Section 9.4; or
(d) the Company shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of the
property of the Company, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors; or
(e) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
the property of the Company, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of ninety (90) consecutive days;
then, and in each and every such case (other than an Event of Default
specified in Section 7.1 (d) or (e) with respect to the Company), unless the
principal of all of the Debentures shall have already become due and payable,
either the Trustee or the holders of not less than twenty-five percent (25%) in
aggregate principal amount of the Debentures then outstanding hereunder
determined in accordance with Section 9.4, by notice in writing to the Company
(and to the Trustee if given by Debentureholders), may declare the principal of
and premium, if any, on all the Debentures and the interest accrued thereon
(including Liquidated Damages, if any) to be due and payable immediately, and
upon any such declaration the same shall become and shall be immediately due and
payable, anything in this Indenture or in the Debentures contained to the
contrary notwithstanding. If an Event of Default specified in Section 7. 1(d) or
(e) with respect to the Company occurs, the principal of all the Debentures and
the interest accrued thereon (including Liquidated Damages, if any) shall be
immediately and automatically due and payable without necessity of further
action on the part of the Trustee or the Debentureholders. This provision,
however, is subject to the conditions that if, at any time
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after the principal of the Debentures shall have been so declared due and
payable, and before any judgment or decree for the payment of the monies due
shall have been obtained or entered as hereinafter provided, the Company shall
pay or shall deposit with the Trustee a sum sufficient to pay all matured
installments of interest upon (including Liquidated Damages, if any) all
Debentures and the principal of and premium, if any, on any and all Debentures
which shall have become due otherwise than by acceleration and amounts due to
the Trustee pursuant to Section 8.6, and if any and all defaults under this
Indenture, other than the nonpayment of principal of and premium, if any, and
accrued interest on (including Liquidated Damages, if any) Debentures which
shall have become due by acceleration, shall have been cured or waived pursuant
to Section 7.7, then and, in every such case, the holders of a majority in
aggregate principal amount of the Debentures then outstanding, by written notice
to the Company and to the Trustee, may waive all defaults or Events of Default
and rescind and annul such declaration and its consequences; but no such waiver
or rescission and annulment shall extend to or shall affect any subsequent
default or Event of Default, or shall impair any right consequent thereon. The
Company shall notify, in writing, a Responsible Officer of the Trustee, promptly
upon becoming aware thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such case
the Company, the holders of Debentures, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Debentures, and the Trustee
shall continue as though no such proceeding had been taken.
SECTION 7.2. PAYMENTS OF DEBENTURES ON DEFAULT; SUIT THEREFOR. In the
event that the Trustee or the holders of not less than twenty-five percent (25%)
in aggregate principal amount of the Debentures then outstanding hereunder
determined in accordance with Section 9.4 have declared the principal of and
premium, if any, on all the Debentures and the interest accrued thereon
(including Liquidated Damages, if any) to be due and payable immediately in
accordance with Section 7.1, and the Company shall have failed promptly to pay
such amounts, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any actions or proceedings at law
or in equity for the collection of the sums so due and unpaid (including such
further amounts as shall be sufficient to cover the reasonably incurred costs
and expenses of collection, including reasonable compensation to the Trustee,
its agents, attorneys, custodians, nominees and counsel, and any expenses or
liabilities incurred by the Trustee hereunder other than through its negligence
or bad faith), and may prosecute any such action or proceeding to judgment or
final decree, and may enforce any such judgment or final decree against the
Company or any other obligor on the Debentures and collect in the manner
provided by law out of the property of the Company or any other obligor on the
Debentures wherever situated the monies adjudged or decreed to be payable.
In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Debentures
under Title 11 of the
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United States Code, or any other applicable law, or in case a receiver, assignee
or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar
official shall have been appointed for or taken possession of the Company or
such other obligor, the property of the Company or such other obligor, or in the
case of any other judicial proceedings relative to the Company or such other
obligor upon the Debentures, or to the creditors or property of the Company or
such other obligor, the Trustee, irrespective of whether the principal of the
Debentures shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section 7.2, shall be entitled and empowered,
by intervention in such proceedings or otherwise, to file and prove a claim or
claims for the whole amount of principal, premium, if any, and interest
(including Liquidated Damages, if any) owing and unpaid in respect of the
Debentures, and, in case of any judicial proceedings, to file such proofs of
claim and other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements, and advances of the Trustee, its agents,
and counsel) and of the Debentureholders allowed in such judicial proceedings
relative to the Company or any other obligor on the Debentures, its or their
creditors, or its or their property, and to collect and receive any monies or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of any amounts due the Trustee under Section 8.6; and
any receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
custodian or similar official in any such judicial proceeding, is hereby
authorized by each of the Debentureholders to make such payments to the Trustee
as administrative expenses associated with any such proceeding, and, in the
event that the Trustee shall consent to the making of such payments directly to
the Debentureholders, to pay to the Trustee any amount due it for reasonable
compensation, expenses, advances and disbursements of the Trustee and its
agents, including counsel fees incurred by it up to the date of such
distribution and any other amounts due to the Trustee under Section 8.6 hereof.
To the extent that such payment of reasonable compensation, expenses, advances
and disbursements of the Trustee, its agents, and counsel, and any other amounts
due to the Trustee under Section 8.6 hereof out of the estate in any such
proceedings shall be denied for any reason, payment of the same shall be secured
by a lien on, and shall be paid out of, any and all distributions, dividends,
monies, securities and other property which the holders of the Debentures may be
entitled to receive in such proceedings, whether in liquidation or under any
plan of reorganization or arrangement or otherwise. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Debentureholder any plan or reorganization, arrangement,
adjustment or composition affecting the Debentureholder or the rights of any
Debentureholder thereof, or to authorize the Trustee to vote in respect of the
claim of any Debentureholder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or
under any of the Debentures, may be enforced by the Trustee without the
possession of any of the Debentures, or the production thereof at any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents, attorneys, custodians, nominees and counsel, be for the ratable
benefit of the holders of the Debentures.
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In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Debentures, and it shall not be necessary to make any holders of the
Debentures parties to any such proceedings.
SECTION 7.3. APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any monies
collected by the Trustee pursuant to this Article VII shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Debentures, and stamping
thereon the payment, if only partially paid, and upon surrender thereof, if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
8.6;
SECOND: Subject to the provisions of Article IV, in case the
principal of the outstanding Debentures shall not have become due and be unpaid,
to the payment of interest on (including Liquidated Damages, if any) the
Debentures in default in the order of the maturity of the installments of such
interest, such payments to be made ratably to the persons entitled thereto;
THIRD: Subject to the provisions of Article IV, in case the
principal of the outstanding Debentures shall have become due, by declaration or
otherwise, and be unpaid to the payment of the whole amount then owing and
unpaid upon the Debentures for principal and premium, if any, and interest
(including Liquidated Damages, if any); and in case such monies shall be
insufficient to pay in full the whole amounts so due and unpaid upon the
Debentures, then to the payment of such principal and premium, if any, and
interest (including Liquidated Damages, if any) without preference or priority
of principal and premium, if any, over interest (including Liquidated Damages,
if any), or of interest (including Liquidated Damages, if any) over principal
and premium, if any, or of any installment of interest over any other
installment of interest, or of any Debenture over any other Debenture, ratably
to the aggregate of such principal and premium, if any, and accrued and unpaid
interest; and
FOURTH: Subject to the provisions of Article IV, to the payment of
the remainder, if any, to the Company or any other person lawfully entitled
thereto.
SECTION 7.4. PROCEEDINGS BY DEBENTUREHOLDER. No holder of any Debenture
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided, and unless also the holders of not less than twenty-five
percent (25%) in aggregate principal amount of the Debentures then outstanding
shall have made written request upon the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for sixty (60)
days after its receipt of such notice, request and
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offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding and no direction inconsistent with such written
request shall have been given to the Trustee pursuant to Section 7.7; it being
understood and intended, and being expressly covenanted by the taker and holder
of every Debenture with every other taker and holder and the Trustee, that no
one or more holders of Debentures shall have any right in any manner whatever by
virtue of or by availing of any provision of this Indenture to affect, disturb
or prejudice the rights of any other holder of Debentures, or to obtain or seek
to obtain priority over or preference to any other such holder, or to enforce
any right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Debentures (except as
otherwise provided herein). For the protection and enforcement of this Section
7.4, each and every Debentureholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Debenture, the right of any holder of any Debenture to receive
payment of the principal of and premium, if any (including upon redemption
pursuant to Article III), and accrued interest on (including Liquidated Damages,
if any) such Debenture, on or after the respective due dates expressed in such
Debenture or in the event of redemption, shall not be impaired or affected
without the consent of such holder.
Anything in this Indenture or the Debentures to the contrary
notwithstanding, the holder of any Debenture, without the consent of either the
Trustee or the holder of any other Debenture, in its own behalf and for its own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, its rights of conversion as provided herein.
SECTION 7.5. PROCEEDINGS BY TRUSTEE. In case of an Event of Default the
Trustee may, in its discretion, proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
SECTION 7.6. REMEDIES CUMULATIVE AND CONTINUING. Except as provided in
Section 2.6, all powers and remedies given by this Article VII to the Trustee or
to the Debentureholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other powers and remedies
available to the Trustee or the holders of the Debentures, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Debentures to exercise any right
or power accruing upon any default or Event of Default occurring and continuing
as aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein; and, subject to the
provisions of Section 7.4, every power and remedy given by this Article VII or
by law to the
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Trustee or to the Debentureholders may be exercised from time to time, and as
often as shall be deemed expedient, by the Trustee or by the Debentureholders.
SECTION 7.7. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY
OF DEBENTUREHOLDERS. The holders of a majority in aggregate principal amount of
the Debentures at the time outstanding determined in accordance with Section 9.4
shall have the right to direct in writing the time, method, and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, however, that (a) such
direction shall not be in conflict with any rule of law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction and (c) the Trustee may decline to take any
action that would benefit some Debentureholders to the detriment of other
Debentureholders. The holders of a majority in aggregate principal amount of
the Debentures at the time outstanding determined in accordance with Section 9.4
may on behalf of the holders of all of the Debentures waive any past default or
Event of Default hereunder and its consequences except (i) a default in the
payment of interest or premium, if any, on, or the principal of, the Debentures
which has not been cured pursuant to the provisions of Section 7.1, (ii) a
failure by the Company to convert any Debentures into Common Stock, (iii) a
default in the payment of redemption price pursuant to Article III or (iv) a
default in respect of a covenant or provisions hereof which under Article XI
cannot be modified or amended without the consent of the holders of all
Debentures then outstanding. Upon any such waiver, the Company, the Trustee and
the holders of the Debentures shall be restored to their former positions and
rights hereunder; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon. Whenever
any default or Event of Default hereunder shall have been waived as permitted by
this Section 7.7, said default or Event of Default shall for all purposes of the
Debentures and this Indenture be deemed to have been cured and to be not
continuing; but no such waiver shall extend to any subsequent or other default
or Event of Default or impair any right consequent thereon.
SECTION 7.8. NOTICE OF DEFAULTS. The Trustee shall, within ninety (90)
days after a Responsible Officer of the Trustee has actual knowledge of the
occurrence of a default, mail to all Debentureholders, as the names and
addresses of such holders appear upon the Debenture register, notice of all
defaults actually known to a Responsible Officer, unless such defaults shall
have been cured or waived before the giving of such notice; provided that,
except in the case of default in the payment of the principal of, or premium, if
any, or interest (including Liquidated Damages, if any) on any of the
Debentures, 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 and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the Debentureholders.
SECTION 7.9. UNDERTAKING TO PAY COSTS. All parties to this Indenture
agree, and each holder of any Debenture by such holder's acceptance thereof
shall be deemed to have agreed, that any court may, in its discretion, require,
in any suit for the enforcement of any right or remedy under this Indenture, or
in any suit against the Trustee for any action taken or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such
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suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided that the provisions of this Section 7.9 (to the
extent permitted by law) shall not apply to any suit instituted by the Trustee,
to any suit instituted by any Debentureholder, or group of Debentureholders,
holding in the aggregate more than ten percent (10%) in principal amount of the
Debentures at the time outstanding determined in accordance with Section 9.4, or
to any suit instituted by any Debentureholder for the enforcement of the payment
of the principal of or premium, if any, or interest (including Liquidated
Damages, if any) on any Debenture on or after the due date expressed in such
Debenture or to any suit for the enforcement of the right to convert any
Debenture in accordance with the provisions of Article XV.
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE. The Trustee, prior
to the occurrence of an Event of Default with respect to the Debentures and
after the curing of all Events of Default with respect to the Debentures which
may have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default with
respect to the Debentures has occurred (which has not been cured or waived) the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture and the Trust
Indenture Act, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in
this Indenture and no implied covenants or obligations shall be read into
this Indenture and the Trust Indenture Act against the Trustee; and
(2) in the absence of bad faith and willful misconduct on the
part of the Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but, in the case of any such certificates
or opinions which by any provisions hereof are specifically required
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to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless the
Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the written
direction of the holders of not less than a majority in principal amount of the
Debentures at the time outstanding determined as provided in Section 9.4
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture with respect to the Debentures;
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or affording
protection to, the Trustee shall be subject to the provisions of this Section;
(e) the Trustee shall not be liable in respect of any payment (as to
the correctness of amount, entitlement to receive or any other matters relating
to payment) or notice effected by the Company or any paying agent or any records
maintained by any co-registrar with respect to the Debentures;
(f) if any party fails to deliver a notice relating to an event the
fact of which, pursuant to this Indenture, requires notice to be sent to the
Trustee, the Trustee may conclusively rely on its failure to receive such notice
as reason to act as if no such event occurred;
(g) in no event shall the Trustee be liable for the selection of
investments or for investment losses incurred thereon or for losses incurred as
a result of the liquidation of any such investment prior to its stated maturity
or the failure of the party directing such investment to provide timely written
investment direction, and the Trustee shall have no obligation to invest or
reinvest any amounts held hereunder in the absence of such written investment
direction; and
(h) in the event that the Trustee is also acting as Custodian,
Debenture registrar, paying agent, conversion agent or transfer agent hereunder,
the rights and protections afforded to the Trustee pursuant to this Article VIII
shall also be afforded to such Custodian, Debenture registrar, paying agent,
conversion agent or transfer agent.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there is reasonable ground for believing that the
repayment of such funds or adequate indemnity against such risk or liability is
not assured to it.
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SECTION 8.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as otherwise
provided in Section 8.1:
(a) the Trustee may conclusively rely and shall be fully protected in
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, note, debenture, coupon or other paper or
document believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties and the Trustee need not investigate
any fact or matter stated in the document;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the Secretary or an Assistant Secretary of the Company;
(c) before the Trustee acts or refrains from acting, the Trustee may
consult with counsel and require an Opinion of Counsel and any advice or Opinion
of Counsel shall be full and complete authorization and protection in respect of
any action taken or omitted by it hereunder in good faith and in accordance with
such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
security or indemnity reasonably satisfactory to it against the costs, expenses
and liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney;
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent, attorney, custodian or
nominee appointed by it with due care hereunder; and
(g) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and the Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officer's Certificate.
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SECTION 8.3. NO RESPONSIBILITY FOR RECITALS, ETC. The recitals contained
herein and in the Debentures (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures. The Trustee shall not be accountable for the use or application by
the Company of any Debentures or the proceeds of any Debentures authenticated
and delivered by the Trustee in conformity with the provisions of this
Indenture.
SECTION 8.4. TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY
OWN DEBENTURES. The Trustee, any paying agent, any conversion agent or
Debenture registrar, in its individual or any other capacity, may become the
owner or pledgee of Debentures with the same rights it would have if it were not
Trustee, paying agent, conversion agent or Debenture registrar.
SECTION 8.5. MONIES TO BE HELD IN TRUST. Subject to the provisions of
Section 13.4 and Section 4.2, all monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as may be agreed from time to time by the Company and the Trustee.
SECTION 8.6. COMPENSATION, EXPENSES AND INDEMNITY OF TRUSTEE. The
Company covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to, reasonable compensation for all services rendered
by it hereunder in any capacity (which shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust) as mutually
agreed to in writing between the Company and the Trustee, and the Company will
pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence, willful misconduct, recklessness or
bad faith. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents, accountants, experts and
counsel and any taxes or other expenses incurred by a trust created pursuant to
Section 13.1 hereof. The Company also covenants to indemnify the Trustee (or
any officer, director, agent or employee of the Trustee) in any capacity under
this Indenture and any other documents and transactions entered into in
connection herewith and to hold them harmless against, any loss, liability or
expense incurred without negligence, willful misconduct, recklessness, or bad
faith on the part of the Trustee or such officers, directors, agents or
employees, as the case may be, to the extent arising out of or in connection
with the acceptance or administration of this trust, including the reasonable
costs and expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of its powers or duties in
any capacity hereunder. The obligations of the Company under this Section 8.6
to compensate or indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall be secured by a lien prior to that of
the Debentures upon all property and funds held or collected by the Trustee as
such, except funds held in trust
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for the benefit of the holders of particular Debentures. The Trustee's right
to receive payment of any amounts due under this Section 8.6 shall not be
subordinate to any other liability or indebtedness of the Company (even though
the Debentures may be so subordinated). The obligation of the Company under
this Section shall survive the satisfaction and discharge of this Indenture and
the earlier removal or resignation of the Trustee.
When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in Section
7.1(d) or (e) with respect to the Company occurs, the expenses (including the
reasonable fees and expenses of its agents and counsel) and the compensation for
the services shall be preferred over the status of the Debentureholders in a
proceeding under any bankruptcy, insolvency or other law and are intended to
constitute expenses of administration under any bankruptcy, insolvency or other
law. The Company's obligations under this Section 8.6 and any claim arising
hereunder shall survive the resignation and removal of any Trustee, the
discharge of the Company's obligations pursuant to Article XIII and any
rejection or termination under any bankruptcy, insolvency or other law.
SECTION 8.7. OFFICERS' CERTIFICATE AS EVIDENCE. Whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
omitting any action hereunder, such matter (unless other evidence in respect
thereof be herein specifically prescribed) may, in the absence of negligence,
willful misconduct, recklessness, or bad faith on the part of the Trustee, be
deemed to be conclusively proved and established by an Officers' Certificate
delivered to the Trustee.
SECTION 8.8. CONFLICTING INTERESTS OF TRUSTEE. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
SECTION 8.9. ELIGIBILITY OF TRUSTEE. There shall at all times be a
Trustee hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000 (or if such Person is a member of a bank holding company system, its
bank holding company shall have a combined capital and surplus of at least
$50,000,000). If such person publishes reports of condition at least annually,
pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 8.10. RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign by giving written notice of
such resignation to the Company and to the holders of Debentures. Upon
receiving such notice of
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resignation, the Company shall promptly appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee. If no successor trustee shall have been so appointed and
have accepted appointment sixty (60) days after the mailing of such notice of
resignation to the Debentureholders, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee, or
any Debentureholder who has been a bona fide holder of a Debenture or Debentures
for at least six (6) months may, subject to the provisions of Section 7.9, on
behalf of himself and all others similarly situated, petition any such court for
the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8 after
written request therefor by the Company or by any Debentureholder who has
been a bona fide holder of a Debenture or Debentures for at least six (6)
months; or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.9 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 7.9, any Debentureholder who has been a bona fide holder
of a Debenture or Debentures for at least six (6) months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
trustee; provided that if no successor Trustee shall have been appointed and
have accepted appointment sixty (60) days after either the Company or the
Debentureholders has removed the Trustee, the Trustee so removed may petition
any court of competent jurisdiction for an appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless within ten (10) days after notice to the Company of such
nomination the Company objects thereto, in which case the Trustee so removed or
any Debentureholder, upon the terms and conditions and otherwise as in Section
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8.10(a) provided, may petition any court of competent jurisdiction for an
appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.11.
SECTION 8.11. ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any and all amounts then due and owing to it hereunder, execute
and deliver an instrument transferring to such successor trustee all the rights
and powers of the trustee so ceasing to act. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a
lien upon all property and funds held or collected by such trustee as such,
except for funds held in trust for the benefit of holders of particular
Debentures, to secure any amounts then due it hereunder.
No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, the Company (or the former trustee, at the written direction
and at the expense of the Company) shall mail or cause to be mailed notice of
the succession of such trustee hereunder to the holders of Debentures at their
addresses as they shall appear on the Debenture register. If the Company fails
to mail such notice within ten (10) days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Company.
SECTION 8.12. SUCCESSION BY MERGER, ETC. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee (including any trust created
by this Indenture), shall be the successor to the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that in the case of any corporation succeeding to all
or substantially all of the corporate trust business of the Trustee such
corporation shall be qualified under the provisions of Section 8.8 and eligible
under the provisions of Section 8.9.
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In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Debentures shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee or authenticating agent
appointed by such predecessor trustee, and deliver such Debentures so
authenticated; and in case at that time any of the Debentures shall not have
been authenticated, any successor to the Trustee or an authenticating agent
appointed by such successor trustee may authenticate such Debentures either in
the name of any predecessor trustee hereunder or in the name of the successor
trustee; and in all such cases such certificates shall have the full force which
it is anywhere in the Debentures or in this Indenture provided that the
certificate of the Trustee shall have; provided, however, that the right to
adopt the certificate of authentication of any predecessor Trustee or
authenticate Debentures in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS. If and when the Trustee
shall be or become a creditor of the Company (or any other obligor upon the
Debentures), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
SECTION 8.14. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY.
Any application by the Trustee for written instructions from the Company (other
than with regard to any action proposed to be taken or omitted to be taken by
the Trustee that affects the rights of the holders of the Debentures or holders
of Senior Obligations under this Indenture, including, without limitation, under
Article IV hereof) may, at the option of the Trustee, set forth in writing any
action proposed to be taken or omitted by the Trustee under this Indenture and
the date on and/or after which such action shall be taken or such omission shall
be effective. The Trustee shall not be liable for any action taken by, or
omission of, the Trustee in accordance with a proposal included in such
application on or after the date specified in such application (which date shall
not be less than three (3) Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Trustee shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
ARTICLE IX
CONCERNING THE DEBENTUREHOLDERS
SECTION 9.1. ACTION BY DEBENTUREHOLDERS. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Debentures may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action, the holders
of such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Debentureholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Debentures
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voting in favor thereof at any meeting of Debentureholders duly called and held
in accordance with the provisions of Article X, or (c) by a combination of such
instrument or instruments and any such record of such a meeting of
Debentureholders. Whenever the Company or the Trustee solicits the taking of
any action by the holders of the Debentures, the Company or the Trustee may fix
in advance of such solicitation, a date as the record date for determining
holders entitled to take such action. The record date shall be not more than
fifteen (15) days prior to the date of commencement of solicitation of such
action.
SECTION 9.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Debentureholder or its agent or proxy shall be sufficient if
made in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The holding of Debentures shall be proved by the registry of such
Debentures or by a certificate of the Debenture registrar.
The record of any Debentureholders' meeting shall be proved in the
manner provided in Section 10.6.
SECTION 9.3. WHO ARE DEEMED ABSOLUTE OWNERS. Subject to Section 2.3, the
Company, the Trustee, any paying agent, any conversion agent and any Debenture
registrar may deem the person in whose name such Debenture shall be registered
upon the Debenture register to be, and may treat it as, the absolute owner of
such Debenture (whether or not such Debenture shall be overdue and
notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal of, premium, if
any, and interest on such Debenture, for conversion of such Debenture and for
all other purposes; and neither the Company nor the Trustee nor any paying agent
nor any conversion agent nor any Debenture registrar shall be affected by any
notice to the contrary. All such payments so made to any holder for the time
being, or upon his order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for monies payable
upon any such Debenture.
SECTION 9.4. COMPANY-OWNED DEBENTURES DISREGARDED. In determining whether
the holders of the requisite aggregate principal amount of Debentures have
concurred in any direction, consent, waiver or other action under this
Indenture, Debentures which are owned by the Company or any other obligor on the
Debentures or any Affiliate of the Company or any other obligor on the
Debentures shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, consent, waiver
or other action only Debentures which a Responsible Officer actually knows are
so owned shall be so disregarded. Debentures so owned which have been pledged in
good faith may be regarded as outstanding for the purposes of this Section 9.4
if the pledgee shall establish to the satisfaction of the Trustee the pledgee's
right to vote such Debentures and that the pledgee is not the Company, any other
obligor on the Debentures or any Affiliate of the Company or any such other
obligor. In the case of a dispute as to such right, any decision by the Trustee
taken upon the advice of counsel shall
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be full protection to the Trustee. Upon request of the Trustee, the Company
shall furnish to the Trustee promptly an Officers' Certificate listing and
identifying all Debentures, if any, known by the Company to be owned or held by
or for the account of any of the above described persons; and, subject to
Section 8.1, the Trustee shall be entitled to accept such Officers' Certificate
as conclusive evidence of the facts therein set forth and of the fact that all
Debentures not listed therein are outstanding for the purpose of any such
determination.
SECTION 9.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Debentures specified in this Indenture in connection
with such action, any holder of a Debenture which is shown by the evidence to be
included in the Debentures the holders of which have consented to such action
may, by filing written notice with the Trustee at its Corporate Trust Office and
upon proof of holding as provided in Section 9.2, revoke such action so far as
concerns such Debenture. Except as aforesaid, any such action taken by the
holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture and of any Debentures
issued in exchange or substitution therefor, irrespective of whether any
notation in regard thereto is made upon such Debenture or any Debenture issued
in exchange or substitution therefor.
ARTICLE X
DEBENTUREHOLDERS' MEETINGSV
SECTION 10.1. PURPOSE OF MEETINGS. A meeting of Debentureholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(1) to give any notice to the Company or to the Trustee or
to give any directions to the Trustee permitted under this Indenture, or to
consent to the waiving of any default or Event of Default hereunder and its
consequences, or to take any other action authorized to be taken by
Debentureholders pursuant to any of the provisions of Article VII;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VIII;
(3) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Section 11.2;
or
(4) to take any other action authorized to be taken by or
on behalf of the holders of any specified aggregate principal amount of the
Debentures under any other provision of this Indenture or under applicable
law.
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SECTION 10.2. CALL OF MEETINGS BY TRUSTEE. The Trustee may, at the
expense of the Company, at any time call a meeting of Debentureholders to take
any action specified in Section 10.1, to be held at such time and at such place
as the Trustee shall determine. Notice of every meeting of the
Debentureholders, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting and the
establishment of any record date pursuant to Section 9.1, shall be mailed to
holders of Debentures at their addresses as they shall appear on the Debenture
register. Such notice shall also be mailed to the Company. Such notices shall
be mailed not less than twenty (20) nor more than ninety (90) days prior to the
date fixed for the meeting.
Any meeting of Debentureholders shall be valid without notice if the
holders of all Debentures then outstanding are present in person or by proxy or
if notice is waived before or after the meeting by the holders of all Debentures
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
SECTION 10.3. CALL OF MEETINGS BY COMPANY OR DEBENTUREHOLDERS. In case at
any time the Company, pursuant to a resolution of its Board of Directors, or the
holders of at least ten percent (10%) in aggregate principal amount of the
Debentures then outstanding, shall have requested the Trustee to call a meeting
of Debentureholders, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within twenty (20) days after receipt of such
request, then the Company or such Debentureholders may determine the time and
the place for such meeting and call such meeting to take any action authorized
in Section 10.1, by mailing notice thereof as provided in Section 10.2.
SECTION 10.4. QUALIFICATIONS FOR VOTING. To be entitled to vote at any
meeting of Debentureholders a person shall (a) be a holder of one or more
Debentures on the record date pertaining to such meeting or (b) be a person
appointed by an instrument in writing as proxy by a holder of one or more
Debentures. The only persons who shall be entitled to be present or to speak at
any meeting of Debentureholders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its counsel
and any representatives of the Company and its counsel.
SECTION 10.5. REGULATIONS. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Debentureholders, in regard to proof of the holding
of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Debentureholders as provided in Section 10.3, in which case the
Company or the Debentureholders calling the
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meeting, as the case may be, shall in like manner appoint a temporary chairman.
A permanent chairman and a permanent secretary of the meeting shall be elected
by vote of the holders of a majority in principal amount of the Debentures
represented at the meeting and entitled to vote at the meeting.
Subject to the provisions of Section 9.4, at any meeting each
Debentureholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Debentures held or represented by such holder; provided,
however, that no vote shall be cast or counted at any meeting in respect of any
Debenture challenged as not outstanding and ruled by the chairman of the meeting
to be not outstanding. The chairman of the meeting shall have no right to vote
other than by virtue of Debentures held by such chairman or instruments in
writing as aforesaid duly designating such chairman as the proxy to vote on
behalf of other Debentureholders. Any meeting of Debentureholders duly called
pursuant to the provisions of Section 10.2 or 10.3 may be adjourned from time to
time by the holders of a majority of the aggregate principal amount of
Debentures represented at the meeting, whether or not constituting a quorum, and
the meeting may be held as so adjourned without further notice.
SECTION 10.6. VOTING. The vote upon any resolution submitted to any
meeting of Debentureholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Debentures or of their
representatives by proxy and the principal amount of the Debentures held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record in duplicate of the proceedings of each meeting of Debentureholders shall
be prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was mailed as provided in Section 10.2. The record shall show the
principal amount of the Debentures voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
SECTION 10.7. NO DELAY OF RIGHTS BY MEETING. Nothing in this Article X
contained shall be deemed or construed to authorize or permit, by reason of any
call of a meeting of Debentureholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the
Debentureholders under any of the provisions of this Indenture or of the
Debentures.
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ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF DEBENTUREHOLDERS.
The Company, when authorized by the resolutions of the Board of Directors, and
the Trustee, at the Company's expense, may from time to time and at any time
enter into an indenture or indentures supplemental hereto to supplement or amend
this Indenture for one or more of the following purposes:
(a) to make provision with respect to the conversion rights of the
holders of Debentures pursuant to the requirements of Section 15.6 and the
redemption obligations of the Company pursuant to the requirements of Section
3.5(e);
(b) subject to Article IV, to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Debentures, any property or assets;
(c) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor corporation of
the covenants, agreements and obligations of the Company pursuant to Article
XII;
(d) to add to the covenants of the Company such further covenants,
restrictions or conditions as the Board of Directors and the Trustee shall
consider to be for the benefit of the holders of Debentures, and to make the
occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions or conditions a default or an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, however, that in
respect of any such additional covenant, restriction or condition such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of Debentures in
coupon form (including Debentures registrable as to principal only) and to
provide for exchangeability of such Debentures with the Debentures issued
hereunder in fully registered form and to make all appropriate changes for such
purpose;
(f) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture; or to make such other changes or provisions in regard to matters or
questions arising under this Indenture which shall not materially adversely
affect the rights of the holders of the Debentures;
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(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Debentures; or
(h) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the Trust Indenture Act, or under any similar federal statute
hereafter enacted.
Upon the written request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any supplemental indenture, the Trustee
is hereby authorized to join with the Company in the execution of any such
supplemental indenture, to make any further appropriate agreements and
stipulations which may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any supplemental indenture
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section 11.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Debentures at the time outstanding, notwithstanding
any of the provisions of Section 11.2.
Notwithstanding any other provision of the Indenture or the
Debentures, the Registration Rights Agreement and the obligation to pay
Liquidated Damages thereunder may be amended, modified or waived in accordance
with the provisions of the Registration Rights Agreement.
SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Article IX) of the holders of not
less than a majority in aggregate principal amount of the Debentures at the time
outstanding, the Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may, at the Company's expense, from time to time and
at any time enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, amending or changing in any manner or
eliminating any of the provisions of this Indenture or any supplemental
indenture or of modifying in any manner the rights of the holders of the
Debentures; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Debenture, or reduce the rate or extend the
time of payment of interest thereon, or reduce the principal amount thereof or
premium, if any, thereon, or reduce any amount payable on redemption thereof, or
impair the right of any Debentureholder to institute suit for the payment
thereof, or make the principal thereof or interest or premium, if any, thereon
payable in any coin or currency other than that provided in the Debentures, or
modify the provisions of this Indenture with respect to the subordination of the
Debentures in a manner adverse to the Debentureholders in any material respect,
or change the obligation of the Company to redeem any Debenture upon the
happening of a Fundamental Change in a manner adverse to the holder of
Debentures, or impair the right to convert the Debentures into Common Stock
subject to the terms set forth herein including Section 15.6, in each case,
without the consent of the holder of each Debenture so affected, or
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(ii) reduce the aforesaid percentage of Debentures, the holders of which are
required to consent to any such supplemental indenture, without the consent of
the holders of all Debentures then outstanding.
Upon the written request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of evidence of the consent of Debentureholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Debentureholders
under this Section 11.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURE. Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect; provided that this Section 11.3
shall not require such supplemental indenture or the Trustee to be qualified
under the Trust Indenture Act prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act, nor shall it constitute any admission
or acknowledgment by any party to such supplemental indenture that any such
qualification is required prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article XI, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the
respective rights, limitation of rights; obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Debentures
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 11.4. NOTATION ON DEBENTURES. Debentures authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article XI may bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company or the Trustee shall so determine, new Debentures so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any
modification of this Indenture contained in any such supplemental indenture may,
at the Company's expense, be prepared and executed by the Company, authenticated
by the Trustee (or an authenticating agent duly appointed by the Trustee
pursuant to Section 16.11) and delivered in exchange for the Debentures then
outstanding, upon surrender of such Debentures then outstanding.
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SECTION 11.5. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TO TRUSTEE. Prior to entering into any supplemental indenture, the
Trustee may request an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 12.1. COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS. Subject to
the provisions of Section 12.2 and notwithstanding anything to the contrary in
this Indenture, the Company shall not consolidate with or merge with or into any
other Person (whether or not affiliated with the Company), or sell, convey or
lease all or substantially all of its assets or properties to any Person unless
the Person formed by such consolidation or into which the Company is merged or
the Person which acquires by conveyance or transfer or which leases the assets
or properties of the Company substantially as an entirety shall be a corporation
organized under the laws of the United States of America, any state thereof or
the District of Columbia. Further, upon any such consolidation, merger, sale,
conveyance or lease, the due and punctual payment of the principal of and
premium, if any, and interest (including Liquidated Damages, if any) on all of
the Debentures, according to their terms, and the due and punctual performance
and observance of all of the covenants and conditions of this Indenture to be
performed by the Company, shall be expressly assumed by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to the Trustee by
the corporation (if other than the Company) formed by such consolidation, or
into which the Company shall have been merged, or by the corporation which shall
have acquired or leased such property, and such supplemental indenture shall
provide for the applicable conversion rights set forth in Section 15.6.
SECTION 12.2. SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any
such consolidation, merger, sale, conveyance or lease and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Debentures and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of Centocor, Inc. any or all of the Debentures
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Debentures which previously
shall have been signed and delivered by the officers of the Company to the
Trustee for authentication, and any Debentures which such successor corporation
thereafter shall cause to be signed and delivered to the Trustee for that
purpose. All
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the Debentures so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Debentures theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Debentures
had been issued at the date of the execution hereof. In the event of any such
consolidation, merger, sale, conveyance or lease, the person named as the
"Company" in the first paragraph of this Indenture or any successor which shall
thereafter have become such in the manner prescribed in this Article XII may be
dissolved, wound up and liquidated at any time thereafter and such person shall
be released from its liabilities as obligor and maker of the Debentures and from
its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Debentures thereafter to be issued as may be appropriate.
SECTION 12.3. OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee shall
receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any such consolidation, merger, sale, conveyance or lease and any
such assumption complies with the provisions of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 13.1. DISCHARGE OF INDENTURE. When (a) the Company delivers to
the Trustee for cancellation all Debentures theretofore authenticated (other
than any Debentures which have been destroyed, lost or stolen and in lieu of or
in substitution for which other Debentures shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Debentures not
theretofore canceled or delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company deposits with the Trustee, in trust, funds sufficient to pay at maturity
or upon redemption of all of the Debentures (other than any Debentures which
shall have been mutilated, destroyed, lost or stolen and in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered) not theretofore canceled or delivered to the Trustee for
cancellation, including principal and premium, if any, and interest due or to
become due to such date of maturity or redemption date, as the case may be,
accompanied by a verification report, as to the sufficiency of the deposited
amount, from an independent certified accountant or other financial professional
satisfactory to the Trustee, and if the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect (except as to (i) remaining rights of registration
of transfer, substitution and exchange and conversion of Debentures, (ii) rights
hereunder of Debentureholders to receive payments of principal of and premium,
if any, and interest on, the Debentures and the other rights, duties and
obligations of Debentureholders, as beneficiaries hereof with respect to the
amounts, if any, so deposited with the Trustee, (iii) the rights,
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obligations and immunities of the Trustee hereunder and (iv) the obligations of
the Company under Section 8.6), and the Trustee, on written demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel as
required by Section 16.5 and at the cost and expense of the Company, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture; the Company, however, hereby agreeing to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred by the Trustee
and to compensate the Trustee for any services thereafter reasonably and
properly rendered by the Trustee in connection with this Indenture or the
Debentures.
SECTION 13.2. DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE. Subject to
Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1,
provided such deposit was not in violation of Article IV, shall be held in trust
for the sole benefit of the Debentureholders and shall not be subject to the
subordination provisions of Article IV, and such monies shall be applied by the
Trustee to the payment, either directly or through any paying agent (including
the Company if acting as its own paying agent), to the holders of the particular
Debentures for the payment or redemption of which such monies have been
deposited with the Trustee, of all sums due and to become due thereon for
principal and interest and premium, if any.
SECTION 13.3. PAYING AGENT TO REPAY MONIES HELD. Upon the satisfaction
and discharge of this Indenture, all monies then held by any paying agent of the
Debentures (other than the Trustee) shall, upon written request of the Company,
be repaid to it or paid to the Trustee, and thereupon such paying agent shall be
released from all further liability with respect to such monies.
SECTION 13.4. RETURN OF UNCLAIMED MONIES. Subject to the requirements of
applicable law, any monies deposited with or paid to the Trustee for payment of
the principal of, premium, if any, or interest (including Liquidated Damages, if
any) on Debentures and not applied but remaining unclaimed by the holders of
Debentures for two years after the date upon which the principal of, premium, if
any, or interest (including Liquidated Damages, if any) on such Debentures, as
the case may be, shall have become due and payable, shall be repaid to the
Company by the Trustee on written demand and all liability of the Trustee shall
thereupon cease with respect to such monies; and the holder of any of the
Debentures shall thereafter look only to the Company for any payment which such
holder may be entitled to collect unless an applicable abandoned property law
designates another Person.
SECTION 13.5. REINSTATEMENT. If the Trustee or the paying agent is unable
to apply any money in accordance with Section 13.2 by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Debentures shall be revived and reinstated as though no
deposit had occurred pursuant to Section 13.1 until such time as the Trustee or
the paying agent is permitted to apply all such money in accordance with Section
13.2; provided, however, that if the Company makes any payment of interest on or
principal of any Debenture following the reinstatement of its obligations, the
Company shall be subrogated to the rights of
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the holders of such Debentures to receive such payment from the money held by
the Trustee or paying agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 14.1. INDENTURE AND DEBENTURES SOLELY CORPORATE OBLIGATIONS. No
recourse for the payment of the principal of or premium, if any, or interest
(including Liquidated Damages, if any) on any Debenture, or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Indenture or in any
supplemental indenture or in any Debenture, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
stockholder, employee, agent, officer, or director or subsidiary, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the
Debentures.
ARTICLE XV
CONVERSION OF DEBENTURES
SECTION 15.1. RIGHT TO CONVERT. Subject to and upon compliance with the
provisions of this Indenture, including without limitation Article IV, the
holder of any Debenture shall have the right, at its option, at any time after
ninety (90) days following the latest date of original issuance thereof through
the close of business on February 15, 2005 (except that, with respect to any
Debenture or portion of a Debenture which shall be called for redemption, such
right shall terminate, except as provided in Section 15.2 or Section 3.4, at the
close of business on the fifth Business Day next preceding the date fixed for
redemption of such Debenture or portion of a Debenture unless the Company shall
default in payment due upon redemption thereof) to convert the principal amount
of any such Debenture, or any portion of such principal amount which is $1,000
or an integral multiple thereof, into that number of fully paid and non-
assessable shares of Common Stock (as such shares shall then be constituted)
obtained by dividing the principal amount of the Debenture or portion thereof
surrendered for conversion by the Conversion Price in effect at such time, by
surrender of the Debenture so to be converted in whole or in part in the manner
provided, together with any required funds, in Section 15.2. A Debenture in
respect of which a holder is exercising its option to require redemption upon a
Fundamental Change pursuant to Section 3.5 may be converted only if such holder
withdraws its election to exercise in accordance with Section 3.5. A holder of
Debentures is not entitled to any rights of a holder of Common Stock until such
holder has converted its Debentures to Common Stock, and only
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to the extent such Debentures are deemed to have been converted to Common Stock
under this Article XV.
SECTION 15.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK
ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to exercise
the conversion privilege with respect to any Debenture in certificated form, the
holder of any such Debenture to be converted in whole or in part shall surrender
such Debenture, duly endorsed, at an office or agency maintained by the Company
pursuant to Section 5.2, accompanied by the funds, if any, required by the
penultimate paragraph of this Section 15.2, and shall give written notice of
conversion in the form provided on the Debentures (or such other notice which is
acceptable to the Company) to the office or agency at which the holder elects to
convert such Debenture or the portion thereof specified in said notice. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 15.7. Each such Debenture
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as the registration of such Debenture, be duly
endorsed by, or be accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the holder or such holder's duly authorized
attorney.
In order to exercise the conversion privilege with respect to any
interest in a Debenture in global form, the holder must complete the appropriate
instruction form for conversion pursuant to the Depository's book-entry
conversion program, deliver by book-entry delivery an interest in such Debenture
in global form, furnish appropriate endorsements and transfer documents if
required by the Company or the Trustee or conversion agent, and pay the funds,
if any, required by this Section 15.2 and any transfer taxes if required
pursuant to Section 15.7.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Debentureholder (as if such transfer were a transfer of the
Debenture or Debentures (or portion thereof) so converted), the Company shall
issue and shall deliver to such holder at the office or agency maintained by the
Company for such purpose pursuant to Section 5.2, a certificate or certificates
for the number of full shares of Common Stock issuable upon the conversion of
such Debenture or portion thereof in accordance with the provisions of this
Article and a check or cash in respect of any fractional interest in respect of
a share of Common Stock arising upon such conversion, as provided in Section
15.3. In case any Debenture of a denomination greater than $1,000 shall be
surrendered for partial conversion, and subject to Section 2.3, the Company
shall execute and the Trustee shall authenticate and deliver to the holder of
the Debenture so surrendered, at the Company's expense, a new Debenture or
Debentures in authorized denominations in an aggregate principal amount equal to
the unconverted portion of the surrendered Debenture.
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Each conversion shall be deemed to have been effected as to any such
Debenture (or portion thereof) on the date on which the requirements set forth
above in this Section 15.2 have been satisfied as to such Debenture (or portion
thereof), and the person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Debenture shall be surrendered.
Any Debenture or portion thereof surrendered for conversion during the
period from (but excluding) a record date for any interest payment date to (but
excluding) such interest payment date shall (unless such Debenture or portion
thereof being converted shall have been called for redemption on a redemption
date which occurs during such period) be accompanied by payment, in New York
Clearing House funds or other funds acceptable to the Company, of an amount
equal to the interest otherwise payable on such interest payment date on the
principal amount being converted; provided, however, that no such payment need
be made if there shall exist at the time of conversion a default in the payment
of interest on the Debentures. Except as provided above in this Section 15.2, no
payment or other adjustment shall be made for interest accrued on any Debenture
converted or for dividends on any shares issued upon the conversion of such
Debenture as provided in this Article.
Upon the conversion of an interest in a Debenture in global form, the
Trustee (or other conversion agent appointed by the Company), or the Custodian
at the direction of the Trustee (or other conversion agent appointed by the
Company), shall make a notation on such Debenture in global form as to the
reduction in the principal amount represented thereby. The Company shall notify
the Trustee in writing of any conversions of Debentures effected through any
conversion agent other than the Trustee.
SECTION 15.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Debentures. If more than one Debenture shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Debentures (or specified portions thereof to
the extent permitted hereby) so surrendered. If any fractional share of stock
would be issuable upon the conversion of any Debenture or Debentures, the
Company shall make an adjustment and payment therefor in cash at the Current
Market Price (as defined below) thereof to the holder of Debentures. The
current market price of a share of Common Stock shall be the Closing Price on
the last Business Day immediately preceding the day on which the Debentures (or
specified portions thereof) are deemed to have been converted.
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SECTION 15.4. CONVERSION PRICE. The conversion price shall be as
specified in the form of Debenture (herein called the "Conversion Price")
attached as Exhibit A hereto, subject to adjustment as provided in this Article
XV.
SECTION 15.5. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall
be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the 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 reduction to become effective immediately after the opening
of business on the day following the date fixed for such determination. The
Company will not pay any dividend or make any distribution on shares of Common
Stock held in the treasury of the Company. If any dividend or distribution of
the type described in this Section 15.5(a) is declared but not so paid or made,
the Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all holders
of its outstanding shares of Common Stock entitling them (for a period expiring
within forty-five (45) days after the date fixed for determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as defined below) on the date fixed for determination of
stockholders entitled to receive such rights or warrants, the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date fixed
for determination of stockholders entitled to receive such rights or warrants 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 determination of
stockholders entitled to receive such rights and warrants plus the number of
shares which the aggregate offering price of the total number of shares so
offered would purchase at such Current Market Price, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date fixed for determination of stockholders entitled to receive such rights and
warrants plus the total number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be successively made whenever
any such rights and warrants are issued, and shall become effective immediately
after the opening of business on the day following the date fixed for
determination of stockholders entitled to receive such rights or warrants. To
the extent that shares of Common Stock are not delivered after the expiration of
such rights or warrants, the Conversion Price shall be readjusted to the
Conversion Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery of only
the number of shares of Common Stock actually delivered. In the event that
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such rights or warrants are not so issued, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such date
fixed for the determination of stockholders entitled to receive such rights or
warrants had not been fixed. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate offering price
of such shares of Common Stock, there shall be taken into account any
consideration received by the Company for such rights or warrants, the value of
such consideration, if other than cash, to be determined in good faith by the
Board of Directors.
(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which Section 15.5(a)
applies) or evidences of its indebtedness or assets (including securities, but
excluding any rights or warrants referred to in Section 15.5(b), and excluding
any dividend or distribution (x) paid exclusively in cash or (y) referred to in
Section 15.5(a) (any of the foregoing hereinafter in this Section 15.5(d) called
the "Securities")), then, in each such case (unless the Company elects to
reserve such Securities for distribution to the Debentureholders upon the
conversion of the Debentures so that any such holder converting Debentures will
receive upon such conversion, in addition to the shares of Common Stock to which
such holder is entitled, the amount and kind of such Securities which such
holder would have received if such holder had converted its Debentures into
Common Stock immediately prior to the Record Date (as defined in Section 15.5(h)
for such distribution of the Securities), the Conversion Price shall be reduced
so that the same shall be equal to the price determined by multiplying the
Conversion Price in effect on the Record Date with respect to such distribution
by a fraction of which the numerator shall be the Current Market Price per share
of the Common Stock on such Record Date less the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive, and described in a resolution of the Board of Directors) on the
Record Date of the portion of the Securities so distributed applicable to one
share of Common Stock and the denominator shall be the Current Market Price per
share of the Common Stock, such reduction to become effective immediately prior
to the opening of business on the day following such Record Date; provided,
however, that in the event the fair market value (as so determined) of the
portion of the Securities so distributed applicable to one share of Common Stock
is equal to or greater than the Current Market Price of the Common Stock on the
Record Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Debentureholder shall have the right to receive upon
conversion the amount of Securities such
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holder would have received had such holder converted each Debenture on the
Record Date. In the event that such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value of any
distribution for purposes of this Section 15.5(d) by reference to the actual or
when issued trading market for any securities, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price of the 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 be deemed not to have been distributed for
purposes of this Section 15.5 (and no adjustment to the Conversion Price under
this Section 15.5 will be required) until the occurrence of the earliest Trigger
Event, whereupon such rights and warrants shall be deemed to have been
distributed and an appropriate adjustment (if any is required) to the Conversion
Price shall be made under this Section 15.5(d). If any such right or warrant,
including any such existing rights or warrants distributed prior to the date of
this Indenture, are subject to events, upon the occurrence of which such rights
or warrants become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the date of the occurrence of any and each
such event shall be deemed to be the date of distribution and record date with
respect to new rights or warrants with such rights (and a termination or
expiration of the existing rights or warrants without exercise by any of the
holders thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto that was counted
for purposes of calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 15.5 was made, (1) in the case of any such
rights or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted upon
such final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the per share redemption or repurchase price received by a holder or holders
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 such rights or
warrants which shall have expired or been terminated without exercise by any
holders thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued.
Notwithstanding the foregoing, in the event that the Company shall
distribute rights or warrants to subscribe for additional shares of the Common
Stock (other than rights or warrants described in Section 15.5(b)), pro rata to
holders of Common Stock, the Company may, in lieu of making any adjustment
pursuant to this Section 15.5(d), make proper provision so that each holder of a
Debenture who converts such Debenture (or any portion thereof) after the record
date for such distribution shall be entitled to receive upon such conversion, in
addition to the shares
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of Common Stock issuable upon such conversion (the "Conversion Shares"), a
number of rights or warrants to be determined as follows: (i) if such
conversion occurs on or prior to the date for the distribution to the holders of
such rights or warrants of separate certificates evidencing such rights or
warrants (the "Distribution Date"), the same number of rights or warrants to
which a holder of a number of shares of Common Stock equal to the number of
Conversion Shares is entitled at the time of such conversion in accordance with
the terms and provisions of and applicable to such rights or warrants; and (ii)
if such conversion occurs after the Distribution Date, the same number of rights
or warrants to which a holder of the number of shares of Common Stock into which
the principal amount of the Debenture so converted was convertible immediately
prior to the Distribution Date would have been entitled on the Distribution Date
in accordance with the terms and provisions of, and applicable to such rights or
warrants.
For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any
dividend or distribution to which this Section 15.5(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets or shares of
capital stock other than such shares of Common Stock or rights or warrants (and
any Conversion Price reduction required by this Section 15.5(d) with respect to
such dividend or distribution shall then be made) immediately followed by (2) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (and any further Conversion Price reduction required by Sections
15.5(a) and (b) with respect to such dividend or distribution shall then be
made), except (A) the Record Date of such dividend or distribution shall be
substituted as "the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution" and "the date fixed for such
determination" within the meaning of Sections 15.5(a) and (b) and (B) any shares
of Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such determination"
within the meaning of Section 15.5(a).
(e) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding (x) any quarterly cash dividend
on the Common Stock to the extent the aggregate cash dividend per share of
Common Stock in any fiscal quarter does not exceed the greater of (A) the amount
per share of Common Stock of the next preceding quarterly cash dividend on the
Common Stock to the extent that such preceding quarterly dividend did not
require any adjustment of the Conversion Price pursuant to this Section 15.5(e)
(as adjusted to reflect subdivisions or combinations of the Common Stock), and
(B) 3.75% of the arithmetic average of the Closing Price (determined as set
forth in Section 15.5(h)) during the ten (10) Trading Days (as defined in
Section 15.5(h)) immediately prior to the date of declaration of such dividend,
and (y) any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary),
then, in such case, the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such Record Date by a fraction of
which the numerator shall be the Current Market Price of the Common Stock on the
Record Date less the amount of cash so distributed (and not excluded as provided
above) applicable to one share of Common Stock and the denominator shall be such
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Current Market Price of the Common Stock, such reduction to be effective
immediately prior to the opening of business on the day following the Record
Date; provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price of the Common Stock on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each
Debentureholder shall have the right to receive upon conversion the amount of
cash such holder would have received had such holder converted each Debenture on
the Record Date. In the event that such dividend or distribution is not so paid
or made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared. If any adjustment is required to be made as set forth in this Section
15.5(e) as a result of a distribution that is a quarterly dividend, such
adjustment shall be based upon the amount by which such distribution exceeds the
amount of the quarterly cash dividend permitted to be excluded pursuant hereto.
If an adjustment is required to be made as set forth in this Section 15.5(e)
above as a result of a distribution that is not a quarterly dividend, such
adjustment shall be based upon the full amount of the distribution.
(f) In case a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Common Stock (other than tender or
exchange offers for less than fifteen percent (15%) of the outstanding shares of
Common Stock of the Company) shall expire and such tender or exchange offer (as
amended upon the expiration thereof) shall require the payment to stockholders
of consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors) that as of the last
time (the "Expiration Time") tenders or exchanges may be made pursuant to such
tender or exchange offer (as it may be amended) that exceeds the Current Market
Price of the Common Stock on the Trading Day next succeeding the Expiration
Time, the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the Expiration Time by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding (including any tendered or exchanged
shares) on the Expiration Time multiplied by the Current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) on the Expiration
Time and the Current Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time, such reduction to become effective immediately
prior to the opening of business on the day following the Expiration Time. In
the event that the Company is obligated to purchase shares pursuant to any such
tender or exchange offer, but the Company is permanently prevented by applicable
law from effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such tender or exchange offer had not been made.
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(g) In case of a tender or exchange offer made by a person other than
the Company or any Subsidiary for an amount which increases the offeror's
ownership of Common Stock to more than twenty-five percent (25%) of the Common
Stock outstanding and shall involve the payment by such person of consideration
per share of Common Stock having a fair market value (as determined by the Board
of Directors, whose determination shall be conclusive, and described in a
resolution of the Board of Directors) at the last time (the "Offer Expiration
Time") tenders or exchanges may be made pursuant to such tender or exchange
offer (as it shall have been amended) that exceeds the Current Market Price of
the Common Stock on the Trading Day next succeeding the Offer Expiration Time,
and in which, as of the Offer Expiration Time the Board of Directors is not
recommending rejection of the offer, the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the Offer Expiration Time by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the Offer Expiration Time
multiplied by the Current Market Price of the Common Stock on the Trading Day
next succeeding the Offer Expiration Time and the denominator shall be the sum
of (x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Offer Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as the
"Accepted Purchased Shares") and (y) the product of the number of shares of
Common Stock outstanding (less any Accepted Purchased Shares) on the Offer
Expiration Time and the Current Market Price of the Common Stock on the Trading
Day next succeeding the Offer Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day following the
Offer Expiration Time. In the event that such person is obligated to purchase
shares pursuant to any such tender or exchange offer, but such person is
permanently prevented by applicable law from effecting any such purchases or all
such purchases are rescinded, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such tender or exchange
offer had not been made. Notwithstanding the foregoing, the adjustment
described in this Section 15.5(g) shall not be made if, as of the Offer
Expiration Time, the offering documents with respect to such offer disclose a
plan or intention to cause the Company to engage in any transaction described in
Article XII; provided, however, that if such transaction is not consummated
within twelve (12) months of the Offer Expiration time, the adjustment described
in this Section 15.5(g) shall be made.
(h) For purposes of this Section 15.5, the following terms shall have
the meaning indicated:
(1) "Closing Price" with respect to any securities on any day
shall mean the closing sale price regular way on such day or, in case no
such sale takes place on such day, the average of the reported closing bid
and asked prices, regular way, in each case on the New York Stock Exchange,
or, if such security is not listed or admitted to trading on such Exchange,
on the principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not quoted
or listed or admitted to trading on any national securities exchange or
quotation system, the
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average of the closing bid and asked prices of such security on the over-
the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished by any New
York Stock Exchange member firm selected from time to time by the Board of
Directors for that purpose, or a price determined in good faith by the
Board of Directors or, to the extent permitted by applicable law, a duly
authorized committee thereof, whose determination shall be conclusive.
(2) "Current Market Price" shall mean the average of the daily
Closing Prices per share of Common Stock for the ten (10) consecutive
Trading Days immediately prior to the date in question; provided, however,
that (1) if the "ex" date (as hereinafter defined) for any event (other
than the issuance or distribution or Fundamental Change requiring such
computation) that requires an adjustment to the Conversion Price pursuant
to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs during such ten
(10) consecutive Trading Days, the Closing Price for each Trading Day prior
to the "ex" date for such other event shall be adjusted by multiplying such
Closing Price by the same fraction by which the Conversion Price is so
required to be adjusted as a result of such other event, (2) if the "ex"
date for any event (other than the issuance, distribution or Fundamental
Change requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or
(g) occurs on or after the "ex" date for the issuance or distribution
requiring such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the reciprocal of
the fraction by which the Conversion Price is so required to be adjusted as
a result of such other event, and (3) if the "ex" date for the issuance,
distribution or Fundamental Change requiring such computation is prior to
the day in question, after taking into account any adjustment required
pursuant to clause (1) or (2) of this proviso, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted by adding thereto
the amount of any cash and the fair market value (as determined by the
Board of Directors or, to the extent permitted by applicable law, a duly
authorized committee thereof in a manner consistent with any determination
of such value for purposes of Section 15.5(d), (f) or (g), whose
determination shall be conclusive and described in a resolution of the
Board of Directors or such duly authorized committee thereof, as the case
may be) of the evidences of indebtedness, shares of capital stock or assets
being distributed applicable to one share of Common Stock as of the close
of business on the day before such "ex" date. For purposes of any
computation under Section 15.5(f) or (g), the Current Market Price of the
Common Stock on any date shall be deemed to be the average of the daily
Closing Prices per share of Common Stock for such day and the next two
succeeding Trading Days; provided, however, that if the "ex" date for any
event (other than the tender or exchange offer requiring such computation)
that requires an adjustment to the Conversion Price pursuant to Section
15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the Expiration
Time or Offer Expiration Time, as the case may be, for the tender or
exchange offer requiring such computation and prior to the day in question,
the Closing Price for. each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such
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Closing Price by the reciprocal of the fraction by which the Conversion
Price is so required to be adjusted as a result of such other event. For
purposes of this paragraph, the term "ex" date, (1) when used with respect
to any issuance or distribution, means the first date on which the Common
Stock trades regular way on the relevant exchange or in the relevant market
from which the Closing Price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(3) when used with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the Offer Expiration Time of such offer.
(3) "fair market value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for
or converted into any combination of cash, securities or other property,
the date fixed for determination of stockholders entitled to receive such
cash, securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or another
national security exchange, a day on which the New York Stock Exchange or
another national security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a day on which
trades may be made on thereon or (z) if the applicable security is not so
listed, admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(i) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f) or (g)
as the Board of Directors considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time if the
period is at least twenty (20) days, the reduction is irrevocable during the
period and the Board of Directors shall have made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. Whenever the Conversion Price is reduced pursuant to the
preceding sentence, the Company shall mail to holders of record of the
Debentures a notice of
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the reduction at least fifteen (15) days prior to the date the reduced
Conversion Price takes effect, and such notice shall state the reduced
Conversion Price and the period during which it will be in effect.
(j) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least one percent
(1%) in such price; provided, however, that any adjustments which by reason of
this Section 15.5(j) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Article XV shall be made by the Company and shall be made to the nearest cent or
to the nearest one-hundredth (1/100) of a share, as the case may be. No
adjustment need be made for rights to purchase Common Stock pursuant to a
Company plan for reinvestment of dividends or interest. To the extent the
Debentures become convertible into cash, assets, property or securities (other
than capital stock of the Company), no adjustment need be made thereafter as to
the cash, assets, property or such securities. Interest will not accrue on the
cash.
(k) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Trustee and any conversion agent other than
the Trustee an Officers' Certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such certificate, the Company shall
prepare a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion Price
to the holder of each Debenture at his last address appearing on the Debenture
register provided for in Section 2.5 of this Indenture within twenty (20) days
after execution thereof. Failure to deliver such notice shall not affect the
legality or validity of any such adjustment.
(l) In any case in which this Section 15.5 provides that an adjustment
shall become effective immediately after a record date for an event, the Company
may defer until the occurrence of such event (i) issuing to the holder of any
Debenture converted after such record date and before the occurrence of such
event the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Section 15.3.
(m) For purposes of this Section 15.5, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
SECTION 15.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any of the following events occur, namely (i) any reclassification or change
of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c) applies), (ii)
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any consolidation, merger or combination of the Company with another corporation
as a result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, or (iii) any sale or conveyance of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, then the Company or the
successor or purchasing corporation, as the case may be, shall execute with the
Trustee a supplemental indenture (which shall comply with the Trust Indenture
Act as in force at the date of execution of such supplemental indenture)
providing that such Debenture shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of such Debentures (assuming, for such purposes,
a sufficient number of authorized shares of Common Stock available to convert
all such Debentures) immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance assuming such holder of
Common Stock did not exercise his rights of election, if any, as to the kind or
amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance (provided that, if the kind or
amount of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance is not the same for each share of
Common Stock in respect of which such rights of election shall not have been
exercised ("nonelecting share")), then for the purposes of this Section 15.6 the
kind and amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for each non-
electing share shall be deemed to be the kind and amount so receivable per share
by a plurality of the non-electing shares. Such supplemental indenture shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Debentures, at its address appearing on
the Debenture register provided for in Section 2.5 of this Indenture, within
twenty (20) days after execution thereof. Failure to deliver such notice shall
not affect the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.
SECTION 15.7. TAXES ON SHARES ISSUED. The issue of stock certificates on
conversions of Debentures shall be made without charge to the converting
Debentureholder for any tax in respect of the issue thereof. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than that
of the holder of any Debenture converted, and the Company shall not be required
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to issue or deliver any such stock certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
SECTION 15.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE
WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The Company shall
provide, free from preemptive rights, out of its authorized but unissued shares
or shares held in treasury, sufficient shares of Common Stock to provide for the
conversion of the Debentures from time to time as such Debentures are presented
for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Debentures, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Debentures will upon issue be fully paid and non-
assessable by the Company.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Debentures hereunder require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued upon conversion, the Company
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be.
The Company further covenants that if at any time the Common Stock
shall be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system the Company will, if permitted by the
rules of such exchange or automated quotation system, list and keep listed, so
long as the Common Stock shall be so listed on such exchange or automated
quotation system, all Common Stock issuable upon conversion of the Debentures;
provided, however, that if rules of such exchange or automated quotation system
permit the Company to defer the listing of such Common Stock until the first
conversion of the Debentures into Common Stock in accordance with the provisions
of this Indenture, the Company covenants to list such Common Stock issuable upon
conversion of the Debentures in accordance with the requirements of such
exchange or automated quotation system at such time.
SECTION 15.9. RESPONSIBILITY OF TRUSTEE. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Debentures to determine the Conversion Price or whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee and any other
conversion agent shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities or
property, which may at any time be issued or delivered
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upon the conversion of any Debenture; and the Trustee and any other conversion
agent make no representations with respect thereto. Neither the Trustee nor any
conversion agent shall be responsible for any failure of the Company to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
securities or property or cash upon the surrender of any Debenture for the
purpose of conversion or to comply with any of the duties, responsibilities or
covenants of the Company contained in this Article. Without limiting the
generality of the foregoing, neither the Trustee nor any conversion agent shall
be under any responsibility to determine the correctness of any provisions
contained in any supplemental indenture entered into pursuant to Section 15.6
relating either to the kind or amount of shares of stock or securities or
property (including cash) receivable by Debentureholders upon the conversion of
their Debentures after any event referred to in such Section 15.6 or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Section 8.1, may accept as conclusive evidence of the correctness of any such
provisions, and shall be fully protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.
SECTION 15.10. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock that would require an adjustment in the Conversion Price
pursuant to Section 15.5; or
(b) the Company shall authorize the granting to the holders of all or
substantially all of its Common Stock of rights or warrants to subscribe for or
purchase any share of any class of its capital stock or any other rights or
warrants; or
(c) of any reclassification or reorganization of the Common Stock of
the Company (other than a subdivision or combination of its outstanding Common
Stock, or a change in par value, or from par value to no par value, or from no
par value to par value), or of any consolidation or merger to which the Company
is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the assets
of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Debentures at his address appearing on the Debenture register provided
for in Section 2.5 of this Indenture, as promptly as possible but in any event
at least fifteen (15) days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is
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expected to become effective or occur, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend, distribution,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
SECTION 16.1. PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All the
covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.
SECTION 16.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
SECTION 16.3. ADDRESSES FOR NOTICES, ETC. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Debentures on the Company shall be deemed to
have been sufficiently given or made, for all purposes, if given or served by
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to Centocor, Inc., 200 Great Valley Parkway, Malvern, PA 19355-1307,
Attention: Chief Financial Officer. Any notice, direction, request or demand
hereunder to or upon the Trustee shall be deemed to have been sufficiently given
or made, for all purposes, if given or served by being deposited postage prepaid
by registered or certified mail in a post office letter box addressed to the
Trustee, whose office is, at the date as of which this Indenture is dated,
located at 114 West 47th Street, New York, New York 10036-1532, Attention:
Corporate Trust Department.
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Debentureholder shall be
mailed to him by first class mail, postage prepaid, at his address as it appears
on the Debenture register and shall be sufficiently given to him if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Debentureholder or any
defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or
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communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
SECTION 16.4. GOVERNING LAW. This Indenture and each Debenture shall be
deemed to be a contract made under the laws of the State of New York, and for
all purposes shall be construed in accordance with the laws of the State of New
York.
SECTION 16.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee (i) an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating
that, in the opinion of such counsel, all such conditions precedent have been
complied with and (iii) any other certificate that, under the Trust Indenture
Act, the Trustee may reasonably require.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such certificate or opinion is
based: (3) a statement that, in the opinion of such person, he or she has made
such examination or investigation as is necessary to enable such person to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
SECTION 16.6. LEGAL HOLIDAYS. In any case where the date of maturity of
interest on or principal of the Debentures or the date fixed for redemption of
any Debenture will not be a Business Day, then payment of such interest on or
principal of the Debentures need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made on
the date of maturity or the date fixed for redemption, and no interest shall
accrue for the period from and after such date.
SECTION 16.7. TRUST INDENTURE ACT. This Indenture is hereby made subject
to, and shall be governed by, the provisions of the Trust Indenture Act required
to be part of and to govern indentures qualified under the Trust Indenture Act;
provided, however, that, unless otherwise required by law, notwithstanding the
foregoing, this Indenture and the Debentures issued hereunder shall not be
subject to the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section
314 of the Trust Indenture Act as now in effect or as hereafter amended or
modified; provided, further, that this Section 16.7 shall not require this
Indenture or the Trustee to be qualified under the Trust Indenture Act prior to
the time such qualification is in fact required under the terms of the Trust
Indenture Act, nor shall it constitute any admission or acknowledgment by any
party to such supplemental indenture that any such qualification is required
prior to the time such qualification is in fact required under the terms of the
Trust Indenture Act. If any provision
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hereof limits, qualifies or conflicts with another provision hereof which is
required to be included in an indenture qualified under the Trust Indenture Act,
such required provision shall control.
SECTION 16.8. NO SECURITY INTEREST CREATED. Nothing in this Indenture or
in the Debentures, expressed or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect, in any jurisdiction where property of
the Company or its subsidiaries is located.
SECTION 16.9. BENEFITS OF INDENTURE. Nothing in this Indenture or in the
Debentures, expressed or implied, shall give to any Person, other than the
parties hereto, any paying agent, any authenticating agent, any Debenture
registrar and their successors hereunder, the holders of Debentures and the
holders of Senior Obligations, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 16.10. TABLE OF CONTENTS, HEADINGS, ETC. The table of contents and
the titles and headings of the articles and sections of this Indenture have been
inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
SECTION 16.11. AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Debentures in connection
with the original issuance thereof and transfers and exchanges of Debentures
hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to
all intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Debentures. For all purposes of this Indenture, the authentication and delivery
of Debentures by the authenticating agent shall be deemed to be authentication
and delivery of such Debentures "by the Trustee" and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent
shall be deemed to satisfy any requirement hereunder or in the Debentures for
the Trustee's certificate of authentication. Such authenticating agent shall at
all times be a person eligible to serve as trustee hereunder pursuant to Section
8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section 16.11, without the execution or filing of any paper or any further act
on the part of the parties hereto or the authenticating agent or such successor
corporation.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or
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in case at any time any authenticating agent shall cease to be eligible under
this Section, the Trustee shall either promptly appoint a successor
authenticating agent or itself assume the duties and obligations of the former
authenticating agent under this Indenture, and upon such appointment of a
successor authenticating agent, if made, shall give written notice of such
appointment of a successor authenticating agent to the Company and shall mail
notice of such appointment of a successor authenticating agent to all holders of
Debentures as the names and addresses of such holders appear on the Debenture
register.
The Trustee agrees to pay to the authenticating agent from time to
time reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the Trustee shall be entitled to be reimbursed for such
pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11
shall be applicable to any authenticating agent.
SECTION 16.12. EXECUTION IN COUNTERPARTS. This Indenture may be executed
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this indenture to be duly
executed.
CENTOCOR, INC.
By: ___________________________________
Name: David P. Holveck
Title: Chief Executive Officer
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: ___________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[For Global Debenture only:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES)
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 REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THE DEBENTURE (OR ITS PREDECESSOR) NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE DEBENTURE
EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR
TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR
PROVISION), RESELL OR OTHERWISE TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE
COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO CENTOCOR,
INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3), OR (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
THE UNITED STATES TRUST COMPANY OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE,
AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE DEBENTURE EVIDENCED
HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE
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OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF
SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 2(F) ABOVE), IT WILL FURNISH THE UNITED STATES TRUST COMPANY OF NEW YORK,
AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE AND THE COMPANY), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH 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 AND (4) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE DEBENTURE EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED HEREBY
PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE
DEBENTURE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISIONS) THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE UNITED STATES TRUST COMPANY OF NEW YORK, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE UNITED STATES TRUST COMPANY
OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE AND THE COMPANY),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRUSTEE AND THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE DEBENTURE EVIDENCED HEREBY PURSUANT TO
CLAUSE 2(F) ABOVE OR UPON ANY TRANSFER OF THE DEBENTURES EVIDENCED HEREBY UNDER
RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
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CENTOCOR, INC.
4 3/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
No: _______ CUSIP: ________
CENTOCOR, INC., a corporation duly organized and validly existing under the
laws of the Commonwealth of Pennsylvania (herein called the "Company"), which
term includes any successor corporation under the Indenture referred to on the
reverse hereof, for value received, hereby promises to pay to
___________________________________ or registered assigns, the principal sum of
________________ ($____________) on February 15, 2005, at the office or agency
of the Company maintained for that purpose in accordance with the terms of the
Indenture, or, at the option of the holder of this Debenture, at the Corporate
Trust Office, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, and to pay interest, semi-annually on February 15 and August 15, of each
year, commencing August 15, 1998, on said principal sum at said office or
agency, in like coin or currency, at the rate per annum of 4 3/4% from February
20, 1998 and thereafter to maturity from the February 15 or August 15, as the
case may be, next preceding the date of this Debenture to which interest has
been paid or duly provided for, unless the date hereof is a date to which
interest has been paid or duly provided for, in which case from the date of this
Debenture, or unless no interest has been paid or duly provided for on the
Debentures, in which case from February 20, 1998, until payment of said
principal sum has been made or duly provided for. Notwithstanding the foregoing,
if the date hereof is after any February 1 or August 1, as the case may be, and
before the following February 15 or August 15, this Debenture shall bear
interest from such February 15 or August 15; provided, however, that if the
Company shall default in the payment of interest due on such February 15 or
August 15, then this Debenture shall bear interest from the next preceding
February 15 or August 15, to which interest has been paid or duly provided for
or, if no interest has been paid or duly provided for on such Debenture, from
February 20, 1998. The interest payable on the Debenture pursuant to the
Indenture on any February 15 or August 15 will be paid to the person entitled
thereto as it appears in the Debenture register at the close of business on the
record date, which shall be the February 1 or August 1, (whether or not a
Business Day) preceding such February 15 or August 15, as provided in the
Indenture; provided that any such interest not punctually paid or duly provided
for shall be payable as provided in the Indenture. Interest may, at the option
of the Company, be paid either (i) by check mailed to the registered address of
such person (provided that the holder of Debentures with an aggregate principal
amount in excess of $2,000,000 shall, at the written election of such holder, be
paid by wire transfer in immediately available funds) or (ii) by transfer to an
account maintained by such person located in the United States.
Reference is made to the further provisions of this Debenture set
forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of and premium, if any, and interest on
the Debentures to the prior payment in full of all Senior Obligations, as
defined in the Indenture, and provisions giving the holder of this Debenture the
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right to convert this Debenture into Common Stock of the Company on the terms
and subject to the limitations referred to on the reverse hereof and as more
fully specified in the Indenture. Such further provisions shall for all purposes
have the same effect as though fully set forth at this place.
This Debenture shall be deemed to be a contract made under the laws of
the State of New York, and for all purposes shall be construed in accordance
with and governed by the laws of said State.
This Debenture shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed under its corporate seal to be affixed or imported hereon.
CENTOCOR, INC.
BY: ________________________________
Name:
Title:
Attest: ____________________________
Name:
Title:
Dated: ______________________
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-named Indenture.
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
By: _____________________________________
Authorized Signatory
By: _____________________________________
As Authenticating Agent
(if different from Trustee)
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[FORM OF REVERSE OF DEBENTURE]
CENTOCOR, INC.
4 3/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
This Debenture is one of a duly authorized issue of Debentures of the
Company, designated as its 4 3/4% Convertible Subordinated Debentures due 2005
(herein called the "Debentures"), limited to the aggregate principal amount of
$460,000,000 all issued or to be issued under and pursuant to an Indenture dated
as of February 20, 1998 (herein called the "Indenture"), between the Company and
United States Trust Company of New York, as trustee (herein called the
"Trustee"), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on all Debentures may be
declared, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, evidenced
as in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption thereof, or impair the right of any Debentureholder to
institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other than
that provided in the Debenture, or modify the provisions of the Indenture with
respect to the subordination of the Debentures in a manner adverse to the
Debentureholders in any material respect, or change the obligation of the
Company to make redemption of any Debenture upon the happening of a Fundamental
Change in a manner adverse to the holder of the Debentures, or impair the right
to convert the Debentures into Common Stock subject to the terms set forth in
the Indenture, including Section 15.6 thereof, in each case, without the consent
of the holder of each Debenture so affected or (ii) reduce the aforesaid
percentage of Debentures, the holders of which are required to consent to any
such supplemental indenture, without the consent of the holders of all
Debentures then outstanding. It is also provided in the Indenture that the
holders of a majority in aggregate principal amount of the Debentures at the
time outstanding, determined in accordance with Section 9.4 of the Indenture,
may on behalf of the holders of all of the
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Debentures waive any past default or Event of Default under the Indenture and
its consequences except a default in the payment of interest (including
Liquidated Damages, if any) or any premium on or the principal of any of the
Debentures which has not been cured in accordance with the Indenture, a default
in the payment of redemption price pursuant to Article III of the Indenture or a
failure by the Company to convert any Debentures into Common Stock of the
Company or a default in respect of a covenant or provisions of the Indenture
which under Article XI of the Indenture cannot be modified or amended without
the consent of the holders of all Debentures then outstanding. Any such consent
or waiver by the holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Debenture and any Debentures which may be issued in
exchange or substitute hereof, irrespective of whether or not any notation
thereof is made upon this Debenture or such other Debentures.
The indebtedness evidenced by the Debentures is, to the extent and in
the manner provided in the Indenture, expressly subordinate and subject in right
of payment to the prior payment in full of all Senior Obligations of the
Company, as defined in the Indenture, and this Debenture is issued subject to
the provisions of the Indenture with respect to such subordination. Each holder
of this Debenture, by accepting the same, agrees to and shall be bound by such
provisions and authorizes the Trustee on its behalf to take such action as may
be necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee his attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest (including Liquidated Damages, if any) on this Debenture at
the place, at the respective times, at the rate and in the coin or currency
herein prescribed.
Interest on the Debentures shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
The Debentures are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Debentures, Debentures may be exchanged for a like aggregate
principal amount of Debentures of any authorized denominations.
The Debentures will not be redeemable at the option of the Company
prior to February 21, 2001. At any time on or after February 21, 2001, and prior
to maturity, the Debentures may be redeemed at the option of the Company as a
whole, or from time to time in part, upon mailing a notice of such redemption
not less than thirty (30) days prior to the date fixed for redemption to the
holders of Debentures at their last registered addresses, all as provided
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in the Indenture, at the following optional redemption prices (expressed as
percentages of the principal amount), together in each case with accrued
interest (including Liquidated Damages, if any) to, but excluding, the date
fixed for redemption:
If redeemed during the period beginning February 21, 2001 and ending
on February 14, 2002, at a redemption price of 102.714%, and if redeemed during
the 12-month period beginning February 15:
YEAR REDEMPTION PRICE
2002 .....102.036%
2003 .....101.357%
2004 .....100.679%
and 100% at February 15, 2005; provided that if the date fixed for redemption is
February 15 or August 15, then the interest payable on such date shall be paid
to the holder of record on the next preceding February 1 or August 1,
respectively.
The Debentures are not subject to redemption through the operation of
any sinking fund.
If a Fundamental Change (as defined in the Indenture) occurs at any
time prior to February 15, 2005, the Debentures will be redeemable on the 30th
day after notice thereof at the option of the holder at a redemption price equal
to 100% of the principal amount of the Debenture (or portion thereof) redeemed,
together with accrued interest to (but excluding) the date of redemption;
provided that if such Repurchase Date is February 15 or August 15, then the
interest payable on such date shall be paid to the holder of record of the
Debenture on the preceding February 1 or August 1, respectively. The Company
shall mail to all holders of record of the Debentures a notice of the occurrence
of a Fundamental Change and of the redemption right arising as a result thereof
on or before the 10th day after the occurrence of such Fundamental Change. For
a Debenture to be so repaid at the option of the holder, the Company must
receive at the office or agency maintained by the Company in accordance with the
terms of the Indenture, such Debenture with the form entitled "Option to Elect
Repayment Upon a Fundamental Change" on the reverse thereof duly completed,
together with such Debentures duly endorsed for transfer, on or before the 30th
day after the date of such notice (or if such 30th day is not a Business Day,
the next succeeding Business Day).
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after ninety (90) days following the latest
date of original issuance thereof through the close of business on February 15,
2005, or, as to all or any portion hereof called for redemption, prior to the
close of business on the fifth Business Day next preceding the date fixed for
redemption (unless the Company shall default in payment due upon redemption
thereof), to convert the principal hereof or any portion of such principal which
is $1,000 or an integral multiple thereof into that number of shares of the
Company's Common Stock, as said shares shall
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be constituted at the date of conversion, obtained by dividing the principal
amount of this Debenture or portion thereof to be converted by the Conversion
Price of $49.261 or such Conversion Price as adjusted from time to time as
provided in the Indenture, upon surrender of this Debenture, together with any
required funds and a conversion notice as provided in the Indenture, to the
Company at the office or agency maintained by the Company in accordance with the
terms of the Indenture, or at the option of such holder, the Corporate Trust
Office, and, unless the shares issuable on conversion are to be issued in the
same name as this Debenture, duly endorsed by, or accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder or by
his duly authorized attorney. No adjustment in respect of interest or dividends
will be made upon any conversion; provided, however, that if this Debenture
shall be surrendered for conversion during the period from (but excluding) a
record date for any interest payment date to (but excluding) such interest
payment date, this Debenture (unless it or the portion being converted shall
have been called for redemption during such period) must be accompanied by an
amount, in New York Clearing House funds or other funds acceptable to the
Company, equal to the interest payable on such interest payment date on the
principal amount being converted. No fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, as provided in the
Indenture, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of any Debenture or Debentures for conversion.
Any Debentures called for redemption, unless surrendered for
conversion on or before the close of business on the fifth Business Day prior to
the date fixed for redemption, may be deemed to be purchased from the holder of
such Debentures at an amount equal to the applicable redemption price, together
with accrued interest (including Liquidated Damages, if any) to (but excluding)
the date fixed for redemption, by one or more investment bankers or other
purchasers who may agree with the Company to purchase such Debentures from the
holders thereof and convert them into Common Stock of the Company and to make
payment for such Debentures as aforesaid to the Trustee in trust for such
holders.
Upon due presentment for registration of transfer of this Debenture at
the office or agency of the Company maintained for that purpose in accordance
with the terms of the Indenture, or at the option of the holder of this
Debenture, at the Corporate Trust Office, a new Debenture or Debentures of
authorized denominations for an equal aggregate principal amount will be issued
to the transferee in exchange thereof, subject to the limitations provided in
the Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Debenture registrar may deem and treat the
registered holder hereof as the absolute owner of this Debenture (whether or not
this Debenture shall be overdue and notwithstanding any notation of ownership or
other writing hereon made by anyone other than the Company or any Debenture
registrar), for the purpose of receiving payment hereof, or on account hereof,
for the conversion hereof and for all other purposes, and neither the Company
nor the Trustee nor any other authenticating agent nor any paying agent nor any
other conversion agent nor any Debenture registrar shall be affected by any
notice to the contrary. All payments
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made to or upon the order of such registered holder shall, to the extent of the
sum or sums paid, satisfy and discharge liability for monies payable on this
Debenture.
No recourse for the payment of the principal of or any premium or
interest on this Debenture, or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Debenture, 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 the consideration
for the issue hereof, expressly waived and released.
THE INDENTURE AND THE DEBENTURES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK
Terms used in this Debenture and defined in the Indenture are used herein
as therein defined.
A-10
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of this
Debenture, shall be construed as though they were written out in full according
to applicable laws or regulations:
- --------------------------------------------------------------------------------
TEN COM- as tenants in common UNIF GIFT MIN ACT --
____________________ Custodian
(Cust)
____________________
(Minor)
- --------------------------------------------------------------------------------
TEN ENT- as tenants by the entireties
- --------------------------------------------------------------------------------
JT TEN- as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants
in common ____________________
(State)
- --------------------------------------------------------------------------------
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED
THOUGH NOT IN THE ABOVE LIST.
A-11
<PAGE>
CONVERSION NOTICE
To: CENTOCOR, INC.
The undersigned registered owner of this Debenture hereby irrevocably
exercises the option to convert this Debenture, or the portion hereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of Common
Stock of Centocor, Inc. in accordance with the terms of the Indenture referred
to in this Debenture, and directs that the shares issuable and deliverable upon
such conversion, together with any check in payment for fractional shares and
any Debentures representing any unconverted principal amount hereof, be issued
and delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Debenture not converted are to
be issued in the name of a person other than the undersigned, the undersigned
will check the appropriate box below and pay all transfer taxes payable with
respect thereto. Any amount required to be paid to the undersigned on account of
interest accompanies this Debenture.
Dated: ___________________ ______________________________________
______________________________________
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange if
shares of Common Stock are to be issued,
or Debentures to be delivered, other
than to and in the name of the
registered holder.
________________________________________
Signature Guarantee
A-12
<PAGE>
Fill in for registration of shares of Common Stock if to be issued,
and Debentures if to be delivered, other than to and in the name of the
registered holder:
_______________________________________
(Name)
_______________________________________
(Street Address)
_______________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be Converted
(if less than all): $____________
Social Security or Other Taxpayer
Identification Number:
A-13
<PAGE>
OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE
TO: CENTOCOR, INC.
The undersigned registered owner of this Debenture hereby irrevocably
acknowledges receipt of a notice from Centocor, Inc. (the "Company") as to the
occurrence of a Fundamental Change with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Debenture, or
the portion thereof (which is $1,000 or an integral multiple thereof) below
designated, in accordance with the terms of the Indenture referred to in this
Debenture at the redemption price, together with accrued interest to, but
excluding, such date, to the registered holder hereof.
Dated: __________________________ __________________________________________
__________________________________________
Signature(s)
NOTICE: The above signatures of the
holder(s) hereof must correspond with the
name as written upon the face of the
Debenture in every particular without
alteration or enlargement or any change
whatever.
Principal amount to be Redeemed (if less
than all):
$_____________
____________________________________________
Social Security or Other Taxpayer
Identification Number
A-14
<PAGE>
ASSIGNMENT
For value received ___________________________ hereby sell(s),
assign(s) and transfer(s) unto ___________________________ (Please insert social
security or other Taxpayer Identification Number of assignee) the within
Debenture, and hereby irrevocably constitutes and appoints
_________________________ attorney to transfer the said Debenture on the books
of the Company, with full power of substitution in the premises.
In connection with any transfer of the Debenture within the period
prior to the expiration of the holding period applicable to sales thereof under
Rule 144(k) under the Securities Act (or any successor provision) (other than
any transfer pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such
Debenture is being transferred:
[_] To Centocor, Inc. or a subsidiary thereof, or
[_] Inside the United States to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in compliance with Rule 144A under
the Securities Act; or
[_] Inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act) that,
prior to such transfer, furnishes to the Trustee a signed letter containing
certain representations and agreements relating to the restrictions on
transfer of the Debenture evidenced hereby; or
[_] Outside the United States in compliance with Rule 904 under the Securities
Act; or
[_] Pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available);
and unless the box below is checked, the undersigned confirms that such
Debenture is not being transferred to an "affiliate" of the Company as defined
in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate").
[_] The transferee is an Affiliate of the Company.
Dated:
A-15
<PAGE>
____________________________________________
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or a member
firm of a major stock exchange if shares of
Common Stock are to be issued, or Debentures
to be delivered, other than to or in the name
of the registered holder.
_____________________________________________
Signature Guarantee
NOTICE: The signature on the conversion notice, the option to elect repayment
upon a Fundamental Change or the assignment must correspond with the name as
written upon the face of the Debenture in every particular without alteration or
enlargement or any change whatever.
A-16
<PAGE>
EXHIBIT B
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355-1307
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Ladies/Gentlemen:
We are delivering this letter in connection with an offering of 4 3/4%
Convertible Subordinated Debentures due 2005 (the "Debentures), which are
convertible into shares of Common Stock, $.01 par value (the "Common Stock"), of
Centocor, Inc., a Pennsylvania corporation (the "Company"), all as described in
the Offering Memorandum (the "Offering Memorandum") relating to the Offering.
We hereby confirm that:
. we are an "accredited investor" within the meaning of Rule 501(a)(1), (2)
or (3) under the Securities Act of 1933, as amended (the "Securities Act"),
or an entity in which all of the equity owners are accredited investors
within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act
(an "Institutional Accredited Investor");
. (A) any purchase of Debentures by us will be for our own account or for
the account of one or more other Institutional Accredited Investors or as
fiduciary for the account of one or more trusts, each of which is an
"accredited investor" within the meaning of Rule 501(a)(7) under the
Securities Act and for each of which we exercise sole investment discretion
or (B) we are a "bank," within the meaning of Section 3(a)(2) of the
Securities Act, or a "savings and loan association" or other institution
described in Section 3(a)(5)(A) of the Securities Act that is acquiring
Debentures as fiduciary for the account of one or more institutions for
which we exercise sole investment discretion;
. in the event that we purchase any Debentures, we will acquire Debentures
having a minimum principal amount of not less than $100,000 for our own
account or for any separate account for which we are acting;
. we have such knowledge and experience in financial and business matters
that we are capable of evaluating the merits and risks of purchasing the
Debentures;
. we are not acquiring Debentures with a view to distribution thereof or
with any present intention of offering or selling Debentures or the Common
Stock issuable upon conversion
B-1
<PAGE>
thereof, except as permitted below; provided that the disposition of our
property and property of any accounts for which we are acting as fiduciary
shall remain at all times within our control; and
. we have received a copy of the Offering Memorandum and acknowledge that we
have had access to such financial and other information, and have been
afforded the opportunity to ask such questions of representatives of the
Company and receive answers thereto, as we deem necessary in connection
with our decision to purchase Debentures.
We understand that the Debentures are being offered in a transaction
not involving any public offering within the United States within the meaning of
the Securities Act and that the Debentures and the shares of Common Stock
issuable upon conversion thereof have not been registered under the Securities
Act, and we agree, on our own behalf and on behalf of each account for which we
acquire any Debentures, that if in the future we decide to resell or otherwise
transfer such Debentures or the Common Stock issuable upon conversion thereof,
such Debentures or Common Stock may be resold or otherwise transferred only (i)
to the Company or any subsidiary thereof, or (ii) inside the United States to a
person who is a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in a transaction meeting the requirements of Rule 144A, or
(iii) inside the United States to an Institutional Accredited Investor that,
prior to such transfer, furnishes to the Trustee or transfer agent for such
securities a signed letter containing certain representations and agreements
relating to the restrictions on transfer of such securities (the form of which
letter can be obtained from such Trustee or transfer agent), or (iv) outside the
United States in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (v) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if applicable), or (vi) pursuant to a
registration statement which has been declared effective under the Securities
Act (and which continues to be effective at the time of such transfer), and in
each case, in accordance with any applicable securities laws of any State of the
United States or any other applicable jurisdiction and in accordance with the
legends set forth on the Debentures or the Common Stock issuable upon conversion
thereof, as the case may be. We further agree to provide any person purchasing
any of the Debentures or the Common Stock issuable upon conversion thereof other
than pursuant to clause (vi) above from us a notice advising such purchaser that
resales of such securities are restricted as stated herein. We understand that
the Trustee or transfer agent for the Debentures and the Common Stock will not
be required to accept for registration of transfer any Debentures or any shares
of Common Stock issued upon conversion of the Debentures except upon
presentation of evidence satisfactory to the Company that the foregoing
restrictions on transfer have been complied with. We further understand that any
Debentures and any certificates representing Common Stock will be in the form of
definitive physical certificates and that such certificates will bear a legend
reflecting the substance of this paragraph other than certificates representing
Common Stock transferred pursuant to clause (vi) above.
We acknowledge that the Company, others and you will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you
B-2
<PAGE>
promptly in writing if any of our representations or warranties herein ceases to
be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK.
_______________________________________
(Name of Purchaser)
By: _________________________________
Name: _________________________________
Title:_________________________________
Address:_______________________________
B-3
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of
February 13, 1998 by and among CENTOCOR, INC., a Pennsylvania corporation (the
"Company") and MORGAN STANLEY & CO. INCORPORATED (the "Initial Purchaser")
pursuant to the Purchase Agreement, dated as of February 13, 1998 (the "Purchase
Agreement"), between the Company and the Initial Purchaser. In order to induce
the Initial Purchaser to enter into the Purchase Agreement, the Company has
agreed to provide the registration rights set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Purchase
Agreement.
The Company agrees with the Initial Purchaser, (i) for its benefit as
Initial Purchaser and (ii) for the benefit of the holders from time to time of
the Debentures (including the Initial Purchaser) and the holders from time to
time of the Common Stock issued upon conversion of the Debentures (each of the
foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
-----------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following terms have the following meanings:
AFFILIATE: With respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified person or (ii) any officer or
director of such other person. For purposes of this definition, the term
"control" (including the terms "controlling," "controlling by" and "under common
control with") of a person means the possession, direct or indirect, of the
power (whether or not exercised) to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
COMMON STOCK: The shares of common stock, $.01 par value per
share, of the Company and any other shares of common stock as may constitute
"Common Stock" for purposes of the Indenture, in each case, and issuable or
issued upon conversion of the Debentures.
DAMAGES ACCRUAL PERIOD: See Section 2(f) hereof.
DAMAGES PAYMENT DATE: Each of the semi-annual interest payment
dates provided in the Indenture.
DEBENTURES: 4 3/4% Convertible Subordinated Debentures due 2005
of the Company being issued and sold pursuant to the Purchase Agreement and the
Indenture.
DEFERRAL PERIOD: See Section 2(e) hereof.
<PAGE>
EFFECTIVENESS PERIOD: The period commencing with the date hereof and
ending on the date that all Registrable Securities have ceased to be Registrable
Securities.
EVENT: See Section 2(f) hereof.
EVENT DATE: See Section 2(f) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
FILING DATE: See Section 2(a) hereof.
HOLDER: See the second paragraph of this Agreement.
INDENTURE: The Indenture, dated as of February 20, 1998, between the
Company and United States Trust Company of New York, as Trustee, pursuant to
which the Debentures are being issued, as amended or supplemented from time to
time in accordance with the terms thereof.
INITIAL PURCHASER: Morgan Stanley & Co. Incorporated.
INITIAL SHELF REGISTRATION: See Section 2(a) hereof.
LIQUIDATED DAMAGES: See Section 2(f) hereof.
LOSSES: See Section 6 hereof.
MANAGING UNDERWRITERS: The investment banking firm or firms that
shall manage or co-manage an Underwritten Offering.
NOTICE AND QUESTIONNAIRE: A written notice delivered to the Company
containing substantially the information called for by the Notice and
Questionnaire attached as Appendix B to the Offering Memorandum of the Company
to be dated as of February 13, 1998 relating to the Debentures.
NOTICE HOLDER: See Section 2(d) hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by an amendment or prospectus supplement, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
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<PAGE>
PURCHASE AGREEMENT: See the first paragraph of this Agreement.
RECORD HOLDER: (i) With respect to any Damages Payment Date relating
to any Debenture as to which any such Liquidated Damages have accrued, the
registered holder of such Debenture on the record date with respect to the
interest payment date under the Indenture on which such Damages Payment Date
shall occur and (ii) with respect to any Damages Payment Date relating to any
Common Stock as to which any such Liquidated Damages have accrued, the
registered holder of such Common Stock 15 days prior to the next succeeding
Damages Payment Date.
REGISTRABLE SECURITIES: (A) The Common Stock of the Company into
which the Debentures are convertible or converted, whether or not such
Debentures have been converted, and any Common Stock issued with respect thereto
upon any stock dividend, split or similar event until, in the case of any such
Common Stock, (i) it is effectively registered under the Securities Act and
resold in accordance with the Registration Statement covering it, (ii) it is
saleable by the holder thereof pursuant to Rule 144(k) or (iii) it is sold to
the public pursuant to Rule 144, and, as a result of the event or circumstance
described in any of the foregoing clauses (i) through (iii), the legends with
respect to transfer restrictions required under the Indenture (other than any
such legends required solely as the consequence of the fact that such Common
Stock (or the Debentures, upon the conversion of which, such Common Stock was
issued or is issuable) is owned by, or was previously owned by, the Company or
an Affiliate of the Company) are removed or removable in accordance with the
terms of the Indenture; (B) the Debentures, until, in the case of such
Debenture, (i) it is converted into shares of Common Stock in accordance with
the terms of the Indenture, (ii) it is effectively registered under the
Securities Act and resold in accordance with the Registration Statement covering
it, (iii) it is saleable by the holder thereof pursuant to Rule 144(k) or (iv)
it is sold to the public pursuant to Rule 144, and, as a result of the event or
circumstance described in any of the foregoing clauses (ii) through (iv), the
legends with respect to transfer restrictions required under the Indenture
(other than any such legends required solely as the consequence of that fact
that such Debenture is owned by, or was previously owned by, the Company or an
Affiliate of the Company) are removed or removable in accordance with the terms
of the Indenture.
REGISTRATION STATEMENT: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
RULE 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
-3-
<PAGE>
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
SHELF REGISTRATION: See Section 2(a) hereof.
SPECIAL COUNSEL: Brown & Wood llp, or such successor counsel as shall
be specified by the Holders of a majority of the Registrable Securities, the
fees and expenses of which will be paid by the Company pursuant to Section 5
hereof.
SUBSEQUENT SHELF REGISTRATION: See Section 2(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The Trustee under the Indenture.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. Shelf Registration.
------------------
(a) The Company shall prepare and file with the SEC, as soon as
practicable but in any event on or prior to the date ninety (90) days following
the latest date of original issuance of the Debentures (the "Filing Date"), a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 of the Securities Act (a "Shelf Registration") registering the
resale from time to time by Holders thereof of all of the Registrable Securities
(the "Initial Shelf Registration"). The Initial Shelf Registration shall be on
Form S-3 or another appropriate form permitting registration of such Registrable
Securities for resale by the Holders in the manner or manners designated by them
(including, without limitation, one or more Underwritten Offerings). The
Company shall use reasonable efforts to cause the Initial Shelf Registration to
be declared effective under the Securities Act as promptly as practicable and to
keep the Initial Shelf Registration continuously effective under the Securities
Act until the earlier of the expiration of the Effectiveness Period or the date
a Subsequent Shelf Registration, as defined below, covering all of the
Registrable Securities has been declared effective under the Securities Act.
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration, as defined below, ceases to be effective for any reason as a
result of the issuance of a stop order by the SEC at any time during the
Effectiveness Period, the Company shall use reasonable efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in any
event shall within thirty (30) days of such cessation of effectiveness amend the
Shelf Registration in manner reasonably expected to obtain the withdrawal of the
order suspending the effectiveness thereof, or file an additional Shelf
Registration covering all of the Registrable Securities (a
-4-
<PAGE>
"Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed,
the Company shall use reasonable efforts to cause the Subsequent Shelf
Registration to be declared effective as soon as practicable after such filing
and to keep such Registration Statement continuously effective until the end of
the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration, if required
by the Securities Act, or if reasonably requested by the Initial Purchaser or by
the Trustee on behalf of a majority of the Holders of the Registrable Securities
covered by such Registration Statement or by any Managing Underwriter of such
Registrable Securities in the event of an Underwritten Offering of the
Registrable Securities.
(d) Each Holder of Registrable Securities agrees that if such Holder
wishes to sell its Registrable Securities pursuant to a Shelf Registration and
related Prospectus, it will do so only in accordance with this Section 2(d).
Each Holder of Registrable Securities agrees to deliver a Notice and
Questionnaire to the Company at least three Business Days prior to any intended
distribution of Registrable Securities under the Shelf Registration. As soon as
practicable after the date the Notice and Questionnaire is provided, and in any
event within two Business Days after such date, the Company shall (i) if
necessary, prepare and file with the SEC a post-effective amendment to the Shelf
Registration or a supplement to the related Prospectus or a supplement or
amendment to any document incorporated therein by reference or file any other
required document so that such Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
so that, as thereafter delivered to purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) provide each Holder who has delivered
a Notice and Questionnaire (each, a "Notice Holder") copies of any documents
filed pursuant to Section 2(d)(i); and (iii) inform each Notice Holder that the
Company has complied with its obligation in Section 2(d)(i) (or that, if the
Company has filed a post-effective amendment to the Shelf Registration which has
not yet been declared effective, the Company will notify the Notice Holder to
that effect, will use reasonable efforts to secure the effectiveness of such
post-effective amendment and will immediately notify the Notice Holder when the
amendment has become effective).
(e) In the event (i) of the happening of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi) hereof
or (ii) that, in the judgment of the Company, it is advisable to suspend use of
the Prospectus for a discrete period of time due to pending material corporate
developments or similar material events that have not yet been publicly
disclosed and as to which the Company believes public disclosure will be
prejudicial to the Company (the "Deferral Period"), the Company shall deliver a
certificate in writing, signed by an authorized executive officer of the
Company, to the Notice Holders, the Special Counsel and the Managing
Underwriters, if any, to the effect of the foregoing and, upon receipt of such
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<PAGE>
certificate, each such Notice Holder shall not sell any Registrable Securities
and shall not use the Prospectus until such Notice Holder's receipt of copies of
the supplemented or amended Prospectus provided for in Section 2(d)(i) hereof,
or until it is advised in writing by the Company that the Prospectus may be used
and has received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in such Prospectus. The
Company will use reasonable efforts to ensure that the use of the Prospectus may
be resumed, and sales of Registrable Securities can commence, as soon as
practicable and, in the case of a pending development or event referred to in
Section 2(e)(ii) hereof, as soon as the earlier of (x) public disclosure of such
pending material corporate development or similar material event or (y) in the
judgment of the Company, public disclosure of such material corporate
development or similar material event would not be prejudicial to the Company.
Notwithstanding any other provision in this Agreement, the Company shall not
under any circumstances be entitled to exercise its rights under this Section
2(e) to defer sales of Registrable Securities except as follows: the Company
may defer sales of Registrable Securities in accordance with this Section 2(e)
for a period not to exceed thirty (30) days in any three-month period, or not to
exceed an aggregate of sixty (60) days in any 365 day period, and the period in
which sales of Registrable Securities are suspended shall not exceed fifteen
(15) days unless the Company shall deliver to such Notice Holders a second
notice to the effect set forth above, which shall have the effect of extending
the period during which sales of Registrable Securities are deferred by up to an
additional fifteen (15) days, or such shorter period of time as is specified in
such second notice.
(f) The parties hereto agree that the Holders of Registrable
Securities will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if (i) the Initial Shelf Registration
had not been filed on or prior to the Filing Date, (ii) prior to the end of the
Effectiveness Period, the SEC shall have issued a stop order suspending the
effectiveness of the Shelf Registration or proceedings have been initiated with
respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities
Act, (iii) the aggregate number of days in any one Deferral Period exceeds the
periods permitted pursuant to Section 2(e) hereof or (iv) the number of Deferral
Periods exceeds the number permitted pursuant to Section 2(e) hereof (each of
the events of a type described in any of the foregoing clauses (i) through (iv)
are individually referred to herein as an "Event," and the Filing Date in the
case of clause (i), the date on which the effectiveness of the Shelf
Registration has been suspended or proceedings with respect to the Shelf
Registration under Section 8(d) or 8(e) of the Securities Act have been
commenced in the case of clause (ii), the date on which the duration of a
Deferral Period exceeds the periods permitted by Section 2(e) hereof in the case
of clause (iii), and the date of the commencement of a Deferral Period that
causes the limit on the number of Deferral Periods under Section 2(e) hereof to
be exceeded in the case of clause (iv), being referred to herein as an "Event
Date"). Events shall be deemed to continue until the date of the termination of
such Event, which shall be the following dates with respect to the respective
types of Events: the date the Initial Registration Statement is filed in the
case of an Event of the type described in clause (i), the date that all stop
orders suspending effectiveness of the Shelf Registration have been removed and
the proceedings initiated with respect to the Shelf Registration under Section
8(d) or 8(e) of the Securities Act have terminated, as the case may be, in the
case of Events of the types described in clause (ii), termination of the
Deferral Period which caused the aggregate
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<PAGE>
number of days in any one Deferral Period to exceed the number permitted by
Section 2(e) to be exceeded in the case of Events of the type described in
clause (iii), and termination of the Deferral Period the commencement of which
caused the number of Deferral Periods permitted by Section 2(e) to be exceeded
in the case of Events of the type described in clause (iv).
Accordingly, upon the occurrence of any Event and until such time as
there are no Events which have occurred and are continuing (a "Damages Accrual
Period"), commencing on the Event Date on which such Damages Accrual Period
began, the Company agrees to pay, as liquidated damages, and not as a penalty,
an additional amount (the "Liquidated Damages"): (A)(i) to each holder of a
Debenture that is a Notice Holder, accruing at a rate equal to one-half of one
percent per annum (50 basis points) on the aggregate principal amount of
Debentures held by such Notice Holder and (ii) to each holder of Common Stock
that is a Notice Holder, accruing at a rate equal to one-half of one percent per
annum (50 basis points) calculated on an amount equal to the product of (x) the
then-applicable Conversion Price (as defined in the Indenture) multiplied by (y)
the number of shares of Common Stock held by such holder; and (B) if the Damages
Accrual Period continues for a period in excess of thirty (30) days from the
Event Date, from and after the end of such thirty (30) days until such time as
there are no Events which have occurred and are continuing, (i) to each holder
of a Debenture (whether or not a Notice Holder), accruing at a rate equal to
one-half of one percent per annum (50 basis points) on the aggregate principal
amount of Debentures held by such holder and (ii) to each holder of Common Stock
into which Debentures have been converted (whether or not a Notice Holder),
accruing at a rate equal to one-half of one percent per annum (50 basis points)
calculated on an amount equal to the product of (x) the then applicable
Conversion Price (as defined in the Indenture) multiplied by (y) the number of
shares of Common Stock held by such holder. Notwithstanding the foregoing, no
Liquidated Damages shall accrue under clause (A) for the preceding sentence
during any period for which Liquidated Damages accrue under clause (B) of the
preceding sentence or as to any Registrable Securities from and after the
expiration of the Effectiveness Period. The rate of accrual of the Liquidated
Damages with respect to any period shall not exceed the rate provided for in
this paragraph notwithstanding the occurrence of multiple concurrent Events.
The Company shall pay the Liquidated Damages due on any Debentures or
Common Stock by depositing with the Trustee under the Indenture, in trust, for
the benefit of the holders of Debentures or Common Stock or Notice Holders, as
the case may be, entitled thereto, at least one (1) Business Day prior to the
applicable Damages Payment Date, sums sufficient to pay the Liquidated Damages
accrued or accruing since the last preceding Damages Payment Date through such
Damages Payment Date. The Liquidated Damages shall be paid by the Trustee on
behalf of the Company to the Record Holders on each Damages Payment Date by wire
transfer of immediately available funds to the accounts specified by them or by
mailing checks to their registered addresses as they appear in the Debenture
register (as defined in the Indenture), in the case of the Debentures, and in
the register of the Company for the Common Stock, in the case of the Common
Stock, if no such accounts have been specified on or before the Damages Payment
Date; provided, however, that any Liquidated Damages accrued with respect to any
Debenture or portion thereof called for redemption on a redemption date,
redeemed or
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<PAGE>
repurchased in connection with a Fundamental Change (as defined in the
Indenture) on a repurchase date, or converted into Common Stock on a conversion
date prior to the Damages Payment Date, shall, in any such event, be paid
instead to the holder who submitted such Debenture or portion thereof for
redemption, repurchase or conversion on the applicable redemption date,
repurchase date or conversion date, as the case may be, on such date (or
promptly following the conversion date, in the case of conversion of a
Debenture). The Trustee shall be entitled, on behalf of the holders of
Debentures, holders of Common Stock and Notice Holders, to seek any available
remedy for the enforcement of this Agreement, including for the payment of such
Liquidated Damages. Notwithstanding the foregoing, the parties agree that the
sole damages payable for a violation of the terms of this Agreement with respect
to which Liquidated Damages are expressly provided shall be such Liquidated
Damages. Nothing shall preclude a Notice Holder or Holder of Registrable
Securities from pursuing or obtaining specific performance or other equitable
relief with respect to this Agreement, in addition to the payment of Liquidated
Damages.
All of the Company's obligations set forth in this Section 2(f) which
are outstanding with respect to any Registrable Securities at the time such
security ceases to be a Registrable Security shall survive until such time as
all such obligations with respect to such security have been satisfied in full
(notwithstanding termination of the Agreement pursuant to Section 8(o)).
The parties hereto agree that the Liquidated Damages provided for in
this Section 2(f) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities (other than the Initial Purchaser)
by reason of the failure of the Shelf Registration to be filed or declared
effective or unavailable (absolutely or as a practical matter) for effecting
resales of Registrable Securities, as the case may be, in accordance with the
provisions hereof.
3. Registration Procedures. In connection with the Company's
-----------------------
registration obligations under Section 2 hereof, the Company shall effect such
registrations to permit the sale of the Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company shall:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holders thereof in
accordance with the intended method or methods of distribution thereof, and use
reasonable efforts to cause each such Registration Statement to become effective
and remain effective as provided herein; provided that, before filing any such
Registration Statement or Prospectus or any amendments or supplements thereto
(other than documents that would be incorporated or deemed to be incorporated
therein by reference and that the Company is required by applicable securities
laws or stock exchange requirements to file), the Company shall furnish to the
Initial Purchaser, the Special Counsel and the Managing Underwriters of such
offering, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of the Initial Purchaser, the Special
Counsel and such
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<PAGE>
Managing Underwriters, and the Company shall not file any such Registration
Statement or amendment thereto or any Prospectus or any supplement thereto
(other than such documents which, upon filing, would be incorporated or deemed
to be incorporated by reference therein and that the Company is required by
applicable securities laws or stock exchange requirements to file) to which the
Holders of a majority of the Registrable Securities covered by such Registration
Statement, the Initial Purchaser or the Special Counsel shall reasonably object
in writing within two (2) full Business Days.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable period
specified in Section 2; cause the related Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) under the Securities Act; and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement and Prospectus during
the applicable period in accordance with the intended methods of disposition by
the sellers thereof set forth in such Registration Statement as so amended or
such Prospectus as so supplemented.
(c) Notify the Notice Holders, the Initial Purchaser, the Special
Counsel and the Managing Underwriters, if any, promptly, and (if requested by
any such person) confirm such notice in writing, (i) when a Prospectus, any
Prospectus supplement, a Registration Statement or a post-effective amendment to
a Registration Statement has been filed with the SEC, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC or any other federal or state
governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information, (iii) of the issuance by
the SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation or
threatening of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or happening of any event which makes
any statement of a material fact in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue or which would require the making of any changes in the
Registration Statement or Prospectus in order that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading and (vi) of the Company's determination that a post-
effective amendment to a Registration Statement would be appropriate. Notice of
the filing and effectiveness of the Initial Registration Statement and any
Subsequent Registration Statement shall be made by the Company by release made
to Reuters Economic Services and Bloomberg Business News.
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<PAGE>
(d) Use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
moment.
(e) If reasonably requested by the Initial Purchaser or the Managing
Underwriters, if any, or the Holders of a majority of the Registrable Securities
being sold, (i) promptly incorporate in a Prospectus supplement or post-
effective amendment to a Registration Statement such information as the Initial
Purchaser, the Special Counsel, the Managing Underwriters, if any, or such
Holders, in connection with any offering of Registrable Securities, agree should
be included therein as required by applicable law and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as reasonably practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided that the Company shall not be required to take any actions
under this Section 3(e) that are not, in the reasonable opinion of counsel for
the Company, in compliance with applicable law.
(f) Furnish to each Notice Holder, the Special Counsel, the Initial
Purchaser and each Managing Underwriter, if any, without charge, at least one
conformed copy of the Registration Statement or Statements and any amendment
thereto, including financial statements but excluding schedules, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits
(unless requested in writing by such Notice Holder, counsel, the Initial
Purchaser or underwriter).
(g) Deliver to each Notice Holder, the Special Counsel, the Initial
Purchaser and each Managing Underwriter, if any, in connection with any offering
of Registrable Securities, without charge, as many copies of the Prospectus or
Prospectuses relating to such Registrable Securities (including each preliminary
prospectus) and any amendment or supplement thereto as such persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus or each amendment or supplement thereto by each of the Notice Holders
of Registrable Securities and the underwriters, if any, in connection with any
offering and sale of the Registrable Securities covered by such Prospectus or
any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the Notice Holders, the Managing
Underwriters, if any, and the Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Notice Holder or Managing Underwriter reasonably requests in writing; keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept effective
and do any all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
applicable Registration Statement; provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it is
not then so qualified or (ii) take any action that would subject it to general
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<PAGE>
service of process in suits or to taxation in any such jurisdiction where it is
not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such Notice Holder, in which
case the Company will cooperate in all reasonable respects with the filing of
such Registration Statement and the granting of such approvals, as may be
necessary to enable the Notice Holder or Holders thereof or the Managing
Underwriters, if any, to consummate the disposition of such Registrable
Securities.
(j) Other than during a Deferral Period, immediately upon the
existence of any fact or the occurrence of any event as a result of which a
Registration Statement shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or a Prospectus shall contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, promptly
prepare and file (subject to the proviso in Section 3(a)) a post-effective
amendment to each Registration Statement or a supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document (such as a Current Report on Form 8-K) that would be
incorporated by reference into the Registration Statement so that the
Registration Statement shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and so that the Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, as
thereafter delivered to the purchasers of the Registrable Securities being sold
thereunder, and, in the case of a post-effective amendment to a Registration
Statement, use its reasonable efforts to cause it to become effective as soon as
practicable.
(k) Enter into such agreements (including, in the event of an
Underwritten Offering, an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including, in the event of an Underwritten Offering, those
reasonably requested by the Managing Underwriters, if any, or the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into, and if the
registration is an underwritten registration, (i) make such representations and
warranties, subject to the Company's ability to do so, to the Holders of such
Registrable Securities and the underwriters with respect to the business of the
Company and its subsidiaries, the Registration Statement, Prospectus and
documents incorporated by reference or deemed incorporated by reference, if any,
in each case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings (provided that the scope and substance
shall not be materially different than those contained in the Purchase
Agreement) and confirm the same if and when requested; (ii) use its reasonable
efforts to obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form,
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<PAGE>
scope and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any, Special Counsel and the Holders of a majority of the
Registrable Securities being sold) addressed to each of the underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such Special
Counsel and Managing Underwriters; (iii) use its reasonable efforts to obtain
"cold comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any business acquired or to be acquired by the Company for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the Managing Underwriters, if
any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings; and (iv) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being sold,
the Special Counsel and the Managing Underwriters, if any, to evidence the
continued validity of the representations and warranties of the Company and its
subsidiaries made pursuant to clause (i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The above shall be done at each closing
under such underwriting or similar agreement as and to the extent required
thereunder.
(l) If requested in connection with a disposition of Registrable
Securities pursuant to a Registration Statement, make available for inspection
by a representative of the Holders of Registrable Securities being sold, any
Managing Underwriter participating in any disposition of Registrable Securities,
if any, and any attorney or accountant retained by such Notice Holders or
underwriter, financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the executive
officers, directors and employees of the Company and its subsidiaries, to supply
all information reasonably requested by any such representative, Managing
Underwriter, attorney or accountant in connection with such disposition; subject
to reasonable assurances by each such person that such information will only be
used in connection with matters relating to such Registration Statement;
provided, however, that such persons shall first agree in writing with the
Company that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by such persons and shall be used solely
for the purposes of exercising rights under this Agreement, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities, (ii) disclosure
of such information is required by law (including any disclosure requirements
pursuant to federal securities laws in connection with the filing of any
Registration Statement or the use of any prospectus referred to in this
Agreement), (iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by any such
person or (iv) such information becomes available to any such person from a
source other than the Company and such source is not bound by a confidentiality
agreement.
(m) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements (which need
not be audited) satisfying
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<PAGE>
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than forty-
five (45) days after the end of any twelve (12) month period (or ninety (90)
days after the end of any twelve (12) month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
commencing after the effective date of a Registration Statement, which
statements shall cover said twelve (12) month period.
(n) Cooperate with the Notice Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations and registered in
such names as such Holders may request.
(o) Provide the Trustee under the Indenture and the transfer agent for
the Common Stock with printed certificates for the Registrable Securities which
are in a form eligible for deposit with The Depositary Trust Company.
(p) Cause the Common Stock covered by the Registration Statement to be
listed on each securities exchange or quoted on each automated quotation system
on which any of the Company's "Common Stock," as that term is defined in the
Indenture, is then listed or quoted) no later than the date the Registration
Statement is declared effective and, in connection therewith, to the extent
applicable, to make such filings under the Exchange Act (e.g., the filing of a
Registration Statement on Form 8-A) and to have such filings declared effective
thereunder.
(q) Cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc.
4. Holder's Obligations. Each Holder agrees, by acquisition of the
--------------------
Debentures and Registrable Securities, that no Holder of Registrable Securities
shall be entitled to sell any of such Registrable Securities pursuant to a
Registration Statement or to receive a Prospectus relating thereto, unless such
Holder has furnished the Company with the Notice and Questionnaire required
pursuant to Section 2(d) hereof and such other information regarding such Holder
and the distribution of such Registrable Securities as may be required to be
included in the Registration Statement or the Prospectus or as the Company may
from time to time reasonably request. The Company may exclude from such
registration the Registrable Securities of any Holder who does not furnish such
information provided above for so long as such information is not so furnished.
Each Holder of Registrable Securities as to which any Registration Statement is
being effected agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not misleading. Any sale of any Registrable
Securities by any Holder shall constitute a representation and warranty by such
Holder that the information relating to such Holder and its plan of distribution
is as set forth in the Prospectus delivered by such Holder in connection with
such disposition, that such Prospectus does not as of the time of such sale
contain any untrue
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<PAGE>
statement of a material fact relating to such Holder or its plan of distribution
and that such Prospectus does not as of the time of such sale omit to state any
material fact relating to such Holder or its plan of distribution necessary to
make the statements in such Prospectus, in light of the circumstances under
which they were made, not misleading.
5. Registration Expenses. All fees and expenses incident to the
---------------------
Company's performance of or compliance with this Agreement shall be borne by the
Company whether or not any of the Registration Statements become effective.
Such fees and expenses shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses (x) with
respect to filings required to be made with the SEC or the National Association
of Securities Dealers, Inc. and (y) relating to compliance with federal
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of Special Counsel in connection with Blue Sky qualifications of
the Registrable Securities under the laws of such jurisdictions as the Managing
Underwriters, if any, or Holders of a majority of the Registrable Securities
being sold may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the Special Counsel
or the Holders of a majority of the Registrable Securities included in any
Registration Statement), (iii) the reasonable fees and disbursements of the
Trustee and its counsel and of the registrar and transfer agent for the Common
Stock, (iv) messenger, telephone and delivery expenses relating to the
performance of the Company's obligations hereunder, (v) reasonable fees and
disbursements of counsel for the Company and the Special Counsel in connection
with the Shelf Registration (provided that the Company shall not be liable for
the fees and expenses of more than one separate firm, in addition to counsel for
the Company, for all parties participating in any transaction hereunder), (vi)
fees and disbursements of all independent certified public accountants referred
to in Section 3(k)(iii) hereof (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance and (vii)
Securities Act liability insurance, to the extent obtained by the Company in its
sole discretion. In addition, the Company shall pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed and the fees and expenses of
any person, including special experts, retained by the Company. Notwithstanding
the provisions of this Section 5, each seller of Registrable Securities shall
pay all underwriting discounts, selling commissions and stock transfer taxes
applicable to the Registrable Securities, all selling expenses and all
registration expenses to the extent that the Company is prohibited by applicable
Blue Sky laws from paying such expenses for or on behalf of such seller of
Registrable Securities.
6. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless the Initial Purchaser, each Holder and each person, if any, who
controls the Initial Purchaser or any Holder (within the meaning of either
Section 15 of the Securities Act or Section
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<PAGE>
20(a) of the Exchange Act) from and against all losses, liabilities, damages and
expenses (including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or claim)
(collectively, "Losses"), arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
Losses arise out of or are based upon the information relating to the Initial
Purchaser or any Holder furnished to the Company in writing by the Initial
Purchaser or such Holder expressly for use therein (including, without
limitation, any information relating to the plan of distribution of Registrable
Securities furnished by such person); provided that the Company shall not be
liable to any Holder of Registrable Securities (or any person controlling such
Holder) to the extent that any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A)(i) such Holder failed to send
or deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such Holder to the person asserting the claims from
which such Losses arise and (ii) the Prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission, or
(B)(x) such untrue statement or alleged untrue statement, omission or alleged
omission is corrected in an amendment or supplement to the Prospectus and (y)
having previously been furnished by or on behalf of the Company with copies of
the Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, with or prior to the
delivery of written confirmation of the sale of a Registrable Security to the
person asserting the claim from which Losses arise. The Company shall also
indemnify each underwriter and each person who controls such person (within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act) to the same extent and with the same limitations as provided above with
respect to the indemnification of the Initial Purchaser or the Holders of
Registrable Securities.
(b) Indemnification by Holder of Registrable Securities. Each Holder
agrees, and such agreement shall be evidenced by the Holder delivering the
Notice and Questionnaire described in Section 2(d) hereof, severally and not
jointly to indemnify and hold harmless the Initial Purchaser, the other Holders,
the Company, its directors, its officers who sign a Registration Statement, and
each person, if any, who controls the Company, the Initial Purchaser and any
other Holder (within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act), from and against all losses arising out of or
based upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
relating to such Holder so furnished in writing by such Holder to the Company
expressly for use in such Registration Statement or Prospectus. In no event
shall the liability of any Holder of Registrable Securities hereunder be greater
in amount than the dollar amount of the proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
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<PAGE>
obligation.
(c) Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
It is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (a) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Initial
Purchaser and all persons, if any, who control the Initial Purchaser within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, (b) the fees and expenses of more than one separate firm (in addition to
any local counsel) for all Holders and all persons, if any, who control any
Holder within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, and (c) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Company, its directors, its
officers who sign a Registration Statement and each person, if any, who controls
the Company within the meaning of either such Section, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Company, and such directors, officers and the control
persons of the Company, such firm shall be designated in writing by the Company.
In such case involving the Initial Purchaser and persons who control the Initial
Purchaser, such firm shall be designated in writing by the Initial Purchaser.
In such case involving the Holders and such persons who control Holders, such
firm shall be designated in writing by the Holders of the majority of
Registrable Securities sold pursuant to the Registration Statement. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
forty-five (45) days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party, shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party
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<PAGE>
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability or claims
that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this Section
6 is unavailable to an indemnified party under Section 6(a) or 6(b) hereof in
respect of any Losses or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the initial placement (before deducting expenses) of the
Debentures pursuant to the Purchase Agreement. Benefits received by the Initial
Purchaser shall be deemed to be equal to the total purchase discounts and
commissions received by it pursuant to the Purchase Agreement and benefits
received by any other Holders shall be deemed to be equal to the value of
receiving Debentures registered under the Securities Act. Benefits received by
any underwriter shall be deemed to be equal to the total discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement which resulted in such Losses. The relative fault of
the Holders on the one hand and the Company on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Holders or by the Company
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this paragraph are several in
proportion to the respective number of Registrable Securities they have sold
pursuant to a Registration Statement, and not joint.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding this Section 6(d), an
indemnifying party that is a Holder of Registrable Securities shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such indemnifying party and
distributed to the public
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<PAGE>
were offered to the public exceeds the amount of any damages which such
indemnifying party has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Purchase Agreement or otherwise. The
provisions of this Section 6 shall survive so long as Registrable Securities
remain outstanding, notwithstanding any transfer of the Registrable Securities
by any Holder or any termination of this Agreement.
The indemnity and contribution provisions contained in this Section 6
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Initial Purchaser, any Holder or any person controlling the Initial
Purchaser or any Holder and (iii) the sale of any Registrable Securities by any
Holder.
7. Information Requirements.
------------------------
(a) The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act, and if at any time the Company is
not required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. The Company further covenants that it will cooperate with any
Holder of Registrable Securities and take such further reasonable action as any
Holder of Registrable Securities may reasonably request (including, without
limitation, making such reasonable representations as any such Holder may
reasonably request), all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144 and Rule 144A
under the Securities Act. Upon the request of any Holder of Registrable
Securities, the Company shall deliver to such Holder a written statement as to
whether it has complied with such filing requirements. Notwithstanding the
foregoing, nothing in this Section 7 shall be deemed to require the Company to
register any of its securities under any such section of the Exchange Act.
(b) The Company shall file the reports required to be filed by it
under the Exchange Act and shall comply with all other requirements set forth in
the instructions to Form S-3 in order to allow the Company to be eligible to
file registration statements on Form S-3.
8. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement; provided that the sole damages payable for a
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<PAGE>
violation of the terms of this Agreement for which Liquidated Damages are
expressly provided pursuant to Section 2(e) hereof shall be such Liquidated
Damages. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Conflicting Agreements. The Company has not, as of the date
hereof, and shall not, on or after the date of this Agreement, enter into any
agreement with respect to its securities which conflicts with the rights granted
to the Holders of Registrable Securities in this Agreement. The Company
represents and warrants that the rights granted to the Holders or Registrable
Securities hereunder do not in any way conflict with the rights granted to the
holders of the Company's securities under any other agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of a majority of the then outstanding Common Stock constituting Registrable
Securities (with Holders of Debentures deemed to be the Holders, for purposes of
this Section, of the number of outstanding shares of Common Stock into which
such Debentures are convertible). Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders of Registrable
Securities may be given by Holders of at least a majority of the Registrable
Securities being sold by such Holders; provided that the provisions of this
statement may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(iii) one business day after being deposited with a reputable next-day courier,
postage prepaid, to the parties as follows:
(i) if to a Holder of Registrable Securities, at the most
current address given by such Holder to the Company in accordance with the
provisions of Sections 8(e);
(ii) if to the Company, to:
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355-1307
Attention: Chief Financial Officer
Telecopy No: (610) 651-6100
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<PAGE>
with a copy to:
Harkins Cunningham
1800 One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Attention: Eleanor Morris Illoway, Esq.
Telecopy No: (215) 851-6710
and
(iii) if to the Special Counsel to:
Brown & Wood llp
One World Trade Center
New York, New York 10048
Attention: Alan L. Jakimo, Esq.
Telecopy No: (212) 839-5480
or to such other address as such person may have furnished to the other persons
identified in this Section 8(d) in writing in accordance herewith.
(e) Owner of Registrable Securities. The Company will maintain, or
will cause its registrar and transfer agent to maintain, a register with respect
to the Registrable Securities in which all transfers of Registrable Securities
of which the Company has received notice will be recorded. The Company may deem
and treat the person in whose name Registrable Securities are registered in such
register of the Company as the owner thereof for all purposes, including without
limitation, the giving of notices under this Agreement.
(f) Approval of Holders. Whenever the consent or approval of Holders
of a specified percentage of Registrable Securities is required hereunder, (i)
Holders of Debentures shall be deemed to be Holders, for such purposes, of the
number of outstanding shares of Common Stock into which such Debentures are
convertible and (ii) Registrable Securities held by the Company or its
affiliates (as such term is defined in Rule 405 under the Securities Act) (other
than the Initial Purchaser or subsequent Holders of Registrable Securities if
such subsequent Holders are deemed to be such affiliates solely by reason of
their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(g) Successors and Assigns. Any person who purchases any Registrable
Securities from the Initial Purchaser shall be deemed, for purposes of this
Agreement, to be an assignee of such Initial Purchaser. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties and shall inure to the benefit of and be binding upon each Holder
of any Registrable Securities.
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<PAGE>
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
(k) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be in the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such which may be hereafter declared
invalid, illegal, void or unenforceable.
(l) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Registrable Securities. Except as
provided in the Purchase Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
undertakings among the parties with respect to such registration rights.
(m) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(n) Further Assurances. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the
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<PAGE>
transactions contemplated hereby.
(o) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the end of the Effectiveness Period, except for
any liabilities or obligations under Section 4, 5 or 6 hereof and the
obligations to make payments of and provide for Liquidated Damages under Section
2(e) hereof to the extent such damages accrue prior to the end of the
Effectiveness Period, each of which shall remain in effect in accordance with
their terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CENTOCOR, INC.
By: _________________________________
Name:
Title:
Accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
By: ____________________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.2
DISTRIBUTION AGREEMENT
----------------------
This Distribution Agreement (hereinafter "Agreement") is made as of
April 3, 1998, by and between Centocor, Inc., a Pennsylvania corporation
("Centocor"), and Schering-Plough Ltd., a Swiss corporation ("Schering-Plough").
Centocor has developed an anti-TNF chimeric monoclonal antibody
product (cA2, infliximab, Avakine/(TM)/) (the "Product") for use as an agent in
the treatment of (a) inflammatory bowel diseases, including Crohn's Disease
(collectively referred to as "Inflammatory Bowel Disease"); (b) rheumatoid
arthritis; and (c) new indications to be defined. A description of the Product
is set forth in the attached Appendix A. The Product also includes Improvements,
if any, as defined in Section 1.9.
Subject to obtaining necessary Regulatory Approvals, Centocor and
Schering-Plough wish to set forth the manner in which, and the terms under
which, they have agreed to commercialize the Product.
Therefore, the parties, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged by each of them, and
intending to be legally bound, agree as follows.
ARTICLE I
DEFINITIONS
-----------
For purposes of this Agreement, the following terms, when used with
initial capital letters, will have the meaning set forth below. Other terms are
defined elsewhere in this Agreement and those terms, when used with initial
capital letters, will also have the defined meanings whenever they appear in
this Agreement. As to the terms defined and used herein, the singular will be
understood to include the plural and vice-versa, unless the context clearly
indicates to the contrary.
1.1 "AFFILIATE" means any person or entity directly or indirectly
Controlling, Controlled by or under common Control with a party hereto. Any
reference in this Agreement to Centocor or Schering-Plough includes the
Affiliates of that party unless the context clearly indicates to the contrary.
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.2 "AGREEMENT YEAR" means, initially, the period from the Effective
Date of this Agreement through December 31, 1998, or the earlier termination of
this Agreement, and thereafter, each calendar year during the term of this
Agreement or part thereof which ends at the point of expiration or termination
of this Agreement.
1.3 "COMMERCIAL SALES" means, for any applicable period, the amount
invoiced for Product sold by Schering-Plough or its Affiliates to unaffiliated
parties, exclusive of intercompany transfers.
1.4 "CONTROL" means the ability of any entity (the "Controlling"
entity), directly or indirectly, through ownership of securities, by agreement
or by any other method, to direct the manner in which more than fifty percent
(50%) of the outstanding voting rights of any other entity (the "Controlled"
entity), whether or not represented by securities, shall be cast, or the right
to receive over fifty percent (50%) of the profits or earnings of, or to
otherwise control the management decisions of, such other entity (also a
"Controlled" entity).
1.5 "CORE CO-PROMOTION TERRITORY" shall mean all of the following
countries: Germany, France, Italy, Spain and the United Kingdom.
1.6 "COST OF GOODS SOLD" means: (a) the costs of direct material
purchased for use in the production process; (b) depreciation, repair,
maintenance and operating costs of the production facilities utilized in the
production of the Product; (c) the costs of quality, stability and in-process
controls; (d) building operating costs, other than any included in subpart (b)
above; (e) direct labor costs and overheads calculated in conformity with U.S.
generally accepted accounting principles; (f) the costs of mutually agreed,
noncapitalized manufacturing process improvement and cost reduction efforts; and
(g) the costs of filling, finishing and packaging; provided, however, that the
Cost of Goods Sold for the finished Product will not exceed [*] per gram of
labelled Product. "Cost of Goods Sold" excludes the costs of research batches.
This definition of "Cost of Goods Sold" is intended to be consistent with
Appendix B.
1.7 "EFFECTIVE DATE" means the date first set forth above.
1.8 "EMEA APPROVAL" means the issuance by the European Agency for the
Evaluation of Medicinal Products (the "EMEA") of the marketing authorization
(excluding any pricing approvals) necessary for the sale of Product within the
European Community for one or more indications.
CONFIDENTIAL TREATMENT REQUESTED.
2
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.9 "IMPROVEMENT" means any change with respect to the Product,
including, without limitation, any change in the formulation, dosage, mode of
delivery or new indications for the Product, any change in the Product resulting
from a change in the manufacturing process, and any chimeric or humanized anti-
TNF monoclonal antibody or fragment thereof, other than the Product as described
in Appendix A, developed by or licensed to Centocor.
1.10 "MARKETING APPROVAL" means Regulatory Approval, pricing approval
and reimbursement approval, where applicable.
1.11 "MARKETING EXPENSES" means [*].
1.12 "NET SALES" means, for each applicable period, the Commercial
Sales for that period, less reasonable and customary deductions from such gross
amounts, including: (a) normal and customary trade, cash and quantity
discounts, allowances and credits; (b) credits or allowances actually granted
for damaged goods, returns or rejections of Product and retroactive price
reductions; (c) sales or similar taxes when included in billing (including
duties or other governmental charges levied on, absorbed or otherwise imposed on
the sale of Product including, without limitation, value added taxes or other
governmental charges otherwise measured by the billing amount); (d) charge back
payments and rebates granted to managed health care organizations or their
agencies, and purchasers and reimbursers or to trade customers, including but
not limited to, wholesalers and chain and pharmacy buying groups; (e)
commissions paid to third parties other than sales personnel and sales
representatives, sales agents or distributors; and (f) rebates (or equivalents
thereof) granted to or charged by national, state or local governmental
authorities in a country in the Territory, to the extent specifically associated
with Commercial Sales of the Product.
1.13 "PRODUCT" means the anti-TNF chimeric monoclonal antibody product
(cA2, infliximab, Avakine/(TM)/) developed by Centocor for use as an agent in
the treatment of (a) inflammatory bowel diseases, including Crohn's Disease
(collectively referred to as "Inflammatory Bowel Disease"); (b) rheumatoid
arthritis; and (c) new indications to be defined. A description of the Product
is set forth in the attached Appendix A. The Product also includes Improvements,
if any, as defined in Section 1.9.
1.14 "PRODUCT DEVELOPMENT COSTS" means all external costs, including
external product development costs, incurred by Centocor and Schering-Plough
after the Effective Date in connection with the clinical development (including
pre-clinical, toxicology, pharmacology and pharmacodynamic studies and clinical
trials, except as limited by the last
CONFIDENTIAL TREATMENT REQUESTED.
3
<PAGE>
sentence of this definition) and clinical support of regulatory filings with
respect to the Product. "Product Development Costs" also includes the cost of
goods for material used in clinical trials, which cost will be calculated based
on Centocor's Cost of Goods Sold, or, if Centocor contracts with a third party
for manufacture of the Product, will be the actual cost paid by Centocor to that
third party. "Product Development Costs" also includes such costs of the
development of improvements of manufacturing and control processes as are
incurred after the Product has received a first EMEA Approval. All internal
costs of Centocor or Schering-Plough, including but not limited to salaries,
payroll taxes, bonuses and benefits incurred with respect to their employees and
office, administration and overhead expenses, are specifically excluded from the
definition of "Product Development Costs," unless otherwise agreed by the
parties. Excluded from "Product Development Costs" are costs incurred with
respect to clinical trials or other studies undertaken solely to support
applications for Regulatory Approval outside the Territory.
1.15 "REGULATORY APPROVAL" means, as to the United States and each
country in the Territory in which approval may be required, the issuance by the
relevant governmental body or bodies or other organization or organizations of
all licenses, approvals and registrations necessary for the sale of the Product
within such country for a particular indication or indications (excluding any
pricing approvals).
1.16 Subject to Section 2.2(a), "TERRITORY" means the world except for
the United States, Japan, Taiwan, Indonesia and the People's Republic of China
(including Hong Kong).
ARTICLE II
DISTRIBUTION AND PROMOTION OF THE PRODUCT
-----------------------------------------
2.1 DISTRIBUTION AND PROMOTION PLAN. Subject to the further terms
-------------------------------
and conditions described below, Centocor and Schering-Plough agree on the
following distribution and promotion plan for the Product, all subject to the
receipt of the necessary Regulatory Approvals, wherever required.
(a) EXCLUSIVE DISTRIBUTION BY SCHERING PLOUGH. Centocor will sell the
-----------------------------------------
Product to Schering-Plough on an exclusive basis for resale by Schering-Plough
in each country within the Territory in which Schering-Plough may lawfully sell
the Product. Subject to any regulatory restrictions on price in any of the
countries in the Territory, Schering-Plough will set the selling price of the
Product in the Territory to unaffiliated parties.
4
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
In those countries in which governmental approval of pricing is required or
desirable, Schering-Plough will have the responsibility for seeking such
approval; and Centocor will appoint Schering-Plough to act as its agent in
seeking such approval and will otherwise cooperate with and provide reasonable
assistance to Schering-Plough. Notwithstanding any other provision of this
Agreement, Schering-Plough will not have any obligation to launch the sale of
the Product in any country in the Territory in which governmental approval of
pricing is required or desirable, but in which Schering-Plough is unable to
obtain approval of pricing which is satisfactory in the view of the Product
Committee. Schering-Plough will, on an exclusive basis, distribute (or cause
the distribution of) and, subject to Section 2.1(b), market the Product in all
countries in the Territory in which Marketing Approval for the Product has been
granted. Centocor will participate in promotional support and educational
support activities with respect to the Product in the Territory in a manner to
be discussed and approved from time to time by the Product Committee.
(b) CO-PROMOTION OF THE PRODUCT IN THE TERRITORY. If, at the
--------------------------------------------
conclusion of the [*] full Agreement Year after both of the milestones set forth
in Section 3.3 have been achieved, Net Sales of the Product in the Territory are
less than [*] in that [*] full Agreement Year, Centocor shall thereafter have
the option to co-promote the Product with Schering-Plough, using its own
resources or resources contracted from others, in the Core Co-Promotion
Territory. Centocor may exercise its co-promotion option by providing written
notice to Schering-Plough to that effect; provided, however, that Centocor's co-
promotion option will expire on the [*] day of the [*] full Agreement Year after
the milestones set forth in Section 3.3 have been achieved. Upon exercising the
co-promotion option, Centocor shall be obligated to perform fifty percent (50%)
of the details (as determined by the Product Committee) in the Core Co-promotion
Territory. Centocor's co-promotion option shall be contingent upon Centocor
having in place at the time the option is exercised an adequate field sales
force to perform such activities. The remaining terms pursuant to which
Centocor and Schering-Plough will co-promote the Product should this contingency
arise, including the potential expansion of the Core Co-Promotion Territory,
will be determined by the Product Committee, subject to the terms of Section
[*]. If one or both of the milestones set forth in Section 3.3 are not achieved
but the Product nevertheless has received Marketing Approval and has been sold
for Crohn's Disease and rheumatoid arthritis indications for [*] full Agreement
Years in the Core Co-promotion Territory and Net Sales in the Territory in that
[*] full Agreement Year are less than [*], the Product Committee shall discuss
whether Centocor should have the option to co-promote the Product, at a minimum
in the Core Co-promotion Territory and possibly in other countries in the
Territory.
CONFIDENTIAL TREATMENT REQUESTED.
5
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(c) OTHER INDICATIONS. The parties, through the Product Committee,
-----------------
may from time to time consider development of the Product for indications other
than Inflammatory Bowel Disease or rheumatoid arthritis. In the event that the
Product Committee determines to pursue the development of the Product for any
such other indication, the parties will share [*] the Product Development Costs
for such new indication incurred after the date of the Product Committee's
determination. Following Regulatory Approval, Schering-Plough shall have the
exclusive rights in the Territory to market, promote, distribute, offer for sale
and sell the Product for such new indications. In the Territory, the
Contribution Income split with respect to Commercial Sales for such new
indication will be as set forth in Section 6.2.
For any such new indications, Centocor may, at its discretion, grant
to Schering-Plough's United States Affiliate, Schering Corporation, an option to
co-promote the Product in the United States for any such new indication. Such
option must be exercised by providing written notice to Centocor no later than
[*] days after the successful completion of one or more Phase II clinical trials
establishing proof of efficacy for the Product for such indication which
supports undertaking a Phase III clinical study. During the [*] day period
prior to the date Schering Corporation must exercise the option, Schering
Corporation will conduct any due diligence review reasonably necessary to enable
Schering Corporation to determine whether or not to exercise its option rights.
If Schering Corporation elects to exercise its option, it will make a payment to
Centocor or offer to Centocor United States co-promotion rights to a Schering
Corporation product. The amount of such payment, or the Schering Corporation
product to be co-promoted by Centocor and the terms of such co-promotion by
Centocor, will be negotiated at the time Schering Corporation exercises its
option. If Schering Corporation elects to exercise its option, the parties will
enter into a suitable agreement under essentially the same terms as set forth
herein and will share equally the Contribution Income, as that term is defined
in Section 6.2, from Commercial Sales in the United States for such new
indication; however, in the Territory the Contribution Income split with respect
to Commercial Sales for such new indication will be as set forth in Section 6.2.
If Schering Corporation elects not to exercise its option, Centocor will retain
one hundred percent (100%) of Contribution Income from Commercial Sales in the
United States for such new indication.
The parties will discuss in good faith whether the term of this
Agreement as set forth in Section 8.1 will apply or be extended in respect of
such new indication.
In the event that, for any reason, the Product Committee cannot agree
as to whether or not the Product should be developed for a new indication and
one party but not the other would nevertheless like to pursue
CONFIDENTIAL TREATMENT REQUESTED.
6
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
that indication, the parties will negotiate the terms under which that
indication may be pursued and the Product could be developed and commercialized
in the Territory for that indication. In so doing, the parties agree as
follows:
(i) In the event that Centocor independently proceeds to develop the
Product for such indication it shall notify Schering-Plough upon successful
completion of the first Phase IIb clinical trial establishing proof of efficacy
for the Product for such indication. Schering-Plough shall have [*] days from
the date of such notice in which to acquire the rights to such indication in the
Territory by reimbursing Centocor for [*] of its out-of-pocket costs for
development of such indication, whereupon the parties shall continue the
development and commercialization of such indication under this Agreement. If
Schering-Plough does not acquire the rights to such indication in the Territory,
Centocor or one or more third parties designated by Centocor shall have
exclusive rights to sell the Product for such indication in the Territory but
only if it is a different formulation or in a different dosage form than the
Product the parties are selling under this Agreement and if it is sold under a
separate and distinct trademark from that used for the Product in the Territory
by Schering-Plough under this Agreement; and Centocor and such third party or
third parties shall retain one hundred percent (100%) of the Product revenue
derived from such new indication.
(ii) In the event that Schering-Plough independently proceeds to
develop the Product for such indication it shall notify Centocor upon successful
completion of the first Phase IIb clinical trial establishing proof of efficacy
for the Product for such indication. Centocor shall have [*] days from the date
of such notice in which to notify Schering-Plough of its intent to share
Contribution Income in the Territory and shall reimburse Schering-Plough for [*]
of its out-of-pocket costs for development of such indication, whereupon the
parties shall continue the development and commercialization of such indication
under this Agreement. If Centocor does not provide such notice to Schering-
Plough, Schering-Plough may sell the Product for such indication in the
Territory only if it is a different formulation or in a different dosage form
than the form of the Product the parties are selling under this Agreement and if
it is sold under a separate and distinct trademark from that used for the
Product in the Territory by Schering-Plough under this Agreement; and Schering-
Plough shall retain one hundred percent (100%) of the Product revenue derived
from such new indication. If Schering-Plough proceeds to develop and sell the
Product for such new indication, it shall purchase its requirements of Product
for the clinical development and commercial sales for such new indication from
Centocor, [*], and subject to Centocor's ability to manufacture the Product for
such purposes.
CONFIDENTIAL TREATMENT REQUESTED.
7
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.2 SCHERING-PLOUGH'S COMMERCIALIZATION EFFORTS WITH RESPECT TO THE
---------------------------------------------------------------
PRODUCT.
- -------
(a) Within the Territory, as to all indications for which Marketing
Approval has been obtained, Schering-Plough will market, promote, distribute and
sell the Product in accordance with the applicable Country Marketing Plans (as
described in Section 4.2) and in a manner consistent with accepted business
practices and applicable legal requirements. For purposes of this Agreement,
promotion includes, but is not limited to, sales presentations to prescribing
physicians by sales representatives which include the use of written promotional
materials, presentations at scientific and medical meetings using promotional
materials, and other personal and non-personal efforts. Such promotional
activities, including detailing, will be carried out through Schering-Plough's
sales force, wherever feasible, or third party sales forces contracted by
Schering-Plough, the members of which will have received the necessary training
and support and have the necessary skills and resources to promote the Product.
The number of face-to-face sales presentations by Schering-Plough for the
promotion and detailing of the Product in the countries to which the EMEA
Approval applies shall be consistent with the level of such activities Schering-
Plough would apply to the promotion of its other pharmaceutical products of
comparable commercial status, potential and value in such countries. In
promoting and detailing the Product, Schering-Plough shall present the Product
in the primary position for the approved indication(s), (i.e., Crohn's Disease
and/or rheumatoid arthritis) until the commercial launch by Schering-Plough of
another product for substantially the same indication(s) developed by Schering-
Plough alone or in conjunction with a third party licensor, licensee or
collaborator, including, without limitation Interleukin-10 (hereinafter a
"Schering-Plough Product"). Commencing with the commercial launch of a
Schering-Plough Product, to the extent that the approved indications and patient
populations for the Product and such Schering-Plough Product overlap, Schering-
Plough shall devote an [*] share of primary details and support, marketing and
promotion to the Product and the Schering-Plough Product in the Territory.
Activities performed by Schering-Plough with respect to the Product pursuant to
this Section, including detailing, advertising and other promotional support,
will in any case be consistent with the level of effort Schering-Plough would
ordinarily employ for a product with similar market potential, commercial value
and status. Centocor shall have the right to audit Schering-Plough's internal
call reporting records to ascertain compliance with this Section. Such audit
shall be conducted in the manner set forth in Section 2.2(d).
(b) In the event that Schering-Plough fails to meet its diligence
obligations under Section 2.2(a) then Centocor shall have the right to give
Schering-Plough written notice thereof stating in reasonable detail the
CONFIDENTIAL TREATMENT REQUESTED.
8
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
particular failure. Schering-Plough shall have a period of [*] days from the
receipt of such notice to correct the failure. Schering-Plough shall, within
[*] days of its receipt of such failure notice from Centocor, provide written
notice to Centocor setting forth: (i) the steps Schering-Plough is undertaking
to cure such failure; or (ii) Schering-Plough's intention to dispute the
allegation that it has failed to meet its diligence obligations. If Schering-
Plough fails to correct the failure, Centocor shall have the right to terminate
this Agreement. In the event of a dispute as to whether or not Schering-Plough
has failed to exercise due diligence under Section 2.2(a), such dispute shall be
resolved through binding arbitration in accordance with the terms of this
Agreement. The time periods set forth in this Section 2.2(b) shall be suspended
during the pendency of such arbitration proceedings.
(c) The foregoing obligations of Schering-Plough with respect to
development and commercialization of the Product are expressly conditioned upon
the continuing absence of adverse conditions or events which, in the aggregate,
warrant a delay in commercialization of the Product including, but not limited
to, an adverse condition or event relating to safety or efficacy, or unfavorable
pricing, pricing reimbursement, labeling or lack of Regulatory Approval.
Schering-Plough's obligation to develop and market the Product shall be delayed
or suspended so long as in the mutual agreement of the parties any such
condition or event exists.
(d) Schering-Plough represents and warrants, on behalf of itself and
its Affiliates, with respect to Germany, France, Italy, Spain and the United
Kingdom, that the personnel responsible for the performance of its diligence
obligations hereunder with respect to the Product in such markets shall
constitute a distinct and separate business unit from those personnel who belong
to the business unit involved in the development and commercialization of
Schering-Plough's [*] product(s). For purposes of this Section 2.2(d), the term
"business unit" shall refer to the sales personnel, product management staff and
support staff responsible for the commercialization of the Product or Schering-
Plough's [*] products, as appropriate. In those countries in the Territory in
which Schering-Plough does not maintain separate business units, Schering-Plough
shall use diligent efforts to ensure that its field sales force and medical
affairs personnel engaged in marketing and promoting [*] do not market and
promote the Product. Schering-Plough and its Affiliates shall keep complete and
accurate records of its operations in sufficient detail to enable Centocor to
confirm the separation of its Product operations from those relating to [*].
Upon forty-five (45) days prior written notice from Centocor, Schering-Plough
shall permit a firm of independent auditors of nationally recognized standing
selected by Centocor and reasonably acceptable to Schering-Plough, at Centocor's
expense, to have access during normal business hours to examine pertinent
records and facilities of Schering-Plough and/or its
CONFIDENTIAL TREATMENT REQUESTED.
9
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Affiliates as may be reasonably necessary to confirm the separation of Schering-
Plough's Product and [*] operations. An examination under this Section 2.2(d)
shall not occur more than once in any calendar year. Schering-Plough may
designate competitively sensitive information which such auditors may not
disclose to Centocor, provided, however, that such designation shall not
encompass the auditor's conclusions. The auditors shall disclose to Centocor
only whether Schering-Plough's representations with respect to its operations
are correct or incorrect and the specific details concerning any discrepancies.
No other information shall be provided to Centocor. All such auditors shall
sign a confidentiality agreement (in form and substance reasonably acceptable to
Schering-Plough) as to any of Schering-Plough's or its Affiliates' confidential
information which they are provided, or to which they have access, while
conducting any audit pursuant to this Section 2.2(d).
2.3 CHANGE IN TERRITORY.
-------------------
(a) [*]
(b) In the case that Centocor decides to seek an arrangement with
another party for co-promotion of the Product in the United States for
rheumatoid arthritis indications, Centocor will immediately notify Schering-
Plough. Schering-Plough's United States Affiliate, Schering Corporation, will
then have the exclusive right to negotiate with Centocor for a [*] month period
commencing with the date of Centocor's notification to Schering-Plough of the
terms and conditions (including payments upon execution of any agreement) upon
which Schering Corporation would acquire such rights. In the event no agreement
on commercial terms is reached within such period, Centocor will be free to
enter into an agreement with another party to co-promote the Product in the
United States for rheumatoid arthritis, provided that the terms thereof shall be
no less favorable to Centocor than those last offered by Centocor to Schering
Corporation.
2.4 NON-COMPETE. During the term of this Agreement, and for a period
-----------
of [*] years immediately following the termination of this Agreement, Schering-
Plough will not promote, market, manufacture, sell or distribute any [*], other
than the Product or an Improvement, in the Territory; provided, however, that in
the case of any country within the European Union or European Free Trade area,
this obligation not to compete shall cease upon termination of this Agreement.
If Schering Corporation commences to co-promote the Product in the United States
pursuant to either Section 2.1(c) or Section 2.3(b) herein, the terms of this
Section 2.4 thereafter shall be applicable to Schering Corporation in the United
States. The parties acknowledge that during the term of this Agreement,
Schering-Plough may
CONFIDENTIAL TREATMENT REQUESTED.
10
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
promote, market, manufacture, sell and distribute Interleukin-10 in the
Territory.
ARTICLE III
PAYMENTS BY SCHERING-PLOUGH TO CENTOCOR
---------------------------------------
3.1 PAYMENTS UPON EXECUTION. Schering Plough will make a non-
-----------------------
refundable payment of [*] to Centocor by wire transfer within ten (10) business
days of the Effective Date.
(a) Twenty million dollars ($20,000,000) of such payment will be
in recognition of [*].
(b) [*] of such payment will be in recognition of [*].
3.2 ADDITIONAL PAYMENT. Schering-Plough will make an additional
------------------
payment of [*] to Centocor by wire transfer on or before [*].
3.3 MILESTONE PAYMENTS. Schering-Plough will pay to Centocor the
------------------
following non-refundable additional amounts, in each instance by wire transfer
within twenty (20) days of Centocor providing written notification of the
Product Committee's determination of the occurrence of the event which triggers
the payment and an invoice to Schering-Plough:
[*]
ARTICLE IV
COMMITTEES AND MARKETING PLANS
------------------------------
To facilitate the achievement of their commercialization objectives,
the parties agree as follows.
4.1 COMMITTEES. Within thirty (30) days following the Effective
----------
Date, the parties will establish a Product Committee and an Oversight Committee.
(a) PRODUCT COMMITTEE. The Product Committee shall have overall
-----------------
responsibility to monitor, coordinate and oversee the parties' activities
relating to the Product in the Territory, including, without limitation,
CONFIDENTIAL TREATMENT REQUESTED.
11
<PAGE>
the specific responsibilities set forth in Sections 4.1(a)(i) and 4.1(a)(ii).
Each party will appoint three (3) representatives to the Product Committee, or
such greater number as the Product Committee may determine from time to time;
provided that two (2) representatives from each party shall constitute a quorum.
These representatives shall have appropriate technical credentials and
knowledge, and shall be senior representatives selected from each of the
following areas: clinical development, marketing/general management and
regulatory. Each party from time to time may substitute one or more of its
representatives, in its sole discretion, effective upon notice to the other
party of such change. The Product Committee may from time to time and in its
sole discretion create ad hoc sub-committees and delegate certain aspects of its
responsibilities to such sub-committees.
The Product Committee will meet on a quarterly basis, or more
frequently if necessary, at mutually agreeable times and locations, to discuss
any matters or issues involving the Product, including, but not limited to,
matters arising under Sections 4.1(a)(i) and 4.1(a)(ii), the manufacture of the
Product and the ways and means of most effectively implementing this Agreement.
The Product Committee shall be co-chaired by a representative of Centocor and a
representative of Schering-Plough. The Co-Chairpersons shall be responsible for
calling meetings, preparing agendas and preparing and issuing minutes of each
meeting within thirty (30) days thereafter. Meeting minutes will be
countersigned by a Product Committee representative from each of Schering-Plough
and Centocor. All decisions of the Product Committee shall be made with a
quorum of the members present, and shall be based on an unanimous vote with
Schering-Plough and Centocor each having one (1) vote.
Additional non-voting representatives or consultants may from time to
time be invited by either party to attend and participate in Product Committee
meetings (e.g., to evaluate and advise on business or scientific issues). Each
party shall ensure that any of its third party consultants attending a Product
Committee meeting have entered into a suitable agreement containing
confidentiality and non-use provisions substantially the same as those contained
in this Agreement.
In September or October of each Agreement Year, the Product Committee
will hold an annual planning meeting to review and comment on the Country
Marketing Plans, and to approve the clinical development plans and the budget
for the following year. If at any time agreement is not reached within the
Product Committee, the matter in question will be referred to the Oversight
Committee should either party deem it to be of sufficient importance to warrant
a further effort to reach agreement.
12
<PAGE>
(i) CLINICAL DEVELOPMENT AND REGULATORY APPROVALS. Centocor
---------------------------------------------
will have primary responsibility for the conduct of pre-clinical studies,
clinical trials and regulatory submissions. Nevertheless, the Product Committee
will review and discuss the Product's clinical and regulatory development
including, but not limited to, the design and implementation of clinical trials,
budgets, the content and status of regulatory filings and approvals, and Adverse
Event Reports. Communications between the parties concerning such matters will
be directed through the parties' representatives to the Product Committee or
their designees.
(ii) MARKETING. Subject to Section 2.1(c), the Product
----------
Committee will also discuss indications for which Regulatory Approvals will be
sought, the countries in which Regulatory Approval will be sought, and the
promotion, detailing, marketing, distribution and sales of the Product
including, but not limited to, the Country Marketing Plans and selected core
Marketing Materials (hereinafter defined). Communications between the parties
concerning such matters will be directed through the parties' representatives to
the Product Committee or their designees.
(b) OVERSIGHT COMMITTEE/DISPUTE RESOLUTION. The parties will also
--------------------------------------
establish an Executive Oversight Committee (the "Oversight Committee")
consisting of two (2) senior management representatives of each party. The
initial representatives of the Oversight Committee will be:
Centocor Schering-Plough
-------- ---------------
Joseph C. Scodari Thomas C. Lauda
Harlan F. Weisman, M.D. Jonathan R. Spicehandler, M.D.
The Oversight Committee will meet as necessary, but no less than one time per
year at mutually agreeable times and locations to discuss strategic issues of
interest to the parties and to resolve disputes arising under this Agreement,
including those referred to it by the Product Committee. Decisions by the
Oversight Committee will be made by the unanimous consent of its members. In
the event that the Oversight Committee fails to resolve any dispute, then either
party may submit such dispute to binding arbitration in accordance with the
terms of Section 12.7.
4.2 MARKETING PLANS. Schering-Plough will prepare Country Marketing
---------------
Plans for each country (or, where appropriate, groups of countries) within the
Territory substantially in the form set forth in Appendix D (the "Country
Marketing Plans"), and will present the Country Marketing Plans for the United
Kingdom, Canada, Germany, France, Italy and Spain, as well as the Schering-
Plough Strategic Marketing Plan, to the Product Committee for comment. Each
Country Marketing Plan will establish the strategy and tactics
13
<PAGE>
designed to maximize Commercial Sales in that country or group of countries. To
enable Schering-Plough to coordinate its marketing efforts in the Territory,
Centocor will present information regarding its U.S. marketing plans to the
Product Committee, provided, however that Schering-Plough may not provide any of
such information to any line management (excluding executive management)
employee of Schering Corporation or any of its Affiliates who are engaged in any
effort relating to the commercialization of Interleukin-10 in the United States.
4.3 MARKETING AND PROMOTIONAL MATERIALS; TRADEMARKS; LABELS.
-------------------------------------------------------
(a) MARKETING MATERIALS. Schering-Plough will have primary
-------------------
responsibility for the preparation of all Product marketing and promotional
materials (collectively, the "Marketing Materials") for use in the Territory.
However, selected core Marketing Materials, i.e., those prepared by or on behalf
of Schering-Plough's Global Marketing group for use throughout the Territory,
will be submitted to the Product Committee for its review and comment.
Schering-Plough acknowledges that Centocor, as the license holder, is
responsible for regulatory compliance as it relates to all aspects of the
Product, including compliance with regulations relating to promotional
materials. Notwithstanding this fact, under the terms of this Agreement,
Centocor assigns responsibility to Schering-Plough to ensure that its local
Affiliates are in compliance with all local laws and regulatory requirements
governing promotional materials in the Territory. In addition, for the United
Kingdom, Canada, Germany, France, Italy and Spain, Schering-Plough will provide
copies of primary sales aids and journal advertisements intended for use in
these markets to Centocor's regulatory affairs department for its review and
approval as to their compliance with regulatory requirements. Centocor will
review and approve these marketing materials in a timely manner (generally not
to exceed three (3) business days). Schering-Plough indemnifies Centocor for
any damages resulting from regulatory non-compliance in those circumstances
where Centocor's regulatory affairs department has not undertaken a prior
review. Centocor retains the right to audit Schering-Plough's compliance with
local laws and regulations regarding promotion. Such audit shall be conducted
in the manner set forth in Section 2.3(d).
(b) TRADEMARKS. Centocor has applied for the AVAKINE trademark for
----------
the Product in the United States and in certain countries in the Territory (the
"Trademark"). Centocor shall be responsible for filing, prosecuting,
registering, maintaining and protecting the Trademark in all countries in the
Territory. Schering-Plough recognizes that the Trademark is a trademark of
Centocor and that Schering-Plough has no right
14
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
or interest in the Trademark other than those rights explicitly granted in this
Agreement. Centocor hereby grants to Schering-Plough the royalty-free right,
exclusive even as to Centocor, to use during the term of this Agreement, the
Trademark in the Territory for the purpose of co-promoting, marketing, selling
and distributing the Product purchased by Schering-Plough from Centocor under
the terms of this Agreement. To the extent that Schering-Plough is processing,
packaging and labeling the Product pursuant to Section 5.1, Centocor further
grants to Schering-Plough the right to use the Trademark for the purpose of
processing, packaging and labeling the Product for use in the Territory. If
Centocor commences co-promotion of the Product in the Core Co-promotion
Territory and any other countries in the Territory pursuant to Section 2.1(b),
Schering-Plough shall grant back to Centocor the right to use the Trademark in
those countries for the purposes of co-promoting the Product. All rights of
Schering-Plough under this Section will terminate immediately upon the
termination or expiration of this Agreement.
When packaged for sale in the Territory, the Product will bear the
Trademark, the Schering-Plough trade dress and the name and/or logo of the
appropriate Schering-Plough local entity as permitted under applicable laws and
regulations. Schering-Plough will assist Centocor as may be necessary
(including by executing any necessary documents) in recording Schering-Plough as
a licensee of any registration of the Trademark and Schering-Plough hereby
agrees that such recording may be cancelled by Centocor on termination of this
Agreement for whatever reason and that it will assist Centocor to the extent
reasonably necessary to achieve such cancellation including by executing any
necessary documents.
In the event that the Trademark cannot be used in one or more
countries in the Territory, or if it is agreed by the Product Committee that a
different trademark is to be used other than or in addition to the Trademark in
any country in the Territory, then the parties shall agree on a trademark and
Centocor shall determine the availability and shall diligently file for and
prosecute such trademark, which shall thereafter be treated as the Trademark for
the purposes of this Agreement. If the trademark selected by the parties is
already owned by Schering-Plough, then the parties shall enter into a suitable
agreement pursuant to which Schering-Plough shall assign all of its rights,
title and interest in and to said trademark to Centocor in return for a payment
of [*]. If the trademark is acquired from a third party, then Centocor shall be
responsible for acquiring said trademark.
(c) LABELS. When offered for sale in the Territory, the Product will
------
be packaged with Schering-Plough trade dress and, to the extent permitted by
local regulatory requirements, will include the Schering-Plough logo and/or name
of the appropriate Schering-Plough local entity. The
CONFIDENTIAL TREATMENT REQUESTED.
15
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
labeling will state that the Product is manufactured by or on behalf of
Centocor. Where permissible, such labels will give equal prominence to the
Centocor and Schering-Plough names.
ARTICLE V
SUPPLY OF PRODUCT
-----------------
5.1 PURCHASE AND SUPPLY. Centocor agrees to supply to Schering-
-------------------
Plough, and Schering-Plough agrees to purchase from Centocor all of Schering-
Plough's requirements of the Product for Commercial Sales. Centocor further
agrees to supply all quantities of Product for use as free samples or for
compassionate use programs in the Territory, which quantities shall be provided
to Schering-Plough by Centocor [*].
Product supplied by Centocor to Schering-Plough for Commercial Sales
will be in final labelled and packaged vials. Alternatively, Schering-Plough
shall have the option, exercisable by providing written notice to Centocor, to
purchase its requirements for Product from Centocor in the form of bulk Product
and to perform the final processing, packaging and labeling of such material
into finished Product for Commercial Sales in the Territory. Such option shall
only be exercisable by Schering-Plough if Schering-Plough can reasonably
demonstrate that the parties will enjoy a net financial benefit or that it is
cost neutral to the parties for Schering-Plough to perform such activities. If
Schering-Plough exercises its option to perform such activities, Schering-
Plough's cost of performing such activities will be included in [*] as if
Centocor had incurred such costs and delivered finished Product to Schering-
Plough.
Within ninety (90) days of the Effective Date, the parties will
negotiate and enter into a separate Manufacture and Supply Agreement more fully
setting forth the terms under which Product will be manufactured for and
supplied to Schering-Plough by Centocor, the terms of which shall conform to the
terms of this Agreement. The Manufacture and Supply Agreement will be appended
to this Agreement as Appendix E.
5.2 MANUFACTURING. Centocor will manufacture the Product and use
-------------
diligent efforts to satisfy Schering-Plough's requirements for the Product. All
Product manufactured for Schering-Plough for use and/or sale in the Territory
shall be manufactured in an approved facility. Centocor shall provide to
Schering-Plough, concurrently with each shipment of Product supplied to
Schering-Plough under this Agreement (whether in the form of finished Product or
in bulk) a Certificate of Analysis setting forth the
CONFIDENTIAL TREATMENT REQUESTED.
16
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
analytical results and specifications for the batch. In order to ensure the
required supply of Product for sale pursuant to this Agreement, Centocor may
contract with a third party acceptable to Schering-Plough to manufacture the
Product.
In the event that Schering-Plough elects to exercise its option under
Section 5.1 to purchase the Product in bulk, Centocor shall cooperate with and
provide reasonable assistance to Schering-Plough, at Schering-Plough's expense,
to make available to Schering-Plough any Product specific know-how necessary to
enable Schering-Plough to perform the final processing and packaging of the
Product in its facilities and to obtain any necessary regulatory or
manufacturing approvals for such facilities.
5.3 FORECASTS. Beginning on a date to be determined by the Product
---------
Committee and within [*] business days following the end of each calendar
quarter thereafter during the term of this Agreement, Schering-Plough will
supply to Centocor, for planning purposes, a non-binding [*] month rolling
forecast of projected requirements in units of Product for Commercial Sales in
the Territory broken down by country or groups of countries. The forecast may
be expressed in terms of a reasonable range. Centocor will promptly notify
Schering-Plough if it anticipates that it will be unable to meet any portion of
the forecasted requirements. In the event of a temporary shortfall, Centocor's
available supplies of Product will be allocated proportionately according to
Centocor's forecasted demand for the United States on one hand and Schering-
Plough's forecasted demand for the Territory on the other hand. The allocation
will be monitored by the Product Committee and will end as soon as supply
permits.
5.4 FIRM ORDERS; INVENTORY LEVELS. Schering-Plough will provide
-----------------------------
orders for Product to Centocor at least [*] days prior to requested date of
shipment. Schering-Plough will consolidate the orders for itself and its
Affiliates. Within fourteen (14) days of receipt of an order, Centocor will
send to Schering-Plough a written confirmation of such order, at which point
such order will be binding upon Schering-Plough and Centocor. In determining
the amount of its orders, Schering-Plough will order such quantities as are
necessary to maintain at all times a minimum inventory of Product sufficient to
fulfill Schering-Plough's next [*] months expected requirements of the Product
for Commercial Sales. Centocor will use all reasonable efforts to ensure
dispatch to Schering-Plough of the requisite quantity of Product to fulfill such
orders.
5.5 TERMS. All shipments of Product to Schering-Plough will be
-----
F.C.A. (Incoterms 1990) Centocor's place of shipment, by an approved carrier
selected from a list of approved carriers to be agreed upon
CONFIDENTIAL TREATMENT REQUESTED.
17
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from time to time by Schering-Plough and Centocor. Shipments will be made to
such locations as Schering-Plough directs. Payment terms will be net thirty
(30) days, upon receipt of Centocor's invoice, in United States Dollars by wire
transfer to Centocor.
5.6 PRODUCT RECALL. Schering-Plough will review with Centocor the
--------------
Schering-Plough product recall procedures and Schering-Plough agrees to maintain
and to implement the same, subject to the provisions herein. Schering-Plough
and Centocor have the responsibility to notify each other within twenty-four
(24) hours of a situation which could lead to a recall or withdrawal of the
Product in the Territory. Within forty-eight (48) hours after such notice, the
parties' representatives from business, medical, regulatory, quality assurance
and legal functions, and any others deemed necessary (the "Recall Team"), will
consult to determine if any Product shall be withdrawn or recalled from the
market. If the Recall Team agrees to conduct a recall, then the Recall Team
shall also consult with respect to the timing of the recall, the breadth, extent
and level of customer to which the recall shall reach, and what strategies and
notifications should be used. If agreement as to whether a recall should be
conducted cannot be reached between the Schering-Plough and Centocor
representatives on the Recall Team, the Oversight Committee shall be immediately
consulted. If the Oversight Committee cannot agree, then the party holding the
marketing authorizations for the Product in the Territory shall have final
decision making authority with respect to any recall in the Territory and
Centocor shall have final decision making authority with respect to countries
outside the Territory. The license holder for the Product will be responsible
for formal notification of the regulatory authorities; however, Centocor and
Schering-Plough will coordinate with each other on the notification of
regulatory authorities. In the Territory, Schering-Plough will be responsible
to implement any Product withdrawal or recall from the market.
(a) In the event that any Product recall or withdrawal occurs in the
Territory as a result of adverse event or other safety reasons for which neither
Centocor nor Schering-Plough are at fault, the parties shall share equally all
reasonable costs and expenses of such Product recall or withdrawal in the
Territory, including, without limitation, the expenses incurred for the
investigation, notification, regulatory reporting, destruction and/or return of
the recalled Product, the cost of the manufactured Product recalled, Schering-
Plough's costs relating to the testing, packaging, shipping and supplying the
Product recalled, expenses or obligations to third parties, and the cost of
notifying users (hereinafter the "Recall Expenses"). For purposes of
calculating Recall Expenses under this Section 5.6(a) and under Sections 5.6(b)
and (c), Centocor shall issue a credit to Schering-Plough for the full cost paid
by Schering-Plough to Centocor for the manufactured Product recalled, and that
cost of the manufactured Product recalled shall be included in Recall
18
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Expenses at Centocor's cost of goods. Centocor and Schering-Plough each
acknowledge that the obligations of the other under this Section do not extend
to expenses or obligations of either to third parties or to any claim by either
for loss of anticipated profits, goodwill, reputation, business receipts or
contracts, or losses or expenses resulting from third party claims or for any
indirect or consequential losses suffered by either, howsoever caused, and each
hereby waives any claim to such expenses or losses or which may arise as a
result of any such obligations.
(b) In the event that any Product recall occurs as a result of (i) a
breach of this Agreement by Centocor, or (ii) any wrongful act or omission
whether negligent or otherwise of Centocor, Centocor will bear all reasonable
Recall Expenses incurred by Schering-Plough. Recall Expenses under this Section
5.6(b) shall be calculated as set forth in Section 5.6(a). Schering-Plough
acknowledges that Centocor's obligations under this Section do not extend to
expenses or obligations of Schering-Plough to third parties or to any claim by
Schering-Plough for loss of anticipated profits, goodwill, reputation, business
receipts or contracts, or losses or expenses resulting from third party claims
or for any indirect or consequential losses suffered by Schering-Plough,
howsoever caused, and hereby waives any claim to such expenses or losses or
which may arise as a result of any such obligations.
(c) In the event that any Product recall occurs as a result of (i) a
breach of this Agreement by Schering-Plough, or (ii) any wrongful act or
omission, whether negligent or otherwise of Schering-Plough, Schering-Plough
will bear all reasonable Recall Expenses incurred by Centocor. Recall Expenses
under this Section 5.6(c) shall be calculated as set forth in Section 5.6(a).
Centocor acknowledges that Schering-Plough's obligations under this Section do
not extend to expenses or obligations of Centocor to third parties or to any
claim by Centocor for loss of anticipated profits, goodwill, reputation,
business receipts or contracts, or losses or expenses resulting from third party
claims or for any indirect or consequential losses suffered by Centocor,
howsoever caused, and hereby waives any claim to such expenses or losses or
which may arise as a result of any such obligations.
5.7 PRODUCT WARRANTIES. Centocor warrants good title to the Product
------------------
and warrants that upon delivery of Product in accordance with this Agreement,
the Product:
(a) will have been manufactured, stored and shipped in accordance with
all applicable good manufacturing practices, all other applicable laws, rules,
regulations and regulatory requirements in the country
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THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
of manufacture and in the Territory, and will conform to the specifications set
forth in Appendix F;
(b) shall not be adulterated or misbranded as provided for under any
applicable law, order or regulation in effect in the country of manufacture and
the Territory;
(c) shall conform to the specifications for the Product in the then
current Regulatory Approvals of each country in the Territory;
(d) shall, when stored at [*], have a shelf life of at least [*]
months from the completion of lyophilization and shall be delivered within
ninety (90) days of the completion of lyophilization; and
(e) will be labeled, packaged and shipped in accordance with labeling,
packaging and distribution standards mutually agreed upon by the parties and in
accordance with all applicable laws and regulatory requirements in the
Territory; provided that where Schering-Plough is responsible under the terms of
this Agreement for obtaining any Regulatory Approval, any requirements for
labeling and packaging of the Product specified in such approvals have been
fully communicated to Centocor.
EXCEPT FOR THE FOREGOING WARRANTIES, CENTOCOR MAKES NO OTHER
WARRANTIES AS TO THE PRODUCT, EITHER EXPRESS OR IMPLIED, AND
SPECIFICALLY, MAKES NO IMPLIED WARRANTY AS TO MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
5.8 INSPECTION AND RIGHT OF RETURN OF PRODUCT. If Schering-Plough
-----------------------------------------
determines upon receipt and inspection of the Product that any of the Product
does not meet any of the standards warranted in Section 5.7, Schering-Plough
will notify Centocor of the non-conformance within forty-five (45) days of
receipt of shipment; provided, however, that if the defect is a Hidden Defect,
Schering-Plough will notify Centocor of the non-conformance within fifteen (15)
days of Schering-Plough's discovery of the defect. Centocor and Schering-Plough
will confer on the matter and, within fifteen (15) days after receipt of
Schering-Plough's notice, Centocor will notify Schering-Plough as to whether or
not it concurs with Schering-Plough's determination. If Centocor concurs with
Schering-Plough's determination (or fails to timely notify Schering-Plough of a
disagreement with the determination), Centocor will replace the rejected
Product, free of charge, as
CONFIDENTIAL TREATMENT REQUESTED.
20
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
soon as practicable thereafter, and in any event within forty (40) days after
receipt of Schering-Plough's notice, and Schering-Plough will, at Centocor's
request and expense, return the rejected Product. If Centocor timely disagrees
with Schering-Plough's determination, the parties will attempt to resolve the
issue in accordance with the provisions of Section 4.1(b). If Schering-Plough
does not provide a notice of non-conformance within forty-five (45) days of
receipt of shipment (or within fifteen (15) days after Schering-Plough's
discovery of a Hidden Defect), Schering-Plough will not have the right to return
the shipment pursuant to this Section. Except as set forth in this Section and
in Section 5.7 and Section 10.1, Centocor will have no obligation to Schering-
Plough for breach of any of the warranties as to the quality of the Product set
forth in Section 5.7. For purposes of this Section, "Hidden Defect" means a
defect which prevents use of the Product for its normal application and which
could not have been discovered by Schering-Plough upon routine inspection
following its receipt of the Product.
ARTICLE VI
PAYMENTS BASED ON SALES; OTHER PAYMENTS
---------------------------------------
6.1 CENTOCOR SALES TO SCHERING-PLOUGH. The parties estimate that the
---------------------------------
initial price per vial will be [*] of the forecasted average Schering-Plough net
selling price for sales of the Product in the Territory, which forecasted
average net selling price will be determined by Schering-Plough and will be
communicated to Centocor by Schering-Plough. From time to time the Product
Committee will review the transfer price and adjust it as necessary. For this
purpose, the unit at the outset of Commercial Sales is a vial containing one
hundred milligrams (100 mg) of active ingredient Product.
6.2 DIVISION OF CONTRIBUTION INCOME. The parties will divide
-------------------------------
Contribution Income in the manner provided herein and in Section 2.1(b).
(a) "Contribution Income" is defined as [*].
(i) A list of third party agreements providing for the
payment of royalties, as of the Effective Date, is attached as Appendix G. [*].
As of the Effective Date, Centocor shall not enter into any other additional
agreements with third parties that include provisions requiring the payment of
license fees, milestones, royalties or other payments relating to
commercialization of Product in the Territory without the prior written approval
of Schering-Plough.
CONFIDENTIAL TREATMENT REQUESTED.
21
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THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(ii) For purposes of calculating Contribution Income, [*].
(iii) As set forth in Section 6.3, Product Development Costs
are excluded from Contribution Income. Also excluded from the Contribution
Income calculation is the cost of Product supplied by Centocor to Schering-
Plough in the Territory for distribution as free samples or for compassionate
use programs pursuant to Section 5.1.
(b) For purposes of documenting [*] expenses which are included in
the Contribution Income calculation, each party will maintain adequate and
reasonable records containing information to quantify the activities and costs
and qualify the activities under the programs approved in accordance with
Article IV; and will provide the other party's independent representative access
to such records in accordance with Section 6.4. To enable Centocor to comply
with its quarterly financial reporting obligations, Schering-Plough will provide
to Centocor on a monthly basis no later than ten (10) business days after the
end of each month its actual Net Sales for such month. In addition, Schering-
Plough will provide to Centocor on a quarterly basis no later than fifteen (15)
business days after the end of each calendar quarter, or with respect to the
fourth calendar quarter in any calendar year within thirty (30) days of the last
day of such calendar year, a summary of its actual Net Sales and an estimate of
its [*] expenses for that quarter, and estimates of Net Sales, [*] expenses for
the next calendar quarter.
(c) Contribution Income with respect to any Agreement Year is to
be divided [*] to Schering-Plough and [*] to Centocor on the first [*] of Net
Sales in such Agreement Year. For Net Sales in excess of [*] in each Agreement
Year, Contribution Income is to be divided [*] to Schering-Plough and [*] to
Centocor. An example of the quarterly Contribution Income Calculation is set
forth in Appendix H.
(d) The calculation of Contribution Income will commence at the
time of the first Commercial Sale in the Territory. [*].
(e) The division of Contribution Income will be effected as
follows:
(i) Within [*] days after the end of each calendar quarter (or
portion thereof), the parties will calculate and agree upon the amount of
Contribution Income for that quarter and Centocor will remit to Schering-Plough,
or Schering-Plough will remit to Centocor, upon submission of an invoice, a
quarterly equalization payment within [*] days of receipt of such invoice.
CONFIDENTIAL TREATMENT REQUESTED.
22
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(ii) If, for any period, the Contribution Income calculation results
in a net loss, the parties will share the loss in the same proportions that they
share Contribution Income.
(iii) Notwithstanding the foregoing, to the extent that Centocor is
co-promoting the Product in one or more countries in the Territory pursuant to
the provisions of Section 2.1(b), then commencing in the calendar quarter of the
Agreement Year in which Centocor begins co-promoting the Product in the
Territory, the division of Contribution Income will be [*] to Schering-Plough
and [*] to Centocor solely with respect to Contribution Income attributable to
Net Sales in the country or countries in which Centocor is co-promoting the
Product.
6.3 PRODUCT DEVELOPMENT COSTS. All Product Development Costs are
-------------------------
expressly excluded from the Contribution Income sharing concept and, subject to
Section 2.1(c) above, shall be shared by the parties as follows.
(a) Subject to variances in patient accrual rates, the parties
agree that the anticipated budget for Product Development Costs in calendar year
1998 shall not exceed [*]. The parties further agree that, subject to variances
in patient accrual rates, the anticipated budget for Product Development Costs
in calendar year 1999 for the clinical trials already in progress or ready to be
started and for the ACCENT study is estimated at [*]. Schering-Plough shall make
a payment of [*] to Centocor by wire transfer on or before [*]. Schering-
Plough's obligation to pay for Product Development Costs incurred during 1998
and 1999 with respect to such studies shall be capped, unless the Product
Committee elects to initiate additional clinical studies during such calendar
years or the Product Committee otherwise approves additional Product Development
Costs to be incurred in such calendar years. To the extent that either party
exceeds the agreed upon budgeted Product Development Costs for such activities
without the prior written approval of the Product Committee, such party shall be
solely responsible for such excess expenditures which shall be excluded from
Product Development Costs.
(b) In each successive Agreement Year after 1999 during the term
of this Agreement, the parties shall agree upon a budget setting forth the
estimated Product Development Costs for their respective development activities.
To the extent that either party exceeds the agreed upon budgeted Product
Development Costs for such activities without the prior written approval of the
Product Committee, such party shall be solely responsible for such excess
expenditures which shall be excluded from the calculation of any Excess Amount
under Section 6.3(c).
CONFIDENTIAL TREATMENT REQUESTED.
23
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(c) Within thirty (30) days following the end of each calendar
quarter, each party will provide a written summary to the other party of its
respective Product Development Costs for such calendar quarter. Such summary
will include adequate and reasonable information to quantify the activities and
costs and qualify the activities under the programs approved in accordance with
Article IV. With respect to any such calendar quarter, the amount by which the
total of one party's Product Development Costs exceeds the total of the other
party's Product Development Costs is referred to herein as the "Excess Amount,"
and the party whose total Product Development Costs are less than the other
party's total Product Development Costs is referred to herein as the "Paying
Party." Commencing in calendar year 2000, within [*] days following the end of
each calendar quarter, upon submission of an invoice, the Paying Party will pay
to the other party an amount equal to [*] of the Excess Amount for such calendar
quarter.
(d) With respect to calendar years 1998 and 1999 in the aggregate,
Schering-Plough will not be required to pay Centocor unless the Product
Committee has approved spending of total Product Development Costs in excess of
[*] and [*] of the Excess Amount payable by Schering-Plough is greater than [*],
in which event Schering-Plough will pay Centocor the amount by which [*] of the
Excess Amount exceeds [*]. If the total of both parties' Product Development
Costs is [*] or less and [*] of the Excess Amount is less than [*], then (1) if
Schering-Plough would otherwise be the Paying Party as defined above, Schering-
Plough shall make no payment to Centocor and Centocor shall pay Schering-Plough
the amount by which [*] exceeds [*] of the Excess Amount; and (2) if Centocor is
the Paying Party as defined above, Centocor shall pay Schering-Plough [*] plus
[*] of the Excess Amount. The parties will within thirty (30) days after the
end of calendar year 1999 exchange information relating to Product Development
Costs for 1998 and 1999, determine whether any payment is due from one party to
the other party under this Section 6.3(d), and issue an appropriate invoice to
the party owing such payment, if any. Any such payment shall be made within [*]
days after the end of calendar year 1999.
6.4 ACCESS TO INFORMATION. Each party will have the right, upon
--------------------------
forty-five (45) days prior written notice and during normal business hours,
through an independent third party representative (who will agree to be bound by
confidentiality provisions substantially similar to those set forth in Sections
11.1 and 11.2 hereof), to review and inspect the other party's books and records
which relate to such other parties's operations under this Agreement including,
but not limited to, records concerning Commercial Sales, Net Sales, Product
Development Costs, [*], sales presentations, [*], and other costs. The
inspection shall be limited to pertinent books and records for
CONFIDENTIAL TREATMENT REQUESTED.
24
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
any year ending not more than [*] months prior to the date of such request. An
inspection under this Section 6.4 shall not occur more than once in any calendar
year. The party whose records are being inspected may designate competitively
sensitive information which the representative may not disclose to the other
party, provided, however, that such designation shall not encompass the
representative's conclusions. Such representative shall only report
inaccuracies in amounts payable under this Agreement. With respect to
inspection of Schering-Plough's books and records, Schering-Plough may request
that an independent auditor familiar with Schering-Plough's record keeping
systems be present at the inspection to assist Centocor's auditor in using
Schering-Plough's internal record management system. Likewise, with respect to
inspection of Centocor's books and records, Centocor may request that an
independent auditor familiar with Centocor's record keeping systems be present
at the inspection to assist Schering-Plough's auditor in using Centocor's
internal record management system. Each party shall bear the costs and expenses
of its representative for inspections conducted under this Section, unless a
variation or error producing an underpayment in amounts payable exceeding [*] of
the amount paid for any period covered by the inspection is established in the
course of any such inspection, whereupon all costs relating to the inspection
for such period and any unpaid or overpaid amounts that are discovered will be
paid or credited as appropriate by the party in whose favor the deviation
occurred. This Section will survive the expiration or the termination of the
Agreement for a period of two (2) years.
6.5 CURRENCY TRANSLATION. For the purpose of computing the
--------------------
Commercial Sales or Net Sales of Product sold in a currency other than United
States Dollars, for the purpose of computing costs for calculating Contribution
Income where the costs are incurred in a currency other than United States
Dollars, and for the purpose of determining Centocor Product Development Costs
or Schering-Plough Product Development Costs which are incurred in a currency
other than United States Dollars, such currency shall be converted into United
States Dollars at the rates of exchange used by Schering Corporation to report
its sales for public, financial reporting purposes. A copy of the current
policy used by Schering-Plough and its Affiliates for bookkeeping exchange rates
is attached hereto as Appendix I. Schering-Plough shall treat the Product in a
manner consistent with its standard practices used for its own products, in
order to minimize foreign currency exposure.
6.6 WITHHOLDING. If at any time, any jurisdiction within the
-----------
Territory requires the withholding of income taxes or other taxes imposed upon
payments set forth in this Article VI, the party required to make such
withholding payment shall make the payment and subtract such withholding
payments from the payments set forth in this Article VI. The party required to
make any such payment shall provide to the other party documentation of such
CONFIDENTIAL TREATMENT REQUESTED.
25
<PAGE>
withholding and payment in a manner that is satisfactory for purposes of the
U.S. Internal Revenue Service. Any withholdings paid when due hereunder shall
be for the account of the party liable for such taxes and shall not be included
in the calculation of Net Sales or Contribution Income. Withholding payments
made by either party pursuant to this Section 6.6 shall be made based upon
financial information provided to the party making the payment by the other
party; to the extent that such information is incorrect, the party providing
such information shall be liable for any deficiency, and any fine, assessment or
penalty imposed by any taxing authority in the Territory for any deficiency in
the amount of any such withholding or the failure to make such withholding
payment. If either party is required to pay any such deficiency, or any fine,
assessment or penalty for any such deficiency, the party liable for such payment
shall promptly reimburse the other party for such payment, which shall not be
included in the calculation of Net Sales or Contribution Income.
6.7 FAILURE TO AGREE. In the event the parties fail to agree on any
----------------
payment due from one party to the other under this Agreement, such dispute shall
be resolved in accordance with the provisions of Section 4.1(d).
ARTICLE VII
REGULATORY MATTERS
------------------
7.1 REGULATORY APPROVALS AND CLINICAL STUDIES. Prior to the
-----------------------------------------
Effective Date, Centocor will fully inform Schering-Plough of, and provide full
access to information to Schering-Plough regarding, all Product clinical studies
in progress as of the Effective Date. Following the Effective Date, Centocor
and Schering-Plough, through the Product Committee, will coordinate such in-
progress clinical studies. Centocor and Schering-Plough will, through the
Product Committee, jointly propose, develop and coordinate all clinical studies
for the Product to be initiated after the Effective Date. In some instances,
management of clinical studies may be delegated to Schering-Plough, although
Centocor, as the party responsible for obtaining and maintaining Regulatory
Approvals, will ultimately be responsible for all pre-clinical and clinical
studies. The parties acknowledge their mutual intent that, subject to locally
applicable laws in each country of the Territory, Centocor will hold all
marketing authorizations in its name. Notwithstanding the foregoing, Centocor
shall promptly take all steps necessary to ensure that as of the date of
Marketing Approval in each country in the Territory Schering-Plough shall have
the right to market, promote, distribute, import, export, offer for sale and
sell the Product in the Territory under the Trademark and using Schering-
Plough's trade dress (including, without limitation, the transfer
26
<PAGE>
of the relevant marketing authorizations to Schering-Plough and/or its
designated Affiliate, if necessary).
7.2 LICENSES, FILINGS, REGISTRATIONS, PERMITS AND REGULATORY
--------------------------------------------------------
APPROVALS. In collaboration with Schering-Plough, Centocor will be responsible
- ---------
for obtaining and maintaining all licenses, registrations, permits and any other
required Regulatory Approvals relating to the Product; provided, however, that
Schering-Plough, with Centocor's support, will be responsible for obtaining and
maintaining those licenses, registrations, permits and regulatory approvals
required to be obtained by Schering-Plough to enable Schering-Plough to act as
the exclusive distributor of the Product in the Territory pursuant to this
Agreement. Each of the parties will cooperate with the other in making all
regulatory filings that may be necessary or desirable in connection with the
execution, delivery and performance of this Agreement and each will use all
reasonable efforts to obtain any regulatory approvals related thereto. To
enable Schering-Plough to assist Centocor in obtaining regulatory approvals,
Centocor will provide Schering-Plough access to Centocor's regulatory filing
documentation, with the exception of the manufacturing master file. On
expiration or termination of this Agreement, for whatever reason, Schering-
Plough will use all reasonable efforts to effect the transfer of any such
licenses, registrations, permits or approvals as may be in its name in relation
to the Product to Centocor or such other entity as Centocor may nominate. If
the Agreement is terminated upon Schering-Plough's fault, the cost of such
transfer will be borne by Schering-Plough. If the Agreement is terminated upon
Centocor's fault, the cost of such transfer will be borne by Centocor. In all
other cases the cost will be equally shared by Centocor and Schering-Plough.
7.3 ADVERSE EVENT REPORTING AND DRUG SAFETY INFORMATION. As the
---------------------------------------------------
license holder, Centocor will have ultimate responsibility for adverse event
reporting and drug safety information in the United States and in those
countries in the Territory in which Centocor holds the relevant marketing
authorizations. Schering-Plough shall have such responsibility in those
countries in the Territory where it holds the relevant marketing authorizations
and/or is otherwise required by law to report adverse events. Promptly after
the Effective Date, the drug safety departments of Centocor and Schering-Plough
shall agree upon suitable protocols and procedures to further delineate each
party's obligations with respect to adverse event reporting which shall be
incorporated into a separate written agreement of the parties. (The outline of
such adverse event reporting and drug safety agreement contained in Appendix J
as of the Effective Date will be the basis for finalizing such new agreement,
which new agreement will supersede and replace the outline.) In any event,
during the term of this Agreement, each party will, within the time periods and
in accordance with procedures set forth in Appendix J, notify the
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THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
other party of all information coming into its possession concerning side
effects, injury, toxicity or sensitivity reactions, including unexpected
increased incidence or severity thereof, associated with commercial or clinical
uses, studies, investigations or tests with the Product, inside or outside the
Territory, whether or not determined to be attributable to the Product.
7.4 COMMUNICATION WITH AGENCIES. Centocor, as the party responsible
---------------------------
for obtaining and maintaining Regulatory Approvals, will have the primary
responsibility for communications with various regulatory agencies but will do
so in collaboration with Schering-Plough. Schering-Plough will have the right
to have representatives present at all meetings with regulatory agencies in the
Territory concerning the Product. The foregoing notwithstanding, to the extent
that Schering-Plough holds the market authorizations and Marketing Approvals in
a country in the Territory, Schering-Plough shall have primary responsibility
for such communications, and will do so in collaboration with Centocor, with
Centocor having the right to have representatives present at any meetings with
regulatory agencies in such countries concerning the Product. Each party will
provide the other with copies of any significant communications (which are known
to the party to exist and which the party can obtain copies of) with any
regulatory agency throughout the world concerning the Product, including but not
limited to reports of Adverse Events, but excluding communications pertaining to
or included in the manufacturing master file.
ARTICLE VIII
TERM OF AGREEMENT
-----------------
8.1 TERM. This Agreement is effective on the Effective Date. It
----
will continue for a term of fifteen (15) years from the date of the first
Commercial Sale in the Territory, unless earlier terminated pursuant to the
provisions of this Agreement.
8.2 TERMINATION.
-----------
(a) BREACH OF OBLIGATION. In the event of a material breach of
--------------------
this Agreement by either party, the non-breaching party will give the breaching
party written notice requiring it to remedy such breach. If, after [*] days
following such notice, the breach is neither fully remedied nor a plan to remedy
it has been agreed by the parties, the non-breaching party will, in addition to
having the right to seek an arbitration award under Section 12.7 for any damages
to which it may be entitled, be entitled to terminate this
CONFIDENTIAL TREATMENT REQUESTED.
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Agreement with immediate effect upon written notice thereof to the breaching
party.
(b) INSOLVENCY. This Agreement may be terminated by either party upon
----------
written notice to the other should the other party (i) become insolvent; or (ii)
file a voluntary petition under any bankruptcy or insolvency law; or (iii) have
any such petition filed against it which is not stayed within sixty (60) days of
such filing; or (iv) has a receiver appointed for its business or property; or
(v) makes a general assignment for the benefit of its creditors. Such
termination shall be made effective the date notice of termination is given. In
the event of Centocor's insolvency, Centocor shall provide to Schering-Plough
access to Centocor's drug master file in order to enable Schering-Plough to
undertake manufacture of the Product.
(c) CHANGE IN CONTROL. If either party is acquired by a third party
-----------------
or otherwise comes under Control (as defined in Section 1.4 above) of a third
party, it will promptly notify the other party not subject to such change of
control. The party not subject to such change of control will have the right,
however not later than thirty (30) days from such notification, to notify in
writing the party subject to the change of Control of the termination of the
Agreement taking effect immediately. As used herein "Change of Control" shall
mean (i) any merger, reorganization, consolidation or combination in which a
party to this Agreement is not the surviving corporation; or (ii) any "person"
(within the meaning of Section 13(d) and Section 14(d)(2) of the Securities
Exchange Act of 1934), excluding a party's Affiliates, is or becomes the
beneficial owner, directly or indirectly, of securities of the party
representing more than fifty percent (50%) of either (A) the then-outstanding
shares of common stock of the party or (B) the combined voting power of the
party's then-outstanding voting securities; or (iii) if individuals who as of
the Effective Date constitute the Board of Directors of the party (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the party; provided, however, that any individual becoming
a director subsequent to the Effective Date whose election, or nomination for
election by the party's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board; or (iv) approval by the shareholders of a party of a complete liquidation
or the complete dissolution of such party.
8.3 EFFECT OF EXPIRATION AND TERMINATION.
------------------------------------
29
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THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(a) ACCRUED OBLIGATIONS. Expiration or termination of this Agreement
-------------------
for any reason will not release any party hereto from any obligation and any
liability which, at the time of such expiration or termination, has already
accrued to the other party or which is attributable to a period prior to such
expiration or termination, nor will it preclude either party from pursuing all
rights and remedies it may have hereunder with respect to any breach of this
Agreement.
(b) OUTSTANDING AND NEW ORDERS. Upon delivery of a termination notice
--------------------------
by either party, the parties will seek agreement to what extent outstanding
orders, and whether new orders of Schering-Plough addressed to Centocor, will be
fulfilled. In any case, Centocor acknowledges (i) that Schering-Plough's supply
obligations to its customers will be taken into consideration, and (ii) that
Schering-Plough has no obligation to accept delivery of the Product to the
extent its ability or authority to import, distribute and/or sell the Product
has expired for practical or for legal reasons.
(c) STOCK OF PRODUCT. Upon expiration of the Agreement and upon
----------------
termination of the Agreement by either party for any reason other than a
material breach by Schering-Plough, to the extent that Schering-Plough then
holds in its inventory a quantity of Product the purchase price of which exceeds
the value of Centocor's work-in-process and finished inventory of Product
intended for shipment to Schering-Plough pursuant to firm orders, Centocor will
repurchase or have repurchased by an entity of its choice at the per unit price
paid by Schering-Plough to Centocor according to Section 6.1 and under terms
analogous to Section 5.5, a quantity of Product such that following such
repurchase, the amount paid by Schering-Plough for its remaining inventory of
Product will equal the cost of Centocor's work-in-process and finished inventory
of Product intended for shipment to Schering-Plough pursuant to firm orders;
provided, however, that in no event will Centocor be required to repurchase any
inventory with a remaining shelf life of less than [*] months.
(d) PRODUCT SELL OFF. Upon expiration or termination of this
-----------------
Agreement for any reason, Schering-Plough shall have the right to continue to
sell its existing inventory of Product in the Territory for a period of [*]
months from the effective date of such expiration or termination. The parties
will continue to share the Contribution Income arising from any such sales in
accordance with the terms of this Agreement. If such termination is the result
of a material breach of this Agreement by Centocor, Centocor shall be obligated
to repurchase from Schering-Plough all unsold quantities of Product in Schering-
Plough's inventory, unless Schering-Plough notifies Centocor in writing at the
time of the termination that it elects to sell its existing inventory for a
period of [*] months. If Schering-Plough elects to sell
CONFIDENTIAL TREATMENT REQUESTED.
30
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
its existing inventory following termination due to a material breach of this
Agreement by Centocor, Centocor shall not be obligated to repurchase product
with a shelf life of less than [*] months.
ARTICLE IX
REPRESENTATIONS AND COVENANTS
-----------------------------
9.1 REPRESENTATIONS OF CENTOCOR. Centocor represents and warrants to
---------------------------
Schering-Plough as follows:
(a) ORGANIZATION AND GOOD STANDING. Centocor is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
(b) AUTHORITY. Centocor has the corporate power to enter into this
---------
Agreement and to carry out the transactions contemplated hereby. The execution,
delivery and performance of this Agreement have been duly and validly authorized
and approved by all necessary corporate action on the part of Centocor and this
Agreement has been duly executed by and constitutes the legally binding
obligation of Centocor, enforceable in accordance with its terms (except that
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights, as from time to time in effect, and general principles of
equity). The execution and delivery of this Agreement do not, and the
consummation by Centocor of the transactions contemplated hereby will not,
violate the provisions of, constitute a default under or give rise to rights of
any entity under (i) any laws applicable to Centocor, (ii) Centocor's Articles
of Incorporation or bylaws, (iii) any judgment, decree or order of any court or
governmental agency applicable to Centocor or (iv) any agreements, contracts or
commitments to which Centocor is a party.
(c) GOVERNMENTAL CONSENTS. Apart from Regulatory Approvals and except
---------------------
for the subjects addressed in Section 12.15, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required in
connection with the consummation by Centocor of the transactions contemplated by
this Agreement.
(d) ACCESS TO DATA. Centocor has provided to Schering-Plough for its
--------------
review all relevant information except certain information relating to the
manufacturing of the Product. Centocor has also
CONFIDENTIAL TREATMENT REQUESTED.
31
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provided to Schering-Plough details of all adverse events known to it relating
to the Product.
(e) PATENT INFRINGEMENT. To Centocor's knowledge, there exists no
-------------------
valid and enforceable patent owned by a third party which would prevent: (i)
the use, manufacture or sale of the Product in the United States or the
Territory; or (ii) the import, export, marketing, promotion, distribution,
offering for sale or sale of the Product in the Territory by Schering-Plough
and/or its Affiliates.
(f) CENTOCOR LICENSES. The consummation of the transactions
-----------------
contemplated by this Agreement by Schering-Plough will not require additional
licenses under any third party patent licensed to Centocor.
9.2 CENTOCOR COVENANTS.
------------------
(a) Centocor covenants to Schering-Plough that it will take such
actions as are necessary to enable Schering-Plough to import, export, market,
promote, distribute, use and sell the Product in all countries in the Territory,
as of the date of Marketing Approval in each such country, under the Trademark
and using Schering-Plough's trade dress.
(b) Centocor covenants to Schering-Plough that: (i) it will comply
fully with all laws applicable to Centocor and its activities under this
Agreement; and (ii) it will notify Schering-Plough promptly in writing of any
material civil, criminal or administrative action brought against Centocor, its
directors, officers, employees or agents which is likely to have a material
adverse effect on Centocor's pharmaceutical business or Centocor's business
reputation, or is likely adversely to affect Centocor's ability to perform its
obligations under this Agreement, and promptly to provide Schering-Plough with
reasonably detailed information regarding Centocor's handling and disposition of
any such action; and (iii) except as mutually agreed by the parties, during the
term of this Agreement, it will not enter into any distributorship agreements,
marketing arrangements, licenses or similar arrangements granting any third
party the right to distribute, market, promote or sell the Product in the
Territory.
(c) Centocor covenants to Schering-Plough that it will (i) use
diligent efforts not to diminish the rights under "Patent Rights" held by
Centocor and/or granted to Schering-Plough hereunder or under the License
Agreement attached hereto as Appendix L, including without limitation, by not
committing or permitting any actions or omissions which would cause the breach
of any agreements between itself and third parties which provide for
intellectual property rights applicable to the manufacture, use or sale of the
32
<PAGE>
Product, (ii) provide Schering-Plough promptly with notice of any such alleged
breach, and (iii) as of the Effective Date, it is in compliance in all material
respects with any such agreements with third parties. For purposes of this
Section 9.2(c), the term "Patent Rights" shall mean any and all patents and
patent applications (which for the purposes of this Agreement shall be deemed to
include certificates of invention and applications for certificates of
invention) which during the term of this Agreement are owned or controlled by
Centocor (wherein control means the ability to grant licenses and/or
sublicenses) and have claims covering (A) the Product and/or any Improvements,
(B) any materials, methods or processes used in the manufacture of the Product
and/or any Improvements, or (C) any methods of use or new indications for the
Product and/or Improvements, as well as any substitutions, divisions,
continuations, continuations-in-part, reissues, renewals, registrations,
confirmations, re-examinations, extensions, supplementary protection
certificates or the like, of any of the foregoing.
9.3 REPRESENTATIONS OF SCHERING-PLOUGH. Schering-Plough represents
----------------------------------
and warrants to Centocor as follows:
(a) ORGANIZATION AND GOOD STANDING. Schering-Plough is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of
Switzerland.
(b) AUTHORITY. Schering-Plough has the corporate power to enter into
---------
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement have been
duly and validly authorized and approved by all necessary corporate action on
the part of Schering-Plough and this Agreement has been duly executed by and
constitutes the legally binding obligation of Schering-Plough enforceable in
accordance with its terms (except that such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally, as from time to
time in effect, and general principles of equity). The execution and delivery
of this Agreement by Schering-Plough do not, and the consummation by Schering-
Plough of the transactions contemplated hereby will not, violate the provisions
of, constitute a default under or give rise to rights of any entity under (i)
any laws applicable to Schering-Plough, (ii) the Articles or Certificate of
Incorporation or other charter documents or bylaws of Schering-Plough, (iii) any
judgment, decree or order of any court or governmental agency applicable to
Schering-Plough or (iv) any agreements, contracts or commitments to which
Schering-Plough is a party.
33
<PAGE>
(c) GOVERNMENTAL CONSENTS. Except for the subjects addressed in
---------------------
Section 12.15, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority is required in connection with the consummation by
Schering-Plough of the transactions contemplated by this Agreement.
(d) ACCESS TO DATA. In entering into this Agreement, Schering-Plough
--------------
is relying solely upon its independent investigation of Centocor's business and
its independent consultation with such professional, legal and accounting
advisors as it deems necessary, and is not acting in reliance on any statements,
instruments, certificates, documents, representations or warranties other than
those contained or referred to in this Agreement.
9.4 SCHERING-PLOUGH COVENANTS. Schering-Plough covenants to Centocor
-------------------------
that it will: (i) comply fully with all laws applicable to Schering-Plough and
its activities under this Agreement; (ii) notify Centocor promptly in writing of
any material civil, criminal or administrative action brought against Schering-
Plough, its directors, officers, employees or agents which is likely adversely
to affect Schering-Plough's ability to perform its obligations under this
Agreement, and promptly to provide Centocor with reasonably detailed information
regarding Schering-Plough's handling and disposition of any such action; and
(iii) except as provided in Section 7.2, not initiate any voluntary
communications with regulatory agencies relating to the Product without
Centocor's prior consent.
ARTICLE X
INDEMNIFICATION AND INSURANCE
-----------------------------
10.1 CENTOCOR INDEMNIFICATION. Centocor will defend and indemnify
------------------------
Schering-Plough, its Affiliates and their respective directors, officers,
employees and agents against all claims, losses, damages, liabilities, and
expenses, including reasonable attorneys' fees (collectively "Losses") arising
out of or resulting from: (i) any product liability or similar claim relating
to the Product (except to the extent any such Losses are caused by the
negligence, willful misconduct or illegal acts of Schering-Plough); (ii) any
other claim relating to the Product to the extent such Losses are caused by the
negligence, willful misconduct or illegal acts of Centocor; (iii) any breach by
Centocor of any of its representations and covenants contained in Sections 9.1
and 9.2 hereof; or (iv) any claim of patent or trademark infringement relating
34
<PAGE>
to the Product (and in the case of trademark infringement, where Centocor is the
holder of the trademark).
10.2 SCHERING-PLOUGH INDEMNIFICATION. Schering-Plough will defend and
-------------------------------
indemnify Centocor, its Affiliates and their respective directors, officers,
employees and agents against any Losses arising out of or resulting from: (i) a
claim made against Centocor relating to the Product, but only to the extent such
Losses are caused by the negligence, willful misconduct or illegal acts of
Schering-Plough or any of its directors, officers, employees or agents in
connection, in any manner, with the sale, distribution or promotion of the
Product by Schering-Plough or other transactions contemplated by this Agreement;
(ii) any breach by Schering-Plough of any of its representations and covenants
contained in Sections 9.3 and 9.4 hereof; or (iii) any claim of trademark
infringement relating to the Product where Schering-Plough is the holder of the
trademark.
10.3 CONDITIONS TO INDEMNIFICATION. The obligations of the
-----------------------------
indemnifying party under Sections 10.1 and 10.2 are conditioned upon the
delivery of written notice to the indemnifying party of any potential Losses
within sixty (60) days after the indemnified party becomes aware of such
potential Losses. The indemnifying party shall have the right to assume the
defense of any suit or claim related to the Losses if it has assumed
responsibility for the suit or claim in writing; however, if in the reasonable
judgment of the indemnified party, such suit or claim involves an issue or
matter which could have a materially adverse effect on the business operations
or assets of the indemnified party, the indemnified party may waive its rights
to indemnity under this Agreement and control the defense or settlement thereof,
but in no event shall any such waiver be construed as a waiver of any other
indemnification rights such party may have at law or in equity. If the
indemnifying party defends the suit or claim, the indemnified party may
participate in (but not control) the defense thereof at its sole cost and
expense.
Neither party may settle a claim or action related to any Losses
without the consent of the other party, if such settlement would impose any
monetary obligation on the other party or require the other party to submit to
an injunction or otherwise limit the other party's rights under this Agreement.
Any payment made by a party to settle any such claim or action shall be at its
own cost and expense.
With respect to any claim by one party against the other arising out
of the performance or failure of performance of the other party under this
Agreement, the parties expressly agree that the liability of such party to the
other party for such breach shall be limited under this Agreement or otherwise
35
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
at law or equity to direct damages only and in no event shall a party be liable
for punitive, exemplary or consequential damages.
10.4 INSURANCE. During the period of time beginning with the first
---------
Commercial Sale and continuing for five (5) years after the expiration or
termination of this Agreement, Centocor and Schering-Plough will maintain in
force product liability insurance coverage, with commercially reasonable limits
adequate to cover their obligations under this Agreement. The insurance
obtained by Centocor shall include coverage for products with limits not less
than [*] for each claim and in the aggregate. A certificate of insurance shall
be provided by Centocor to Schering-Plough promptly after the Effective Date and
at each anniversary or renewal date of such insurance. Schering-Plough, as with
most major pharmaceutical companies, is largely self-insured for its liability
exposures. Schering-Plough's assets are sufficient to cover any contemplated
self-insured liability assumed by Schering-Plough under this Agreement.
10.5 SURVIVAL. The provisions of this Article X (other than Section
--------
10.3) will survive the termination or expiration of this Agreement.
ARTICLE XI
CONFIDENTIALITY
---------------
11.1 CENTOCOR INFORMATION. Schering-Plough will maintain in
--------------------
confidence, and will ensure that its Affiliates and its and their consultants,
employees, agents and representatives maintain in confidence, all proprietary
and confidential information which has been or is provided by Centocor to
Schering-Plough, including but not limited to, Centocor's inventions,
discoveries, improvements and methods, business plans, marketing techniques or
plans, manufacturing and other plant designs, location of operations, and any
other information affecting the business operations of Centocor ("Centocor
Information"), and will not use for any purpose other than the performance of
this Agreement, and will not publish, disseminate, or disclose, in any manner,
to any person any Centocor Information unless: (i) Schering-Plough is legally
required to do so or is required under rules or regulations of any governmental
agency or authority or any stock exchange to be disclosed, provided that
Schering-Plough shall, prior to making any such disclosure, give Centocor
sufficient advance written notice to permit it to seek a protective order or
other similar order with respect to such information and thereafter shall
disclose only the minimum information required to be disclosed in order to
comply with such law, rule or regulation, whether or not a protective order or
other similar order is obtained; (ii) the Centocor Information has entered or
enters the
CONFIDENTIAL TREATMENT REQUESTED.
36
<PAGE>
public domain through no fault of Schering-Plough; (iii) the Centocor
Information was already known by Schering-Plough before receipt from Centocor,
or is developed independently by Schering-Plough without breach of this
Agreement, in either case as shown by contemporaneous written records; or (iv)
the Centocor Information is received by Schering-Plough from a third party under
no confidentiality obligation to Centocor.
11.2 SCHERING-PLOUGH INFORMATION. Centocor will maintain in
---------------------------
confidence, and will ensure that its Affiliates and its and their consultants,
employees, agents and representatives maintain in confidence, all proprietary
and confidential information which has been or is provided by Schering-Plough to
Centocor, including but not limited to, Schering-Plough's inventions,
discoveries, improvements and methods, business plans, marketing techniques or
plans, manufacturing and other plant designs, location of operations, and any
other information affecting the business operations of Schering-Plough
("Schering-Plough Information"), and will not use for any purpose other than the
performance of this Agreement, and will not publish, disseminate, or disclose in
any manner, to any person, any Schering-Plough Information unless: (i) Centocor
is legally required to do so or is required under rules or regulations of any
governmental agency or authority or any stock exchange to be disclosed, provided
that Centocor shall, prior to making any such disclosure, give Schering-Plough
sufficient advance written notice to permit it to seek a protective order or
other similar order with respect to such information and thereafter shall
disclose only the minimum information required to be disclosed in order to
comply with such law, rule or regulation, whether or not a protective order or
other similar order is obtained; (ii) the Schering-Plough Information has
entered or enters the public domain though no fault of Centocor; (iii) the
Schering-Plough Information was already known by Centocor before receipt from
Schering-Plough, or is developed independently by Centocor without breach of
this Agreement, in either case as shown by contemporaneous written records; or
(iv) the Schering-Plough Information is received by Centocor from a third party
under no confidentiality obligation to Schering-Plough.
11.3 SURVIVAL; SPECIFIC PERFORMANCE. The provisions of this Article
------------------------------
XI will survive the termination or expiration of this Agreement for a period of
ten (10) years. Each party agrees that money damages through arbitration would
not be a sufficient remedy for any breach by it of the provisions of this
Article XI and that, in addition to any remedy which may be available through
arbitration, the non-breaching party will be entitled to apply for and obtain
orders for specific performance and injunctive or other equitable relief as a
remedy for any such breach from a Court of general jurisdiction in the state,
federal judicial district, county or canton (as the case may be) in which the
principal place of business of the party in breach is located.
37
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1 HUMAN ANTI-TNF ANTIBODIES. In the event Centocor develops a
-------------------------
fully human anti-TNF monoclonal antibody through use of transgenic animals or
plants or other technology, Centocor shall notify Schering-Plough of such
development efforts through the Product Committee. Schering-Plough will have
the exclusive right, until such time as Centocor successfully completes a Phase
IIb clinical trial establishing proof of efficacy for the new antibody but no
earlier than the time at which Centocor makes a milestone or equity payment to a
third party licensor due upon initiation of the clinical development of such new
antibody, to participate with Centocor in the ongoing clinical development and
commercialization of such new antibody. If Schering-Plough elects to
participate, it shall reimburse Centocor for [*] of the fully allocated costs
(i.e., personnel costs plus out-of-pocket expenses, except that Schering-Plough
shall only reimburse Centocor for [*] of any milestones Centocor has paid)
incurred to date in the development of such new antibody. If Schering-Plough
elects to participate, the new antibody shall be treated as an Improvement to
the Product under the terms of this Agreement with respect to the Territory. In
the event Schering-Plough elects not to participate, Centocor will be free to
market and sell such new antibody product in the United States and the Territory
for any and all indications or agree to sell it to one or more other parties for
resale in the United States and the Territory for one or more indications. [*]
12.2 FORCE MAJEURE. Neither party will be liable to the other for
-------------
failure or delay in the performance of its obligations hereunder, if and to the
extent that such failure or delay is attributable to any circumstance beyond its
control which it could not have avoided by the exercise of reasonable diligence
(hereinafter referred to as "Force Majeure"). The party affected by Force
Majeure will provide the other party with full particulars thereof as soon as it
becomes aware of the same (including its best estimate of the likely extent and
duration of the interference with its activities), and will use diligent efforts
to overcome the difficulties created thereby and to resume performance of its
obligations as soon as practicable. If Force Majeure prevails, or is expected
to prevail, for a period of three (3) months or more, the parties will meet to
discuss means for overcoming any difficulties, including an amendment to this
Agreement to meet the new situation.
12.3 NO AGENCY OR PARTNERSHIP. The parties intend and agree that
------------------------
nothing in this Agreement itself renders either party an agent of the other for
any purpose whatsoever and that nothing in this Agreement will be
CONFIDENTIAL TREATMENT REQUESTED.
38
<PAGE>
construed as establishing a joint venture or partnership between the parties.
Except as otherwise provided herein, without the specific prior written approval
of the other party, neither party has authority to, and will not, enter into any
contract, make any representation, give any warranty, incur any liability or
otherwise act on behalf of the other.
12.4 NO IMPLIED LICENSES. Nothing in this Agreement is intended to or
-------------------
will be construed to create, confer, give effect to or otherwise imply in
Schering-Plough any license, right or property interest in the Product, any
Centocor patent, patent application or patent rights, any Centocor trademark or
trade name, or any other Centocor property, except as expressly set forth
herein. Schering-Plough will not, through any action or inaction, cause any
prejudice to or dilution of Centocor's trademark or patent rights (including
patent applications). Nothing in this Agreement is intended to or will be
construed to create, confer, give effect to or otherwise imply in Centocor any
license, right or property interest in any Schering-Plough trademark or trade
name except as provided in Section 4.3(b). Centocor will not, through any
action or inaction, cause any prejudice to or dilution of Schering-Plough's
trademarks.
12.5 THIRD PARTY INFRINGEMENT.
------------------------
(a) NOTICE. If either party becomes aware of any infringement or
------
threatened infringement of any patent, trademark or other property right
relating to the Product, then the party having such knowledge will give written
notice to the other within twenty (20) days of becoming aware of such
infringement or threatened infringement. Any such notice shall include evidence
to support an allegation of infringement by such third party.
(b) CENTOCOR'S PROSECUTION RIGHTS. Centocor, in consultation with
-----------------------------
Schering-Plough, will have the right, but not the obligation, to institute,
prosecute, and control any action or proceeding with respect to the infringement
of patents, trademarks (where Centocor is the holder of the Trademark or a
trademark for the Product) or other property right relating to the Product.
Centocor shall bear all the expenses of any suit brought by it. Schering-Plough
shall have the right, prior to commencement of the trial, suit or action brought
by Centocor, to join any such suit or action, and in such event shall pay one-
half of the costs of such suit or action. In the event that Schering-Plough has
joined in the action and shared in the costs thereof as set forth above, no
settlement, consent judgment or other voluntary final disposition of the suit
may be entered into without the consent of Schering-Plough. In the event that
Schering-Plough has not joined the suit or action, Schering-Plough will
reasonably cooperate with Centocor in any such suit or action and shall have the
right to consult with Centocor and be represented by
39
<PAGE>
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN
PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF
THE AGREEMENT AT THE PLACES INDICATED BY ASTERISKS (*); AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
its own counsel at its own expense, provided that Centocor shall periodically
reimburse Schering-Plough for its out-of-pocket costs (excluding the costs of
retaining its own outside counsel) incurred in cooperating with Centocor. Any
recovery or damages derived from a suit which Schering-Plough has joined and
shared costs shall be used first to reimburse each of Centocor and Schering-
Plough for its documented expenses with respect thereto, with any remaining
amounts to be shared equally by the parties. Any recovery or damages derived
from a suit which Schering-Plough has not joined shall be retained by Centocor.
(c) SCHERING-PLOUGH'S PROSECUTION RIGHTS. Where Schering-Plough is
------------------------------------
the holder of the Trademark or a trademark for the Product, Schering-Plough, in
consultation with Centocor, will have the right, but not the obligation, to
institute, prosecute, and control any action or proceeding with respect to the
infringement of the Trademark or of such trademark for the Product. Schering-
Plough shall bear all the expenses of any suit brought by it. Centocor shall
have the right, prior to commencement of the trial, suit or action brought by
Schering-Plough, to join any such suit or action, and in such event shall pay
one-half of the costs of such suit or action. In the event that Centocor has
joined in the action and shared in the costs thereof as set forth above, no
settlement, consent judgment or other voluntary final disposition of the suit
may be entered into without the consent of Centocor. In the event that Centocor
has not joined the suit or action, Centocor will reasonably cooperate with
Schering-Plough in any such suit or action and shall have the right to consult
with Schering-Plough and be represented by its own counsel at its own expense,
provided that Schering-Plough shall periodically reimburse Centocor for its out-
of-pocket costs (excluding the costs of retaining its own outside counsel)
incurred in cooperating with Schering-Plough. Any recovery or damages derived
from a suit which Centocor has joined and shared costs shall be used first to
reimburse each of Centocor and Schering-Plough for its documented expenses with
respect thereto, with any remaining amounts to be shared equally by the parties.
Any recovery or damages derived from a suit which Centocor has not joined shall
be retained by Schering-Plough.
(d) ASSIGNMENT OF PROSECUTION RIGHTS. In the event one party (the
--------------------------------
"Owning Party") does not exercise its prosecution right according to Sections
12.5(b) or (c), as the case may be, to prevent or eliminate the infringement
within [*] days of receipt of notice of the infringement or threatened
infringement thereof, the other party (the "Other Party") may, at its option,
give notice to the Owning Party that unless the Owning Party undertakes such
action the Other Party will commence an action to terminate such infringement.
If the Owning Party fails to take such action within [*] days of such notice
then the Other Party will have the right, but not
CONFIDENTIAL TREATMENT REQUESTED.
40
<PAGE>
the obligation, to take such action as it deems appropriate against any
infringer at its own cost. The Owning Party shall provide reasonable assistance
to the Other Party in any suit for infringement brought by such Other Party
against a third party, and shall have the right to consult with the such Other
Party and to participate in and be represented by outside counsel in such
litigation at its own expense. For purposes of this Section 12.5(d), reasonable
assistance shall mean the Owning Party providing the Other Party reasonable
access to information, materials and personnel which such Other Party reasonably
determines is necessary to enable the Other Party's conduct of the suit. The
Other Party shall periodically reimburse the Owning Party for its out-of-pocket
costs (excluding Owning Party's costs of retaining outside counsel) incurred in
cooperating with the Other Party. The Other Party shall incur no liability to
the Owning Party as a consequence of such litigation or any unfavorable decision
resulting therefrom, including any decision holding any of the patent rights or
trademarks invalid or unenforceable. In the event that the Other Party recovers
any sums in such litigation by way of damages or in settlement thereof, the
Other Party shall have the right to retain all such sums to offset its costs,
losses and expenses.
12.6 THIRD PARTY CLAIMS. If either party becomes aware of any action
------------------
or suit, or threat of action or suit, by a third party alleging that the
manufacture, use or sale of the Product in the Territory infringes a patent,
trademark or any other proprietary right of any third party, the party aware
will promptly notify the other party of the same and fully disclose the basis
therefor. Subject to Sections 10.1 and 10.2, (i) either party agrees to
cooperate and consult with the other party during the course of the defense of
such action or suit or threat of action or suit and to keep the other party
informed in respect of all significant aspects of such defense, and (ii) neither
party will settle any such action or suit or threat of action or suit without
the express written consent of the other party, which consent will not be
unreasonably withheld.
12.7 ARBITRATION AND LIMITATION OF DAMAGES. Any unresolved dispute
-------------------------------------
between the parties or any claim of one party against the other arising under or
in connection with this Agreement will be resolved through binding arbitration
pursuant to the mechanism set forth in Appendix K; provided, however, that no
party will refer a dispute to arbitration under this Section without giving at
least twenty (20) days' notice to the Oversight Committee of its intention to do
so.
12.8 MODIFICATION; ASSIGNMENT. This Agreement may be modified or
------------------------
amended only in writing signed by duly authorized representatives of Centocor
and Schering-Plough. Neither party shall assign this Agreement or any of its
rights or obligations under this Agreement without the prior
41
<PAGE>
written consent of the other party hereto and any attempted assignments without
that written consent will be void; provided, however, that such consent will not
be unreasonably withheld. Notwithstanding the previous sentence, this Agreement
may be assigned by either party to an Affiliate of that party.
12.9 NOTICES. All notices required or provided under this Agreement
-------
will be given in writing and will be deemed to have been properly served if
delivered by hand (including delivery by courier), or sent by registered or
certified mail or sent by telefax confirmed by registered or certified mail in
each case to the following addresses:
To Centocor: To Schering-Plough:
Centocor, Inc. Schering-Plough Ltd.
200 Great Valley Parkway Toepferstrasse 5
Malvern, Pennsylvania 19355 CH-6004 Lucerne
Attention: Secretary Switzerland
Fax: 610-651-6331 Attention: President
Fax: 41-41-4181626
with copies to:
Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attention: Vice President,
Business Development
Fax: (908) 298-5379
and
Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attention: Senior Legal
Director, Licensing
Fax: (908) 298-2739
or such other address as may be specified in a written notice by the party to
whom notice is to be given. Notices will be deemed to have been delivered as
follows: if sent by mail, seven (7) days after the date of posting; if
delivered by hand, on the date of delivery; if sent by telefax, on the date of
transmission at the place of business of the recipient.
42
<PAGE>
12.10 ENTIRE AGREEMENT. This Agreement supersedes all prior
----------------
agreements and understandings between Centocor and Schering-Plough with respect
to the subject matter hereof. This Agreement contains the entire understanding
and agreement between Centocor and Schering-Plough with respect to the subject
matter hereof and the terms of this Agreement will govern over conflicting terms
of any purchase order or invoice delivered under this Agreement. The Article
and Section headings contained in this Agreement are for convenience of
reference only and will not be considered when interpreting this Agreement.
12.11 PUBLIC STATEMENTS. Neither party, nor its representatives and
-----------------
employees, will make any oral or written disclosure, including any news release
or other public statement, whether to the press, stockholders, or otherwise,
disclosing the existence or terms of this Agreement or of any amendment hereto,
without the prior written approval of the other party, which approval will not
be unreasonably withheld or delayed; provided that nothing in this Section will
be deemed to prevent either party from making such disclosures or statements
which, in the opinion of counsel, are legally required. In the event such
disclosure or statement is required, the disclosing party will give prior notice
to the other party of the proposed disclosure or statement and the reason
therefor. The parties anticipate that on or after the Effective Date they will
issue a press release in a form to be mutually agreed upon by the parties, and
thereafter may from time to time issue additional press releases as mutually
agreed upon by the parties. Following any such press release, either party
shall have the right to issue subsequent public disclosures containing the same
information as that contained in the previously agreed upon press releases.
12.12 GOVERNING LAW; DISPUTES. This Agreement will be governed by
-----------------------
and construed in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to conflicts of laws provisions. The parties
expressly exclude application of the United Nations Convention for the
International Sale of Goods.
12.13 NO WAIVER. Except as specifically set forth in this Agreement,
---------
no failure or delay on the part of a party in exercising any right hereunder
will operate as a waiver of, or impair, any such right. No single or partial
exercise of any such right will preclude any other or further exercise thereof
or the exercise of any other right. No waiver of any such right will be deemed
a waiver of any other right hereunder.
12.14 COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which will be an original and all of which will constitute together but
one and the same document.
43
<PAGE>
12.15 FILINGS AND NOTIFICATION. As soon as practicable after the
------------------------
execution of this Agreement, and if deemed necessary, the parties will ensure
that this Agreement is jointly notified to the Commission of the European
Communities in accordance with Regulation 17 of 1962 of the Council of the
European Communities seeking negative clearance or exemption under Article 85(3)
of the EC Treaty or both.
12.16 RELATED AGREEMENTS. Concurrently herewith the parties have
------------------
entered into a License Agreement and a Security Agreement, which are attached
hereto as Appendices L and M, respectively, granting to Schering-Plough rights
under certain patents and patent applications relating to the Product, and a
security interest in the Trademark or trademarks and the good will connected
with and symbolized by the Trademark or trademarks, in each country in the
Territory. Centocor agrees to execute, acknowledge and deliver such further
instruments and to do all such other acts, at Schering-Plough's expense, as may
be reasonably required to perfect Schering-Plough's rights under those
agreements.
IN WITNESS WHEREOF, Centocor and Schering-Plough have caused this
Agreement to be executed by their duly authorized representatives as of the date
first written above.
CENTOCOR, INC. SCHERING-PLOUGH LTD.
By: /s/ Joseph C. Scodari By: /s/ Thomas C. Lauda
-------------------------- -----------------------
Title: President and Chief Title: Manager (Direktor)
Operating Officer
Date: April 3, 1998 April 3, 1998
44
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTOCOR,
INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF
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</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 157,295
<SECURITIES> 120,526
<RECEIVABLES> 38,958
<ALLOWANCES> 0
<INVENTORY> 30,612
<CURRENT-ASSETS> 352,575
<PP&E> 169,910
<DEPRECIATION> 79,952
<TOTAL-ASSETS> 725,450
<CURRENT-LIABILITIES> 154,789
<BONDS> 514,765
0
0
<COMMON> 702
<OTHER-SE> 108,899
<TOTAL-LIABILITY-AND-EQUITY> 725,450
<SALES> 56,505
<TOTAL-REVENUES> 56,865
<CGS> 20,760
<TOTAL-COSTS> 20,760
<OTHER-EXPENSES> 181,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,687
<INCOME-PRETAX> (140,157)
<INCOME-TAX> 150
<INCOME-CONTINUING> (140,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,307)
<EPS-PRIMARY> (2.00)
<EPS-DILUTED> (2.00)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 29,852
<SECURITIES> 129,939
<RECEIVABLES> 34,616
<ALLOWANCES> 0
<INVENTORY> 24,186
<CURRENT-ASSETS> 222,516
<PP&E> 137,653
<DEPRECIATION> 78,348
<TOTAL-ASSETS> 343,188
<CURRENT-LIABILITIES> 46,360
<BONDS> 54,765
0
0
<COMMON> 697
<OTHER-SE> 240,196
<TOTAL-LIABILITY-AND-EQUITY> 343,188
<SALES> 44,936
<TOTAL-REVENUES> 45,036
<CGS> 17,806
<TOTAL-COSTS> 17,806
<OTHER-EXPENSES> 24,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 997
<INCOME-PRETAX> 3,341
<INCOME-TAX> 70
<INCOME-CONTINUING> 3,271
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTOCOR,
INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND CENTOCOR, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 55,953 16,002
<SECURITIES> 120,362 115,435
<RECEIVABLES> 29,587 13,137
<ALLOWANCES> 0 0
<INVENTORY> 23,815 20,783
<CURRENT-ASSETS> 234,748 168,969
<PP&E> 141,491 142,864
<DEPRECIATION> 79,954 74,727
<TOTAL-ASSETS> 341,121 260,284
<CURRENT-LIABILITIES> 45,480 56,137
<BONDS> 54,765 231,640
0 0
0 0
<COMMON> 692 585
<OTHER-SE> 235,218 (29,981)
<TOTAL-LIABILITY-AND-EQUITY> 341,121 260,284
<SALES> 132,130 65,001
<TOTAL-REVENUES> 135,485 78,916
<CGS> 61,094 29,166
<TOTAL-COSTS> 61,094 29,166
<OTHER-EXPENSES> 89,721 97,053
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,351 17,001
<INCOME-PRETAX> (13,468) (57,132)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (13,468) (57,132)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 705 0
<CHANGES> 0 0
<NET-INCOME> (12,763) (57,132)
<EPS-PRIMARY> (.19) (.98)
<EPS-DILUTED> (.19) (.98)
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