<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15135
TEKELEC
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2746131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26580 W. AGOURA ROAD, CALABASAS, CALIFORNIA 91302
(Address and zip code of principal executive offices)
(818) 880-5656
(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 [ ]
As of November 2, 1999, there were 55,330,465 shares of the registrant's
common stock, without par value, outstanding.
<PAGE> 2
TEKELEC
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
- ------------------------------- ----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1999 and 3
December 31, 1998
Consolidated Statements of Operations for the three and 4
nine months ended September 30, 1999 and 1998
Consolidated Statements of Comprehensive Income for the 5
three and nine months ended September 30, 1999 and 1998
Consolidated Statements of Cash Flow for the nine months 6
ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TEKELEC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- --------
(thousands, except share data)
ASSETS (unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 23,644 $ 31,932
Short-term investments, at fair value .............. 27,264 37,704
Accounts and notes receivable, less
allowances of $1,227 and $763, respectively ...... 71,855 54,606
Inventories ........................................ 21,864 12,872
Amounts due from related parties ................... 967 1,896
Income taxes receivable ............................ 4,463 32
Deferred income taxes, net ......................... 11,165 8,616
Prepaid expenses and other current assets .......... 5,612 3,317
-------- --------
Total current assets ........................ 166,834 150,975
Long-term investments, at fair value ....................... 28,892 44,138
Property and equipment, net ................................ 18,709 12,859
Intangible assets, net ..................................... 143,390 131
Deferred income taxes, net ................................. 1,745 1,514
Other assets ............................................... 553 625
-------- --------
Total assets ................................ $360,123 $210,242
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable ........................... $100,000 $ --
Trade accounts payable ............................. 15,652 10,904
Accrued expenses ................................... 13,901 10,932
Accrued payroll and related expenses ............... 8,484 5,660
Current portion of deferred revenues ............... 26,917 10,480
Income taxes payable ............................... 3,962 4,237
-------- --------
Total current liabilities ................... 168,916 42,213
Long-term portion of deferred revenues ..................... 2,746 2,252
Long-term deferred income tax liability .................... 20,623 --
-------- --------
Total liabilities ........................... 192,285 44,465
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, without par value,
200,000,000 shares authorized; 55,293,287 and
54,328,512 shares issued and outstanding,
respectively ................................ 98,328 92,803
Retained earnings .................................. 67,360 72,084
Accumulated other comprehensive income ............. 2,150 890
-------- --------
Total shareholders' equity .................. 167,838 165,777
-------- --------
Total liabilities and shareholders' equity .. $360,123 $210,242
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
TEKELEC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES ............................................ $ 64,743 $ 49,658 $ 149,156 $ 127,515
COSTS AND EXPENSES:
Cost of goods sold .......................... 22,978 16,660 52,285 42,196
Amortization of purchased technology ........ 2,464 -- 3,978 --
Research and development .................... 10,881 6,865 30,274 18,216
Selling, general and administrative ......... 17,438 10,685 44,395 29,314
Amortization of goodwill and other intangible
assets .................................... 6,055 -- 9,781 --
Acquired in-process research and development
and other acquisition-related charges ..... -- -- 6,830 --
Restructuring ............................... -- -- 1,800 --
--------- --------- --------- ---------
Total costs and expenses ............. 59,816 34,210 149,343 89,726
--------- --------- --------- ---------
Income (Loss) from operations ....................... 4,927 15,448 (187) 37,789
Other income (expense):
Interest income ............................. 935 1,285 3,288 3,414
Interest expense ............................ (1,765) -- (2,858) --
Other, net .................................. (67) 1 (69) (246)
--------- --------- --------- ---------
Total other income (expense) ........ (897) 1,286 361 3,168
--------- --------- --------- ---------
Income before provision for income taxes ............ 4,030 16,734 174 40,957
Provision for income taxes .................. 3,110 6,362 4,898 15,564
--------- --------- --------- ---------
NET INCOME (LOSS) .................... $ 920 $ 10,372 $ (4,724) $ 25,393
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE:
Basic ....................................... $ 0.02 $ 0.19 $ (0.09) $ 0.48
Diluted ..................................... 0.02 0.18 (0.09) 0.43
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic ....................................... 55,094 53,866 54,776 53,315
Diluted ..................................... 58,864 58,797 54,776 58,770
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
TEKELEC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(thousands)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) .............................. $ 920 $ 10,372 $ (4,724) $ 25,393
Other comprehensive income (expense):
Foreign currency translation adjustments 1,847 424 1,260 (486)
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) .................... $ 2,767 $ 10,796 $ (3,464) $ 24,907
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
TEKELEC
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
-------- --------
(thousands)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ (4,724) $ 25,393
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ..................................................... 5,960 4,155
Amortization of intangible assets ................................ 14,289 --
Write-off of acquired in-process research and development ........ 6,000 --
Non-cash portion of restructuring charge ......................... 800 --
Deferred income taxes ............................................ (3,653) (265)
Changes in current assets and liabilities (excluding the effect of
acquisition):
Accounts and notes receivable ................................. (6,934) (24,005)
Inventories ................................................... (2,758) 1,575
Amounts due from related parties .............................. 931 896
Income taxes receivable ....................................... 1,049 726
Prepaid expenses and other current assets ..................... (1,635) (1,604)
Trade accounts payable ........................................ 2,899 4,095
Accrued expenses .............................................. 1,436 2,700
Accrued payroll and related expenses .......................... (4,881) (384)
Deferred revenues ............................................. 3,011 3,265
Income taxes payable .......................................... 1,542 14,135
-------- --------
Total adjustments ......................................... 18,056 5,289
-------- --------
Net cash provided by operating activities ................. 13,332 30,682
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturity of available-for-sale securities ........... 58,682 43,200
Purchase of available-for-sale securities ......................... (25,740) (83,124)
Payments in connection with acquisition, net of cash acquired ..... (49,087) --
Purchase of property and equipment ................................ (8,463) (4,646)
Purchase of technology ............................................ (1,774) (150)
Decrease (Increase) in other assets ............................... 111 (65)
-------- --------
Net cash (used in) investing activities ................... (26,271) (44,785)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ............................ 3,694 6,159
-------- --------
Net cash provided by financing activities ................. 3,694 6,159
Effect of exchange rate changes on cash .................................. 957 (386)
-------- --------
Net change in cash and cash equivalents ........................... (8,288) (8,330)
Cash and cash equivalents at beginning of period ......................... 31,932 38,748
-------- --------
Cash and cash equivalents at end of period ............................... $ 23,644 $ 30,418
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
TEKELEC
CONSOLIDATED STATEMENTS OF CASH FLOW (CONT'D)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
-------- --------
(thousands)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION:
Tax benefit related to stock options ............................ $ 1,830 $ 8,246
Note payable in connection with acquisition ..................... 100,000 --
Assets and liabilities recognized in connection with acquisition:
Accounts receivable ......................................... 9,957 --
Other current assets ........................................ 13,261 --
Investments ................................................. 7,255 --
Property and equipment ...................................... 3,490 --
Other assets ................................................ 169 --
Intangibles ................................................. 61,000 --
Goodwill .................................................... 94,774 --
Accounts payable ............................................ 1,515 --
Other current liabilities ................................... 22,429 --
Deferred income tax liability ............................... 21,545 --
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. BASIS OF PRESENTATION
The consolidated financial statements are unaudited, other than the
consolidated balance sheet at December 31, 1998, and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
condition, operating results and cash flows for the interim periods.
The results of operations for the current interim periods are not
necessarily indicative of results to be expected for the current year. Certain
items shown in the prior financial statements have been reclassified to conform
with the presentation of the current period.
The Company operates under a thirteen-week calendar quarter. For
financial statement presentation purposes, however, the reporting periods are
referred to as ended on the last calendar day of the quarter. The accompanying
financial statements for the three and nine months ended September 30, 1999 and
1998 are for the thirteen and twenty-six weeks ended October 1, 1999 and October
2, 1998, respectively.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 1998,
and the notes thereto in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
On May 7, 1999, the Company purchased all of the outstanding stock of
IEX Corporation ("IEX"). The acquisition has been accounted for under the
purchase method of accounting, and accordingly, the consolidated financial
statements include the results and financial position of IEX beginning as of May
7, 1999. See Note B.
B. ACQUISITION OF IEX CORPORATION
On May 7, 1999, the Company acquired all of the outstanding stock of IEX
Corporation ("IEX") for $163 million, consisting of $63 million in cash and $100
million in short-term notes maturing on November 7, 1999. IEX develops, markets
and sells solutions for intelligent networks, call centers and other
telecommunications markets.
8
<PAGE> 9
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The transaction has been accounted for under the purchase method of
accounting, and resulted in net goodwill and other intangibles of approximately
$132.9 million, with an average amortization period of five years. The total
purchase price, including acquisition expenses of $2.0 million, was allocated
among the assets acquired and liabilities assumed based on their estimated fair
values as follows:
<TABLE>
<CAPTION>
(thousands)
<S> <C>
In-process research and development ................... $ 6,000
Developed and existing technology ..................... 48,000
Other intangibles ..................................... 13,000
Goodwill .............................................. 94,774
Tangible assets acquired .............................. 50,045
Deferred income tax liabilities associated with certain
intangible assets ............................... (22,875)
Liabilities assumed ................................... (23,944)
---------
$ 165,000
=========
</TABLE>
Based on a third party appraisal, management determined that $6.0
million of the purchase price represented acquired in-process research and
development that had not yet reached technological feasibility and had no
alternative future use. This amount was recorded as a non-recurring expense in
the second quarter of 1999. Amortization expense of purchased technology and
other intangible assets resulting from the acquisition amounted to $7.1 million
and $11.4 million, net of amortization of associated deferred income tax
liabilities of $1.4 million and $2.3 million, for the three and nine months
ended September 30, 1999.
The following table shows pro forma revenue, net loss and net loss per
share of the Company giving effect to the IEX acquisition as of the beginning of
1998 and 1999, excluding the impact of the one-time charges noted above.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1999 1998
--------- ---------
(thousands, except per share amounts)
<S> <C> <C>
Revenues ..................... $ 162,915 $ 161,985
Net income (loss) ............ (15,824) 1,876
Earnings (Loss) per share..... (0.29) 0.03
</TABLE>
9
<PAGE> 10
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C. CERTAIN BALANCE SHEET ITEMS
The components of inventories are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ---------
(thousands)
<S> <C> <C>
Raw materials .................................. $ 7,055 $ 3,830
Work in process ................................ 2,299 2,064
Finished goods ................................. 12,510 6,978
--------- ---------
$ 21,864 $ 12,872
========= =========
Property and equipment consist of the following:
Manufacturing and development equipment ........ $ 25,249 $ 23,024
Furniture and office equipment ................. 16,974 9,677
Demonstration equipment ........................ 2,916 4,038
Leasehold improvements ......................... 4,218 1,953
--------- ---------
49,357 38,692
Less, accumulated depreciation and amortization (30,648) (25,833)
--------- ---------
Property and equipment, net ............ $ 18,709 $ 12,859
========= =========
Intangible assets consist of the following:
Goodwill ....................................... $ 94,774 $ --
Purchased technology ........................... 49,394 150
Other .......................................... 13,000 --
--------- ---------
157,168 150
Less accumulated amortization .................. (13,778) (19)
--------- ---------
Intangible assets, net ................. $ 143,390 $ 131
========= =========
</TABLE>
D. RELATED PARTY TRANSACTIONS
Sales to related parties consist of, and amounts due from related
parties are the result of, transactions between the Company and foreign
affiliates controlled by the Company's Chairman of the Board. Sales to related
parties amounted to $434,000 and $473,000 for the three months ended September
30, 1999 and 1998, respectively, and $1.7 million and $3.0 million for the nine
months ended September 30, 1999 and 1998, respectively.
10
<PAGE> 11
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
E. RESTRUCTURING
During the first quarter of 1999, the Company announced a plan to scale
down its Data Network Diagnostics Division and integrate the division into its
Intelligent Network Diagnostics Division. In connection with this activity, the
Company recorded a restructuring charge of $1.8 million consisting of cash
severance costs for 27 terminated employees in management, research and
development, support and administrative functions, and non-cash charges
consisting of the write-down of certain assets to their net realizable value.
The costs consisted of the following:
<TABLE>
<CAPTION>
PROVISION COSTS ACCRUAL AS OF
RECORDED INCURRED SEPTEMBER 30, 1999
-------- -------- ------------------
(thousands)
<S> <C> <C> <C>
Severance pay ............. $ 700 $ 700 $ --
Other accrued expenses..... 300 300 --
Inventory ................. 350 258 92
Fixed assets .............. 200 190 10
Other assets .............. 250 115 135
------ ------ ------
$1,800 $1,563 $ 237
====== ====== ======
</TABLE>
At June 30, 1999, all 27 employees had been terminated, and all of the
severance costs and other accrued expenses had been paid.
F. INCOME TAXES
Income tax provisions for the three- and nine-month periods ended
September 30, 1999 were $3.1 million and $4.9 million, respectively, and
reflected the effect of non-deductible acquisition-related costs, partially
offset by benefits of $1.4 million and $2.3 million, respectively, from the
utilization of deferred tax liabilities related to certain of these
acquisition-related costs. Excluding the effect of these acquisition-related
items, an estimated effective tax rate of 36% was applied and represented
federal, state and foreign taxes on the Company's income, reduced primarily by
research and development and foreign tax credits, compared to an effective tax
rate of 38% for the three- and nine-month periods ended September 30, 1998.
G. LINES OF CREDIT AND BORROWINGS
The Company has a $15.0 million line of credit with a U.S. bank and
lines of credit aggregating $2.8 million available to the Company's Japanese
subsidiary from various Japan-based banks.
11
<PAGE> 12
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company's $15.0 million credit facility is collateralized by
substantially all of the Company's assets, bears interest at the lender's prime
rate (8.25% at September 30, 1999), and expires on June 30, 2000, if not
renewed. Under the terms of this facility, the Company is required to maintain
certain financial ratios and meet certain net worth and indebtedness tests. In
connection with the Company's May 1999 acquisition of IEX Corporation, the
Company renegotiated certain terms under this credit facility, including various
financial ratios and net worth and indebtedness tests. The Company believes it
is in compliance with these requirements. There have been no borrowings under
this credit facility.
The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $2.8 million with interest at the Japanese prime
rate (1.375% at September 30, 1999) plus 0.125% per annum which expire between
November 20, 1999, and August 5, 2000, if not renewed. There have been no
borrowings under these lines of credit.
In connection with the Company's acquisition of IEX, the Company issued
$100 million in short-term notes secured by substantially all of the assets of
IEX. These notes were outstanding on September 30, 1999, and were subsequently
retired. See Note J.
H. OPERATING SEGMENT INFORMATION
The Company's reportable operating segments are strategic operating
units that are managed separately due to their different products or geographic
location. Operating Segment information for 1999 includes the post-acquisition
results of IEX (see Note B). The Network Infrastructure operating segment
develops, markets and sells the Company's Eagle STP products based on the
Company's high capacity packet switching platform; IP7 Secure Gateway, an SS7
gateway for signaling in converged networks; and other IP7 convergence products;
and DaVinci Network Products, which include, among others, the DaVinci Service
Control Point, an advanced database server used for the provisioning of
telephony applications; DaVinci VoX Gateway Controller, a media gateway
controller for converged networks; and DaVinci Prepaid Services, a prepaid
calling platform. The Network Diagnostics operating segment develops, markets
and sells diagnostic products, including MGTS, a diagnostic tool used primarily
by equipment suppliers for research and development; Sentinel used for testing
within telecommunications networks; MGTS i3000 used to perform diagnostics in
converged networks; and Chameleon data diagnostics performance analyzers. The
Japan Diagnostics operating segment sells the Company's and third parties'
diagnostic products to customers in Japan. The Call Center operating segment
develops, markets and sells software-based solutions for Call Centers, including
TotalView Workforce Management and TotalNet Call Routing. Transfers between
operating segments are made at prices reflecting market conditions. The
allocation of revenues from external customers by geographical area is
determined by the destination of the sale.
12
<PAGE> 13
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company's operating segments and geographical information are as follows (in
thousands):
OPERATING SEGMENTS
<TABLE>
<CAPTION>
Net Sales
---------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Network Infrastructure ...... $ 41,423 $ 34,966 $ 92,082 $ 84,387
Network Diagnostics ......... 11,991 9,478 31,941 27,837
Call Center Products ........ 7,189 -- 12,067 --
Japan Diagnostics ........... 4,608 5,153 13,113 16,029
Other Products .............. 460 338 1,506 1,424
Intercompany Eliminations.... (928) (277) (1,553) (2,162)
--------- --------- --------- ---------
Total net sales ..... $ 64,743 $ 49,658 $ 149,156 $ 127,515
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Operating Income (Loss)
-----------------------
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Network Infrastructure .................. $ 11,504 $ 15,222 $ 19,972 $ 34,632
Network Diagnostics ..................... 3,487 2,459 6,662 6,350
Call Center Products .................... 3,012 -- 5,363 --
Japan Diagnostics ....................... 250 776 441 3,354
Other Products(1) ....................... (100) (282) (1,838) (747)
Intercompany Eliminations ............... (567) 212 (414) 341
General Corporate(2) .................... (12,659) (2,939) (30,373) (6,141)
-------- -------- -------- --------
Total operating income (loss).... $ 4,927 $ 15,448 $ (187) $ 37,789
======== ======== ======== ========
</TABLE>
- ----------
(1) Other products operating segment reflects the $1,800 restructuring
charge recorded in the nine months ended September 30, 1999 (see Note
E).
(2) General Corporate includes acquisition-related charges and amortization
of $8,455 and $20,488 for the three and nine months ended September 30,
1999, and a benefit of $1,663 for the settlement of an insurance claim
in the nine months ended September 30, 1998.
13
<PAGE> 14
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
ENTERPRISE-WIDE DISCLOSURES
The following table sets forth, for the periods indicated, revenues from
external customers by principal product line:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Network Infrastructure ........................... $ 41,423 $ 34,966 $ 92,082 $ 84,387
Network Diagnostics .............................. 15,452 14,320 43,073 41,610
Call Center Products ............................. 7,189 -- 12,067 --
Other Products ................................... 679 372 1,934 1,518
-------- -------- -------- --------
Total revenues from external customers.... $ 64,743 $ 49,658 $149,156 $127,515
======== ======== ======== ========
</TABLE>
The following table sets forth, for the periods indicated, revenues from
external customers by geographic territory:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
North America .................................... $ 53,261 $ 38,680 $114,569 $ 84,950
Japan ............................................ 4,657 5,153 13,162 16,029
Europe ........................................... 3,095 1,041 7,822 4,984
Rest of World .................................... 3,730 4,784 13,603 21,552
-------- -------- -------- --------
Total revenues from external customers.... $ 64,743 $ 49,658 $149,156 $127,515
======== ======== ======== ========
</TABLE>
The following table sets forth, for the periods indicated, long-lived assets by
geographic area in which the Company holds assets:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
United States ..................... $19,341 $12,348
Japan ............................. 1,136 1,216
Other ............................. 59 51
------- -------
Total long-lived assets.... $20,536 $13,615
======= =======
</TABLE>
14
<PAGE> 15
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
I. EARNINGS PER SHARE
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations for the
three- and nine-month periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
NET INCOME (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999: (thousands except per share amount)
<S> <C> <C> <C>
Basic EPS .................................... $ 920 55,094 $ 0.02
Effect of Dilutive Securities - Stock
Options and Warrants ................. -- 3,770
-------- --------
Diluted EPS .................................. $ 920 58,864 $ 0.02
======== ========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998:
Basic EPS .................................... $ 10,372 53,866 $ 0.19
Effect of Dilutive Securities - Stock
Options and Warrants ................. -- 4,931
-------- --------
Diluted EPS .................................. $ 10,372 58,797 $ 0.18
======== ========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
Basic EPS .................................... $ (4,724) 54,776 $ (0.09)
Effect of Dilutive Securities - Stock
Options and Warrants ................. -- --
-------- --------
Diluted EPS .................................. $ (4,724) 54,776 $ (0.09)
======== ========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
Basic EPS .................................... $ 25,393 53,315 $ 0.48
Effect of Dilutive Securities - Stock
Options and Warrants ................. -- 5,455
-------- --------
Diluted EPS .................................. $ 25,393 58,770 $ 0.43
======== ========
</TABLE>
J. SUBSEQUENT EVENTS
On November 3, 1999, the Company completed its private placement of
$135,000,000 principal amount at maturity of its 3.25% convertible subordinated
discount notes due 2004 (the "Notes"), issued at 85.35% of their face amount
(equivalent to gross proceeds at issuance before discounts and expenses of
approximately $115,200,000). The gross proceeds at issuance included
approximately $15.2 million from the sale of notes issued upon the initial
purchasers' exercise in full of their over-allotment option. The Notes have a
five-year term and are non-callable for the first three years.
On November 4, 1999, the Company used a portion of the net proceeds from
the Notes to retire all of the $100 million in short-term notes which had been
issued in May 1999 in connection with the acquisition of IEX Corporation.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and the
notes thereto included in Item 1 of this Quarterly Report and the Consolidated
Financial Statements and notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Historical
results and percentage relationships among any amounts in the financial
statements are not necessarily indicative of trends in operating results for any
future periods.
OVERVIEW
In May 1999, the Company acquired all of the outstanding stock of IEX
Corporation ("IEX"), which develops, markets and sells solutions for intelligent
networks, call centers and other telecommunications markets.
The Company's product offerings are currently organized along three
distinct product lines: network infrastructure, network diagnostics and call
center.
Network Infrastructure Products. Prior to the Company's May 1999
acquisition of IEX, the Company's network infrastructure product line was known
as the network switching product line and consisted principally of the Eagle STP
and products, features and applications based on the Eagle platform, including
the IP7 Secure Gateway and the Company's local number portability solution. As a
result of the acquisition of IEX, the network infrastructure product line has
been expanded to include IEX's DaVinci network products, including, among
others, the DaVinci Service Control Point, the DaVinci VoX Gateway Controller,
DaVinci Prepaid Services and other DaVinci convergence products.
Network Diagnostics Products. In January 1999, the Company scaled back
its data network diagnostics product line and integrated it into its intelligent
network diagnostics product line. Prior to that time, the Company treated these
product lines separately for organizational and financial reporting purposes.
Since that time, the Company has reported these products together as the network
diagnostics product line. This product line consists principally of the MGTS
family of diagnostics products and Sentinel.
Call Center Products. The Company's IEX call center business develops
and supplies software-based solutions for call centers, and its products include
the TotalView workforce management and TotalNet call routing solutions.
16
<PAGE> 17
IEX Acquisition. The Company accounted for the IEX acquisition under the
purchase method of accounting, and the results of operations for the nine-month
period ended September 30, 1999 include the results of operations of IEX
beginning on May 7, 1999. In connection with the acquisition, the Company also
recorded approximately $132.9 million of goodwill and other intangible assets,
net of related deferred income tax liabilities. During the second quarter of
1999 and in connection with the acquisition of IEX, the Company recorded a
charge of $6.0 million related to the write-off of purchased in-process research
and development and an additional $830,000 charge for the write-off of certain
assets made redundant by the acquisition.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that certain income statement items bear to total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues ............................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ..................................... 35.5 33.6 35.0 33.1
Amortization of purchased technology ................... 3.8 -- 2.7 --
----- ----- ----- -----
Gross profit ........................................... 60.7 66.4 62.3 66.9
Research and development ............................... 16.8 13.8 20.3 14.3
Selling, general and administrative .................... 26.9 21.5 29.8 23.0
Amortization of goodwill and other purchased intangibles 9.4 -- 6.6 --
Non-recurring acquisition-related charges .............. -- -- 4.6 --
Restructuring .......................................... -- -- 1.2 --
----- ----- ----- -----
Total operating expenses ............................... 53.1 35.3 62.5 37.3
----- ----- ----- -----
Income (Loss) from operations .......................... 7.6 31.1 (0.1) 29.6
Interest and other income (expense), net ............... (1.4) 2.6 0.2 2.5
----- ----- -----
Income before provision for income taxes ............... 6.2 33.7 0.1 32.1
-----
Provision for income taxes ............................. 4.8 12.8 3.3 12.2
----- ----- ----- -----
Net income (loss) ...................................... 1.4% 20.9% (3.2)% 19.9%
===== ===== ===== =====
</TABLE>
17
<PAGE> 18
The following table sets forth, for the periods indicated, the revenues
by principal product line as a percentage of total revenues. Revenues shown
below for the network infrastructure product line represent revenues from the
product line previously known as the network switching product line and also
include revenues earned from IEX's intelligent network products after the
Company's May 1999 acquisition of IEX. Revenues shown below for the network
diagnostics product line include revenues from sales of both intelligent network
and data network diagnostics products.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Network Infrastructure..... 64% 70% 62% 66%
Network Diagnostics ....... 24 29 29 33
Call Center ............... 11 -- 8 --
Other ..................... 1 1 1 1
--- --- --- ---
Total ............. 100% 100% 100% 100%
=== === === ===
</TABLE>
The following table sets forth, for the periods indicated, the revenues
by geographic territories as a percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America..... 82% 78% 77% 66%
Japan ............ 7 10 9 13
Europe ........... 5 2 5 4
Rest of World .... 6 10 9 17
--- --- --- ---
Total .... 100% 100% 100% 100%
=== === === ===
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. The Company's revenues increased by $15.1 million, or 30%,
during the third quarter of 1999 due primarily to the inclusion of
post-acquisition sales of IEX network infrastructure and call center products
following the acquisition of IEX in the second quarter of 1999 and secondarily
to higher sales of network diagnostics products.
Revenues from network infrastructure products increased by $6.5 million,
or 18%, to $41.4 million due primarily to the inclusion of post-acquisition
sales of IEX's intelligent network products.
18
<PAGE> 19
Revenues from network diagnostics products increased by $1.1 million, or
8%, due principally to higher sales of the Company's protocol conversion and
MGTS diagnostics products.
Revenues in North America increased by $14.6 million, or 38%, due
primarily to the inclusion of post-acquisition IEX product sales and higher
intelligent network diagnostics sales. Sales in Japan decreased by $496,000, or
10%, due primarily to lower Chameleon product sales, partially offset by higher
sales of MGTS-related development services. Revenues in Europe increased by $2.1
million, or 197%, due to higher network infrastructure product sales. Rest of
world revenues decreased by $1.1 million, or 22%, due primarily to lower network
infrastructure product sales.
The impact of exchange rate fluctuations on currency translations
increased revenues by $931,000, or 1%, and did not have a material effect on net
income in the third quarter of 1999.
A significant portion of the Company's revenues in each quarter results
from orders that are received in that quarter, and are difficult to predict.
Further, the Company typically generates a significant portion of its revenues
for each quarter in the last month of the quarter. The Company establishes its
expenditure levels based on its expectations as to future revenues, and if
revenue levels were to fall below expectations, then such shortfall would cause
expenses to be disproportionately high. Therefore, a drop in near-term demand
would significantly affect revenues, causing a disproportionate reduction in
profits or even losses in a quarter.
The Company believes that its future revenue growth depends in large
part upon a number of factors, including the continued market acceptance of the
Company's products, particularly the Eagle products and related applications and
the Sentinel; market acceptance of the Company's recently introduced IP7 and
DaVinci VoX products, as well as future products; growth in the markets for the
Company's products; and the Company's ability to address other existing and new
markets for its current and future products.
Gross Profit. Gross profit as a percentage of revenues decreased to
60.7% in the third quarter of 1999 compared with 66.4% in the third quarter of
1998. The decrease in gross margins was primarily due to the amortization of
purchased technology, principally in connection with the acquisition of IEX, and
lower margins in Japan due to a higher percentage of lower margin sales,
primarily development services. Excluding the amortization of purchased
technology related to the IEX acquisition, gross profit as a percentage of
revenues for the three months ended September 30, 1999 was 64.5%.
19
<PAGE> 20
Research and Development. Research and development expenses increased
overall by $4.0 million, or 58%, and increased as a percentage of revenues to
17% in the third quarter of 1999 from 14% in the third quarter of 1998. The
dollar increase was attributable principally to the inclusion of
post-acquisition IEX research and development expenses, and increased expenses
incurred in connection with the hiring of additional personnel for product
development and enhancements for both network infrastructure and intelligent
network diagnostics products, primarily related to the Company's continued
development of products to address the Internet Protocol ("IP")/Signaling System
#7 ("SS7") market. Based on the Company's present product development plans, the
Company expects that its research and development expenses for the remainder of
1999 will increase in dollars when compared to prior periods in 1998.
The Company intends to continue to make substantial investments in
product and technology development and believes that its future success depends
in large part upon its ability to continue to enhance existing products and to
develop or acquire new products that maintain the Company's technological
competitiveness.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6.8 million, or 63%, and increased as a
percentage of revenues to 27% in the third quarter of 1999 from 22% in the third
quarter of 1998. The dollar increase was primarily due to the inclusion of
post-acquisition IEX selling, general and administrative expenses and increased
personnel and infrastructure-related expenses incurred to support the growing
Eagle STP installed base and anticipated higher sales levels. The Company
expects that selling, general and administrative expenses for the remainder of
1999 will increase in dollars when compared to prior periods.
Interest and Other Income (Expense), net. Net interest expense was
$830,000 for the third quarter of 1999 compared to net interest income of $1.3
million in the third quarter of 1998. The net expense reflected interest expense
incurred for notes issued in connection with the acquisition of IEX, and lower
invested cash balances due to cash payments made in connection with the
acquisition of IEX.
Income Taxes. The income tax provision for the third quarter of 1999 was
$3.1 million and reflected the effect of non-deductible acquisition-related
costs, partially offset by a benefit of $1.4 million from the utilization of
deferred tax liabilities related to certain of these acquisition-related costs.
Excluding the effect of these acquisition-related items, an estimated effective
tax rate of 36% was applied and represented federal, state and foreign taxes on
the Company's income, reduced primarily by research and development and foreign
tax credits, compared to an effective tax rate of 38% for the third quarter of
1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. The Company's revenues increased by $21.6 million, or 17%,
during the nine months ended September 30, 1999 due primarily to the inclusion
of post-acquisition IEX product sales following the Company's acquisition of IEX
in May 1999.
20
<PAGE> 21
Revenues from network infrastructure products increased by $7.7 million,
or 9%, to $92.1 million due primarily to the addition of sales of IEX's
intelligent network products.
Revenues from network diagnostics products increased by $1.5 million, or
4%, to $43.1 million due to higher sales of intelligent network diagnostics
products partially offset by lower sales of data network diagnostics products.
Revenues in North America increased by $29.6 million, or 35%, primarily
as a result of the inclusion of post-acquisition IEX product sales and higher
sales of Eagle and intelligent network diagnostics products. Sales in Japan
decreased by $2.9 million, or 18%, due to lower Chameleon and MGTS product
sales, partially offset by higher sales of MGTS-related development services.
Revenues in Europe increased by $2.8 million, or 57%, due to higher network
infrastructure product sales. Rest of world revenues decreased by $7.9 million,
or 37%, due primarily to lower network infrastructure product sales.
The impact of exchange rate fluctuations on currency translations
increased revenues by $1.8 million, or 1%, and did not have a material effect on
net loss in the nine months ended September 30, 1999.
Gross Profit. Gross profit as a percentage of revenues decreased to
62.3% in the nine months ended September 30, 1999 compared with 66.9% in the
nine months ended September 30, 1998. The decrease in gross margins was
primarily due to the amortization of purchased technology, primarily in
connection with the acquisition of IEX, and lower margins in Japan due to a
higher percentage of lower margin sales, primarily development services.
Excluding the amortization of purchased technology related to the IEX
acquisition, gross profit as a percentage of sales was 65.0%.
Research and Development. Research and development expenses increased
overall by $12.1 million, or 66%, and increased as a percentage of revenues to
20.3% in the nine months ended September 30, 1999 from 14% in the nine months
ended September 30, 1998. The dollar increase was attributable principally to
the inclusion of post-acquisition IEX research and development expenses and
increased expenses incurred in connection with the hiring of additional
personnel for product development and enhancements for both network
infrastructure and intelligent network diagnostics products, primarily related
to the Company's continued development of products to address the IP/SS7 market.
21
<PAGE> 22
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $15.1 million, or 51%, and increased as a
percentage of revenues to 30% in the nine months ended September 30, 1999 from
23% in the nine months ended September 30, 1998. The dollar increase was
primarily due to the inclusion of post-acquisition IEX selling, general and
administrative expenses and increased personnel and infrastructure-related
expenses incurred to support the growing Eagle STP installed base and
anticipated higher sales levels. The increase compared to 1998 was also due to a
$1.6 million insurance settlement which benefited the 1998 expenses.
Interest and Other Income (Expense), net. Net interest income decreased
by $3.0 million, or 87%, during the nine months ended September 30, 1999 due
primarily to interest expense incurred for notes issued in connection with the
acquisition of IEX, and lower invested cash balances due to cash payments made
in connection with the acquisition of IEX.
Income Taxes. The income tax provision for the nine-month period ended
September 30, 1999 was $4.9 million and reflected the effect of non-deductible
acquisition-related costs, partially offset by a benefit of $2.3 million from
the utilization of deferred tax liabilities related to certain of these
acquisition-related costs. Excluding the effect of these acquisition-related
items, an estimated effective tax rate of 36% was applied and represented
federal, state and foreign taxes on the Company's income, reduced primarily by
research and development and foreign tax credits, compared to an effective tax
rate of 38% for the nine-month period ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended September 30, 1999, cash and cash
equivalents decreased by $8.3 million to $23.6 million, after net proceeds of
$32.9 million from the sale of short-term and long-term investments. Operating
activities, including the effects of exchange rate changes on cash, provided
$14.3 million. Financing activities, which represented proceeds from the
issuance of Common Stock upon the exercise of options and warrants, provided
$3.7 million, and investing activities, excluding the net proceeds from the sale
of short-term and long-term investments, used $59.2 million primarily due to
cash paid in connection with the acquisition of IEX and capital expenditures.
Accounts receivable, including amounts due from related parties,
increased by 29% during the first nine months of 1999 due primarily to higher
sales levels. Inventory levels increased by 70% primarily to support higher
sales levels and a broader product offering, including the addition of IEX
products. Trade accounts payable increased by 44% during the first nine months
of 1999, primarily due to the inclusion of IEX payables and the increased level
of operating expenses incurred by the Company primarily to support the Company's
product development programs and anticipated higher sales levels. Deferred
revenues increased 133% during the first nine months of 1999 primarily as a
result of the inclusion of IEX deferred revenues and higher extended warranty
service revenues which are deferred and recognized ratably over the warranty
period.
22
<PAGE> 23
Capital expenditures of $8.5 million during the first nine months of
1999 represented the planned addition of equipment principally for research and
development, manufacturing operations and facility expansion. Technology
purchases, excluding purchased technology recorded in connection with the
acquisition of IEX, amounted to $1.8 million, and consisted primarily of
software licenses purchased for use in network infrastructure and diagnostics
product applications.
The Company has a $15.0 million line of credit with a U.S. bank and
lines of credit aggregating $2.8 million available to the Company's Japanese
subsidiary from various Japan-based banks.
The Company's $15.0 million credit facility is collateralized by
substantially all of the Company's assets, bears interest at the lender's prime
rate (8.25% at September 30, 1999), and expires on June 30, 2000, if not
renewed. Under the terms of this facility, the Company is required to maintain
certain financial ratios and meet certain net worth and indebtedness tests. In
connection with the Company's May 1999 acquisition of IEX Corporation, the
Company renegotiated certain terms of this credit facility, including various
financial ratios and net worth and indebtedness tests, and believes that the
Company is in compliance with these requirements. There have been no borrowings
under this credit facility.
The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $2.8 million with interest at the Japanese prime
rate (1.375% at September 30, 1999) plus 0.125% per annum which expire between
November 20, 1999, and August 5, 2000, if not renewed. There have been no
borrowings under these lines of credit.
On November 3, 1999, the Company completed its private placement of
$135,000,000 principal amount at maturity of its 3.25% convertible subordinated
discount notes due 2004 (the "Notes"), issued at 85.35% of their face amount
(equivalent to gross proceeds at issuance before discounts and expenses of
approximately $115,200,000). The gross proceeds at issuance included
approximately $15.2 million from the sale of notes issued upon the initial
purchasers' exercise in full of their over-allotment option. The Notes have a
five-year term and are non-callable for the first three years.
On November 4, 1999, the Company used a portion of the net proceeds from
the Notes to retire all of the $100 million in short-term notes which had been
issued in May 1999 in connection with the acquisition of IEX Corporation.
The Company believes that its existing working capital, funds generated
through operations, and its current bank lines of credit will be sufficient to
satisfy operating requirements for at least the next twelve months. Nonetheless,
the Company may seek additional sources of capital as necessary or appropriate
to fund acquisitions or to otherwise finance the Company's growth or operations;
however, there can be no assurance that such funds, if needed, will be available
on favorable terms, if at all.
23
<PAGE> 24
READINESS FOR YEAR 2000
Background. As the year 2000 approaches, a critical issue has emerged
regarding how existing application software programs, operating systems and
embedded computer chips can accommodate the year 2000 date value. The year 2000
issue results from computer programs and systems using only two digits instead
of four to identify one year. Systems that do not properly recognize the date
could process and record information incorrectly or possibly fail to function in
the year 2000. The Company has a year 2000 project team in place with overall
responsibility for the Company's year 2000 compliance programs. In addition,
executive management regularly monitors the status of the Company's year 2000
remediation plans.
Project. The Company has identified potential year 2000 risks in four
categories: software and system products the Company sells to customers;
internal business software and information technology systems; systems other
than information technology systems ("Non-IT systems"); and third-party
suppliers to the Company. The Company's year 2000 project includes the following
phases for the first three categories above: (1) identifying year 2000 risks;
(2) assigning priorities to identified risks; (3) testing year 2000 compliance
for risks determined to be material to the Company; (4) correcting problems
determined to be material and not year 2000 compliant; (5) retesting corrections
that have been implemented; and (6) developing contingency plans. With respect
to the Company's third-party suppliers, the Company's year 2000 project consists
of the following phases: (1) contacting suppliers for information concerning
their year 2000 readiness; (2) prioritizing suppliers as to relative importance;
(3) validating supplier responses regarding year 2000 compliance; and (4)
developing contingency plans in the event that one or more suppliers fails to
achieve year 2000 compliance.
Assessment. The software and systems products that the Company sells to
customers consist of internally developed software, third-party software
licensed by the Company for use in or with the Company's products, hardware
systems designed and manufactured by the Company and hardware systems designed
and manufactured by third parties. The Company has identified priorities,
completed the initial testing phase and begun offering solutions to its
customers. The Company believes that its current product offerings are year 2000
compliant. For past product offerings that the Company is still supporting, the
Company is offering releases that should make such products year 2000 compliant.
However, failure to achieve year 2000 compliance for any products could
materially adversely affect sales in 1999 and in the first half of 2000.
Additionally, if any of the Company's mission critical products were to fail in
the field as a result of year 2000 noncompliance, such failure could result in
substantial liability to the Company and have a material adverse effect on the
Company's financial results, business, market position, reputation and
prospects.
24
<PAGE> 25
Internal business software and systems consists primarily of the
Company's business information systems in the United States and at the Company's
Japanese subsidiary. The Company has implemented and tested the necessary
modifications to make its significant internal business systems year 2000
compliant, and the Company believes that such internal business software and
systems are year 2000 compliant. However, if the Company's business systems are
not year 2000 compliant, the Company could experience interruptions to its
production process, development programs and general business operations.
The Company has been advised by the suppliers of its Non-IT systems,
which consist primarily of environmental systems such as fire suppression and
security systems at the various buildings the Company occupies, that such
systems are currently year 2000 compliant.
Third-party suppliers provide component parts, purchased assemblies and
contract manufacturing services incorporated by the Company into the products
and systems it sells. The Company is requiring that each of its key suppliers
certify whether they are year 2000 compliant. The Company has also prioritized
its suppliers by level of importance to the Company's business. Based on
information received from the Company's critical suppliers, the Company
estimates that virtually all of its critical suppliers are presently year 2000
compliant. The Company plans to monitor its critical suppliers and either
develop alternate sources or increase inventory levels prior to the year 2000
for those vendors considered to be at risk of not achieving year 2000
compliance. However, there can be no assurance that such alternate sources will
be available or that adequate inventory levels will be attainable if necessary,
and the Company could experience parts shortages and production interruptions if
one or more key third-party suppliers experience year 2000 problems.
Costs. Incremental costs of the Company's year 2000 project have
consisted of the hiring of two contractors to assist with administrative duties
related to the year 2000 project, consulting by a professional services firm at
the initial stages of the project and a third-party audit team, which provides
year 2000 compliance test audit reports. Such costs in the aggregate have not
been material to the Company's financial position, results of operations or cash
flows. The balance of the effort for the Company's year 2000 project has been by
employees whose costs for this project are not tracked separately. The Company
believes that costs for the remainder of the year 2000 project will not be
material to the Company's financial position, results of operations or cash
flows.
Risks. The Company's results of operations, financial condition and cash
flows could be materially adversely affected if the Company or any of its key
suppliers or customers do not achieve year 2000 compliance. Although the
Company's year 2000 project is expected to minimize the Company's risks of
experiencing a year 2000 problem, inherent risks and uncertainties exist despite
the Company's efforts. There can be no assurance that a failure on the part of
the Company, its products, its key suppliers or its customers will not be
disruptive to the Company's business. As a result of these uncertainties the
Company is unable to determine at this time whether the consequences of year
2000 failures will have a material effect on the Company's results of
operations, financial condition or cash flows.
25
<PAGE> 26
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The statements that are not historical facts contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that reflect the current belief,
expectations or intent of Tekelec's management. These statements are subject to
and involve certain risks and uncertainties including, but not limited to:
- - timing of significant orders and shipments, and the resulting
fluctuation of the Company's operating results;
- - capital spending patterns of customers, including shifts in such
patterns as a result of customers' deferral of product purchases until
the year 2000;
- - the Company's relatively limited product offerings;
- - risks relating to the convergence of voice and data networks;
- - competition and pricing;
- - the Company's relatively limited number of customers;
- - new product introductions by the Company or by its competitors;
- - risks relating to the Company's acquisition of IEX Corporation;
- - product liability risks;
- - the continued growth in third party purchases of diagnostics systems;
- - customer acceptance of the Company's products;
- - regulatory changes;
- - readiness for the year 2000 by the Company, its customers and its
vendors;
- - uncertainties relating to the Company's international operations;
- - intellectual property protection;
- - the Company's relationships with key shareholders; and
- - general economic conditions.
26
<PAGE> 27
PART II --OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation(1)
3.2 Bylaws, as amended(2)
4.1 Indenture dated as of November 2, 1999 between the Registrant
and Bankers Trust Company as Trustee, including form of the
Registrant's 3.25% Convertible Subordinated Discount Notes due
2004.
4.2 Registration Rights Agreement dated as of November 2, 1999 among
the Registrant, Deutsche Bank Securities Inc. and Warburg Dillon
Read LLC.
10.1 Credit Agreement dated April 18, 1999 between the Registrant and
Imperial Bank as amended by First Amendment to Credit Agreement
effective July 30, 1999.
10.2 Purchase Agreement dated as of October 27, 1999 among the
Registrant, Deutsche Bank Securities Inc. and Warburg Dillon
Read LLC.
27.1 Financial Data Schedule (provided for the information of the
Securities and Exchange Commission only)
- ----------
(1) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-15135) for the quarter ended June 30, 1998.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
(File No. 0-15135) for the year ended December 31, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended September 30, 1999.
27
<PAGE> 28
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.
TEKELEC
November 15, 1999
/s/ Michael L. Margolis
------------------------------------
Michael L. Margolis
President and Chief Executive
Officer (Duly authorized officer)
/s/ Douglas W. Moxley
------------------------------------
Douglas W. Moxley
Corporate Controller
(Principal financial and chief
accounting officer)
28
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C> <C>
4.1 Indenture dated as of November 2, 1999 between the Registrant
and Bankers Trust Company as Trustee, including form of the
Registrant's 3.25% Convertible Subordinated Discount Notes due
2004.
4.2 Registration Rights Agreement dated as of November 2, 1999 among
the Registrant, Deutsche Bank Securities Inc. and Warburg Dillon
Read LLC.
10.1 Credit Agreement dated April 18, 1999 between the Registrant and
Imperial Bank as amended by First Amendment to Credit Agreement
effective July 30, 1999.
10.2 Purchase Agreement dated as of October 27, 1999 among the
Registrant, Deutsche Bank Securities Inc. and Warburg Dillon
Read LLC.
27.1 Financial Data Schedule (provided for the information of the
Securities and Exchange Commission only)
</TABLE>
<PAGE> 1
EXHIBIT 4.1
TEKELEC
Issuer,
and
BANKERS TRUST COMPANY
Trustee,
INDENTURE
Dated as of November 2, 1999
$135,000,000
3.25% Convertible Subordinated Discount Notes due 2004
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE......................................1
SECTION 1.1 DEFINITIONS..........................................................1
SECTION 1.2 INCORPORATION BY REFERENCE OF TIA...................................10
SECTION 1.3 RULES OF CONSTRUCTION...............................................10
ARTICLE II THE SECURITIES.................................................................11
SECTION 2.1 FORM AND DATING.....................................................11
SECTION 2.2 EXECUTION AND AUTHENTICATION........................................11
SECTION 2.3 REGISTRAR AND PAYING AGENT..........................................12
SECTION 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST................................13
SECTION 2.5 SECURITYHOLDER LISTS................................................13
SECTION 2.6 TRANSFER AND EXCHANGE...............................................13
SECTION 2.7 REPLACEMENT SECURITIES..............................................20
SECTION 2.8 OUTSTANDING SECURITIES..............................................21
SECTION 2.9 TREASURY SECURITIES.................................................21
SECTION 2.10 TEMPORARY SECURITIES................................................21
SECTION 2.11 CANCELLATION........................................................22
SECTION 2.12 DEFAULTED INTEREST..................................................22
ARTICLE III REDEMPTION....................................................................23
SECTION 3.1 RIGHT OF REDEMPTION.................................................23
SECTION 3.2 NOTICES TO TRUSTEE..................................................23
SECTION 3.3 SELECTION OF SECURITIES TO BE REDEEMED..............................24
SECTION 3.4 NOTICE OF REDEMPTION................................................24
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION......................................25
SECTION 3.6 DEPOSIT OF REDEMPTION PRICE.........................................25
SECTION 3.7 SECURITIES REDEEMED IN PART.........................................26
SECTION 3.8 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.......................26
ARTICLE IV COVENANTS......................................................................27
SECTION 4.1 PAYMENT OF SECURITIES...............................................27
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.....................................27
SECTION 4.3 CORPORATE EXISTENCE.................................................28
SECTION 4.4 PAYMENT OF TAXES AND OTHER CLAIMS...................................28
SECTION 4.5 MAINTENANCE OF PROPERTIES AND INSURANCE.............................28
SECTION 4.6 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT...........................29
SECTION 4.7 REPORTS.............................................................29
SECTION 4.8 LIMITATION ON STATUS AS INVESTMENT COMPANY..........................30
SECTION 4.9 WAIVER OF STAY, EXTENSION OR USURY LAWS.............................30
SECTION 4.10 RULE 144A INFORMATION REQUIREMENT...................................30
SECTION 4.11 CALCULATION OF ORIGINAL ISSUE DISCOUNT..............................30
ARTICLE V SUCCESSOR CORPORATION..........................................................31
SECTION 5.1 LIMITATION ON MERGER, SALE OR CONSOLIDATION.........................31
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED...................................31
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES.................................................32
SECTION 6.1 EVENTS OF DEFAULT...................................................32
SECTION 6.2 ACCELERATION OF MATURITY DATE; RESCISSION AND ANNULMENT.............33
SECTION 6.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE..........................................................35
SECTION 6.4 TRUSTEE MAY FILE PROOFS OF CLAIM....................................35
SECTION 6.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES..........................................................36
SECTION 6.6 PRIORITIES..........................................................36
SECTION 6.7 LIMITATION ON SUITS.................................................37
SECTION 6.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
INTEREST AND LIQUIDATED DAMAGES, AND TO CONVERT.....................37
SECTION 6.9 RIGHTS AND REMEDIES CUMULATIVE......................................38
SECTION 6.10 DELAY OR OMISSION NOT WAIVER........................................38
SECTION 6.11 CONTROL BY HOLDERS..................................................38
SECTION 6.12 WAIVER OF PAST DEFAULT..............................................39
SECTION 6.13 UNDERTAKING FOR COSTS...............................................39
SECTION 6.14 RESTORATION OF RIGHTS AND REMEDIES..................................39
ARTICLE VII TRUSTEE........................................................................40
SECTION 7.1 DUTIES OF TRUSTEE...................................................40
SECTION 7.2 RIGHTS OF TRUSTEE...................................................41
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE........................................42
SECTION 7.4 TRUSTEE'S DISCLAIMER................................................42
SECTION 7.5 NOTICE OF DEFAULT...................................................42
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.......................................42
SECTION 7.7 COMPENSATION AND INDEMNITY..........................................43
SECTION 7.8 REPLACEMENT OF TRUSTEE..............................................43
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC....................................45
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.......................................45
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...................45
ARTICLE VIII SATISFACTION AND DISCHARGE....................................................45
SECTION 8.1 SATISFACTION AND DISCHARGE OF INDENTURE.............................45
SECTION 8.2 REPAYMENT TO THE COMPANY............................................46
ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS............................................46
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS..................46
SECTION 9.2 AMENDMENTS, SUPPLEMENTAL INDENTURES AND WAIVERS WITH
CONSENT OF HOLDERS..................................................47
SECTION 9.3 COMPLIANCE WITH TIA.................................................48
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS...................................48
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES...............................49
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.....................................49
ARTICLE X RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL...........................49
SECTION 10.1 REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON A
CHANGE OF CONTROL...................................................49
SECTION 10.2 LIMITATION ON RIGHT TO REQUIRE REDEMPTION...........................51
ARTICLE XI SUBORDINATION..................................................................52
SECTION 11.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS......................52
SECTION 11.2 NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES...................52
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 11.3 SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL
SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION
OR REORGANIZATION...................................................54
SECTION 11.4 SECURITYHOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF
SENIOR INDEBTEDNESS.................................................55
SECTION 11.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL............................55
SECTION 11.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED
IN ABSENCE OF NOTICE................................................56
SECTION 11.7 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT..................56
SECTION 11.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS
OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS....................57
SECTION 11.9 SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF SECURITIES.........................................57
SECTION 11.10 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS........................57
SECTION 11.11 ARTICLE XI NOT TO PREVENT EVENTS OF DEFAULT.........................58
SECTION 11.12 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF SENIOR
INDEBTEDNESS........................................................58
ARTICLE XII CONVERSION OF SECURITIES.......................................................58
SECTION 12.1 CONVERSION PRIVILEGE................................................58
SECTION 12.2 EXERCISE OF CONVERSION PRIVILEGE....................................59
SECTION 12.3 FRACTIONAL INTERESTS................................................60
SECTION 12.4 CONVERSION RATE.....................................................60
SECTION 12.5 ADJUSTMENT OF CONVERSION RATE.......................................61
SECTION 12.6 CONTINUATION OF CONVERSION PRIVILEGE IN CASE OF
RECLASSIFICATION, CHANGE, MERGER, CONSOLIDATION
OR SALE OF ASSETS...................................................65
SECTION 12.7 NOTICE OF CERTAIN EVENTS............................................66
SECTION 12.8 TAXES ON CONVERSION.................................................67
SECTION 12.9 COMPANY TO PROVIDE STOCK............................................67
SECTION 12.10 DISCLAIMER OF RESPONSIBILITY FOR CERTAIN MATTERS....................68
SECTION 12.11 RETURN OF FUNDS DEPOSITED FOR REDEMPTION OF
CONVERTED SECURITIES................................................68
ARTICLE XIII MISCELLANEOUS.................................................................68
SECTION 13.1 TIA CONTROLS........................................................68
SECTION 13.2 NOTICES.............................................................68
SECTION 13.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS........................69
SECTION 13.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT..................70
SECTION 13.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.......................70
SECTION 13.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR...........................70
SECTION 13.7 LEGAL HOLIDAYS......................................................70
SECTION 13.8 GOVERNING LAW.......................................................71
SECTION 13.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.......................71
SECTION 13.10 NO RECOURSE AGAINST OTHERS..........................................71
SECTION 13.11 SUCCESSORS..........................................................71
SECTION 13.12 DUPLICATE ORIGINALS.................................................71
SECTION 13.13 SEVERABILITY........................................................71
SECTION 13.14 TABLE OF CONTENTS, HEADINGS, ETC....................................72
SECTION 13.15 QUALIFICATION OF INDENTURE .........................................72
SECTION 13.16 REGISTRATION RIGHTS.................................................72
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A FORM OF SECURITY................................................................A-1
EXHIBIT B INVESTOR LETTER OF REPRESENTATION...............................................B-1
EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH REGULATION S TRANSFERS..........................................C-1
EXHIBIT D FORM OF CONVERSION NOTICE.......................................................D-1
</TABLE>
iv
<PAGE> 6
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
S 310(a)(1)............................................................ 7.10
(a)(2)............................................................. 7.10
(a)(3)............................................................. N.A.
(a)(4)............................................................. N.A.
(a)(5)............................................................. 7.10
(b)................................................................ 7.8; 7.10; 13.2
(c)................................................................ N.A.
S 311(a)............................................................... 7.11
(b)................................................................ 7.11
(c)................................................................ N.A.
S 312(a)............................................................... 2.5
(b)................................................................ 13.3
(c)................................................................ 13.3
S 313(a)............................................................... 7.6
(b)(1)............................................................. N.A.
(b)(2)............................................................. 7.6
(c)................................................................ 7.6; 13.2
(d)................................................................ 7.6
S 314(a)............................................................... 4.6; 4.7; 7.6; 13.2
(b)................................................................ N.A.
(c)(1)............................................................. 2.2; 7.2; 8.1; 13.4
(c)(2)............................................................. 7.2; 13.4
(c)(3)............................................................. N.A.
(e)................................................................ 13.5
(f)................................................................ N.A.
S 315(a)............................................................... 7.1(b); 7.2
(b)................................................................ 7.5; 13.2
(c)................................................................ 7.1(a)
(d)................................................................ 6.11; 7.1
(e)................................................................ 6.13
S 316(a)(last sentence)................................................ 2.9
(a)(1)(A).......................................................... 6.11
(a)(1)(B).......................................................... 6.12
(a)(2)............................................................. 6.8
(b)................................................................ 6.7; 6.8; 6.12
(c)................................................................ N.A.
S 317(a)(1)............................................................ 6.3
(a)(2)............................................................. 6.4
(b)................................................................ 2.4
S 318(a)............................................................... 13.1
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE> 7
INDENTURE, dated as of November 2, 1999, between TEKELEC, a
California corporation (the "Company"), and Bankers Trust Company, as Trustee.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Company's 3.25% Convertible Subordinated Discount Notes due 2004.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"Acceleration Notice" shall have the meaning specified in
Section 6.2.
"Affiliate" means any person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Company.
For purposes of this definition, the term "control" means the power to direct
the management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise.
"Agent" means any Registrar, Paying Agent or co-Registrar or any
successor thereto.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar
Federal, state or foreign law for the relief of debtors.
"Beneficial Owner" for purposes of the definition of Change of
Control has the meaning attributed to it in Rules 13d-3 and 13d-5 under the
Exchange Act (as in effect on the Issue Date), whether or not applicable, except
that a "person" shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or upon the occurrence of certain
events.
"Board of Directors" means, with respect to any person, the
Board of Directors of such person or any committee of the Board of Directors of
such person authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly
adopted resolution of the Board of Directors of such person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday that is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
<PAGE> 8
"Capitalized Lease Obligation" means, as to any Person, the
obligation of such Person to pay rent or other amounts under a lease to which
such Person is a party that is required to be classified and accounted for as a
capital lease obligation under GAAP.
"Capital Stock" means, with respect to any corporation, any and
all shares, interests, rights to purchase (other than convertible or
exchangeable Indebtedness), warrants, options, participations or other
equivalents of or interests (however designated) in stock issued by that
corporation.
"Cash" means 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.
"Change of Control" means (i) an event or series of events as a
result of which any "person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d) of the Exchange Act) (excluding the Company any wholly-owned
subsidiary thereof or any Permitted Holder) is or becomes, directly or
indirectly, the "Beneficial Owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, whether or not applicable) of more than 50% of the combined
voting power of the then outstanding securities entitled to vote generally in
elections of directors, managers or trustees, as applicable, of the Company or
any successor entity ("Voting Stock"), (ii) the completion of any consolidation
with or merger of the Company into any other Person, other than a Permitted
Holder, or conveyance, transfer or lease by the Company of all or substantially
all of its assets to any Person, other than a Permitted Holder, or any merger of
any other Person, other than a Permitted Holder, into the Company in a single
transaction or series of related transactions, and, in the case of any such
transaction or series of related transactions, the outstanding Common Stock of
the Company is changed or exchanged as a result, unless the shareholders of the
Company immediately before the consummation of such transaction own, directly or
indirectly, immediately following such transaction, at least a majority of the
combined voting power of the outstanding voting securities of the Person
resulting from such transaction in substantially the same proportion as their
ownership of the Voting Stock immediately before such transaction, or (iii) such
time as the Continuing Directors do not constitute a majority of the Board of
Directors of the Company (or, if applicable, a successor corporation to the
Company).
"Change of Control Notice" shall have the meaning specified in
Section 10.1
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Company's Common Stock, no par value,
or as such stock may be reconstituted from time to time.
"Company" means the party named as such in this Indenture until
a successor replaces it pursuant to this Indenture, and thereafter means such
successor.
"Continuing Director" means at any date a member of the
Company's Board of Directors (i) who was a member of such board on the Issue
Date or (ii) who was
2
<PAGE> 9
nominated or elected by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the
Company's Board of Directors was recommended or endorsed by at least a majority
of the directors who were Continuing Directors at the time of such nomination or
election.
"Conversion Rate" shall have the meaning specified in Section
12.4.
"Conversion Shares" shall have the meaning specified in Section
12.5.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Damage Payment Date" shall have the meaning specified in the
Registration Rights Agreement.
"Date of Conversion" shall have the meaning specified in Section
12.2.
"Default" means any event or condition that is, or after notice
or passage of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in Section
2.12.
"Definitive Securities" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 1 and 2 thereof.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in global form, the person specified in Section 2.3
as the Depositary with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Capital Stock" means, with respect to the Company,
Capital Stock of the Company that, by its terms or by the terms of any security
into which it is convertible, exercisable or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased (including at the option of the holder thereof) by the Company,
in whole or in part, on or prior to the Stated Maturity of the Securities,
provided that only the portion of such Capital Stock which is so convertible,
exercisable, exchangeable or redeemable or subject to repurchase prior to such
Stated Maturity shall be deemed to be Disqualified Capital Stock.
"Distribution Date" shall have the meaning specified in Section
12.5.
"DTC" shall have the meaning specified in Section 2.3.
"Event of Default" shall have the meaning specified in Section
6.1.
3
<PAGE> 10
"Excess Amount" shall have the meaning specified in Section
12.5(e).
"Excess Cash Dividend" shall have the meaning specified in
Section 12.5(e).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Expiration Time" shall have the meaning specified in Section
12.5.
"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board
("FASB") or in such other statements by such other entity as approved by a
significant segment of the accounting profession which are in effect in the
United States; provided, however, that for purposes of determining compliance
with covenants in this Indenture, "GAAP" means such generally accepted
accounting principles which are in effect as of the Issue Date.
"Global Security" means a Security that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 2
to the form of Security attached hereto as Exhibit A.
"Holder" or "Securityholder" means the person in whose name a
Security is registered on the Registrar's books.
"Indebtedness" of any Person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such Person, (i) in
respect of borrowed money (whether or not the lender has recourse to all or any
portion of the assets of such Person), (ii) evidenced by credit or loan
agreements, bonds, notes, debentures or similar instruments (including, without
limitation, notes or similar instruments given in connection with the
acquisition of any business, properties or assets of any kind), (iii) evidenced
by bankers' acceptances or similar instruments issued or accepted by banks, (iv)
for the payment of money relating to a Capitalized Lease Obligation, or (v)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (b) all obligations of such Person that
such Person incurs in the acquisition, whether by way of purchase, merger,
consolidation or otherwise and whether by such Person or another Person, of any
business, real property, other assets or services, excluding accounts payable or
accrued current liabilities or obligations arising in the ordinary course of
business in connection with the obtaining of materials or services; (c) all net
obligations of such person under Interest Swap and Hedging Obligations; (d) all
liabilities of others of the kind described in the preceding clause (a), (b) or
(c) that such Person has guaranteed or that is otherwise its legal liability, or
which is secured by a lien on property of such Person, and all obligations to
purchase, redeem or acquire any Capital Stock; and (e) all deferrals, renewals,
extensions, modifications, replacements, restatements, refinancings and
refundings (whether direct or indirect) of, or any indebtedness or obligations
4
<PAGE> 11
issued in exchange for, any liability of the kind described in any of the
preceding clauses (a), (b), (c) or (d), or this clause (e), whether or not
between or among the same parties.
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
"Initial Purchasers" means Deutsche Bank Securities Inc. and
Warburg Dillon Read LLC.
"Interest Payment Date" means the stated due date of an
installment of interest on the Securities.
"Interest Swap and Hedging Obligation" means the obligations of
any Person under any interest rate protection agreement, interest rate future
agreement, interest rate option agreement, interest rate swap agreement,
interest rate cap agreement or other interest rate hedge agreement, interest
rate collar agreement or other similar agreement or arrangement to which such
Person is a party or beneficiary.
"Investment Letter" shall have the meaning specified in Section
2.6.
"Issue Date" means the date of first issuance of the Securities
under this Indenture.
"Issue Price" means, in connection with the original issuance of
a Security, the initial issue price per $1,000 principal amount at Stated
Maturity at which the Security is sold as set forth on the face of the Security.
"Junior Securities" means any Qualified Capital Stock and any
Indebtedness of the Company that is fully subordinated in right of payment to
the Securities and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
Securities.
"Last Sale Price" shall have the meaning specified in Section
12.3.
"Legal Holiday" shall have the meaning specified in Section
13.7.
"Lien" means any mortgage, lien, pledge, charge, security
interest or other encumbrance of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).
"Liquidated Damages" shall have the meaning specified in the
Registration Rights Agreement.
"Loan Agreement" means the Credit Agreement, dated April 18,
1999, between the Company and Imperial Bank, as amended by the First Amendment
to Credit Agreement, dated July 30, 1999, between the Company and Imperial Bank.
5
<PAGE> 12
"non-electing share" shall have the meaning specified in Section
12.6.
"Non-Payment Default" shall have the meaning specified in
Section 11.2.
"Notice of Default" shall have the meaning specified in Section
6.1(3), (4) or (5).
"Offer" shall have the meaning specified in Section 12.5.
"Officer" means, with respect to the Company, the Chief
Executive Officer, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Controller, or the Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Section 2.2, if
applicable, and Sections 13.4 and 13.5.
"Opinion of Counsel" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee and which complies with the
requirements of Sections 13.4 and 13.5.
"Original Issue Discount" of any Security means the difference
between the Issue Price and the principal amount at maturity of the Security as
set forth on the face of the Security. For purposes of this Indenture and the
Securities, accrual of Original Issue Discount shall be calculated on the basis
of a 360-day year of twelve 30-day months, compounded semi-annually.
"Paying Agent" shall have the meaning specified in Section 2.3.
"Payment Blockage Period" shall have the meaning specified in
Section 11.2.
"Payment Default" shall have the meaning specified in Section
11.2.
"Payment Notice" shall have the meaning specified in Section
11.2.
"Permitted Holders" means (i) Jean-Claude Asscher, (ii) Edouard
Givel, (iii) any Person that the Company employs as a senior officer as of the
Issue Date and (iv) any "group" (as such term is used in Sections 13(d)(3) and
14(d) of the Exchange Act) that includes any Person described in clause (i),
(ii) or (iii) of this definition.
"Person" or "person" means any corporation, individual, limited
liability company, joint stock company, joint venture, partnership,
unincorporated association, governmental regulatory entity, country, state or
political subdivision thereof, trust, municipality or other entity.
6
<PAGE> 13
"PORTAL Market" means the Private Offerings, Resales and Trading
through Automated Linkages Market operated by the National Association of
Securities Dealers, Inc. or any successor thereto.
"principal" of any Indebtedness means the principal of such
Indebtedness plus, without duplication, any applicable premium, if any, on such
Indebtedness. "Principal", wherever used with reference to the Securities or any
Security or any portion thereof shall be deemed to include "and premium, if
any", accrued Original Issue Discount and Issue Price, whether or not so
specified, except that "principal amount" shall mean principal amount at Stated
Maturity of the Securities, whether or not so specified.
"property" means any right or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible.
"Purchase Agreement" means that certain Purchase Agreement,
dated October 27, 1999, by and among the Company and the Initial Purchasers, as
such agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"Purchased Shares" shall have the meaning specified in Section
12.5.
"Qualified Capital Stock" means any Capital Stock of the Company
that is not Disqualified Capital Stock.
"Record Date" means a Record Date specified in the Securities
whether or not such Record Date is a Business Day.
"Redemption Date" when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security attached hereto as
Exhibit A.
"Redemption Price" when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security attached hereto as Exhibit A, which shall include,
without duplication, in each case, accrued Original Issue Discount from the
Issue Date to, but excluding, the Redemption Date, accrued and unpaid interest
and Liquidated Damages, if any, but , to excluding, the Redemption Date.
"Registrar" shall have the meaning specified in Section 2.3.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, by and among the Initial Purchasers and the
Company, as such agreement may be amended, modified or supplemented from time to
time in accordance with the terms thereof.
"Regulation S" means Regulation S as promulgated under the
Securities Act, or any successor rule.
7
<PAGE> 14
"Repurchase Date" shall have the meaning specified in Section
10.1.
"Repurchase Offer" shall have the meaning specified in Section
10.1.
"Repurchase Offer Period" shall have the meaning specified in
Section 10.1.
"Repurchase Price" shall have the meaning specified in Section
10.1.
"Repurchase Put Date" shall have the meaning specified in
Section 10.1.
"Responsible Officer," when used with respect to the Trustee,
means any officer assigned to the corporate trust office, including any managing
director, principal, 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.
"Restricted Security" means a Security, unless or until it has
been (i) disposed of in a transaction effectively registered under the
Securities Act or (ii) distributed to the public pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act.
"Sale Price" shall have the meaning specified in Section 3.9.
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the 3.25% Convertible
Subordinated Discount Notes due 2004, as supplemented from time to time in
accordance with the terms hereof, issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with
respect to the Securities in global form, or any successor entity thereto.
"Senior Indebtedness" means all obligations of the Company to
pay the principal of, 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, any 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,
unless the instrument creating or evidencing such Indebtedness provides that
such Indebtedness is not senior or superior in right of payment to the
Securities or which is pari passu with, or subordinated to, the Securities;
provided that in no event shall Senior Indebtedness include (a) Indebtedness of
the Company owed or
8
<PAGE> 15
owing to any Subsidiary of the Company or any officer, director or employee of
the Company or any Subsidiary of the Company, or (b) any liability for taxes
owed or owing by the Company or any Subsidiary of the Company. "Senior
Indebtedness" includes all Indebtedness of the Company incurred or assumed in
the acquisition, whether by way of purchase, merger, consolidation or otherwise
and whether by the Company or another Person, of any business, real property or
other assets, except inventory and related items acquired in the ordinary course
of the conduct of the Company's usual business.
"Shelf Registration Statement" shall have the meaning specified
in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary which is a
"significant subsidiary" of the Company within the meaning of Rule 1.02(w) of
Regulation S-X promulgated by the Commission as in effect as of the date of this
Indenture.
"Special Record Date" for payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security, means
November 2, 2004.
"Subsidiary" with respect to any person, means (i) a corporation
a majority of whose Capital Stock with voting power normally entitled to vote in
the election of directors is at the time, directly or indirectly, owned by such
person, by such person and one or more Subsidiaries of such person or by one or
more Subsidiaries of such person, (ii) a partnership in which such person or a
Subsidiary of such person is, at the time, a general partner and owns alone or
together with one or more Subsidiaries of such person a majority of the
partnership interests, or (iii) any other person (other than a corporation) in
which such person, one or more Subsidiaries of such person, or such person and
one or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa- 77bbbb) as in effect on the date of the execution of this
Indenture unless otherwise specified herein.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday, other than any day on which securities are not traded on the Nasdaq
National Market (or, if the Common Stock is not admitted to trading thereon, on
the principal national securities exchange on which the Common Stock is at that
time listed or admitted to trading).
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.6 hereof.
"Trustee" means the party named as such in this Indenture until
a successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
9
<PAGE> 16
"U.S. Government Obligations" means direct non-callable
obligations of, or noncallable obligations guaranteed by, the United States of
America for the payment of which obligation or guarantee the full faith and
credit of the United States of America is pledged.
"U.S. Person" shall have the meaning set forth in Regulation S.
"Voting Stock" means the combined voting power of the then
outstanding securities entitled to vote generally in elections of directors,
managers or trustees, as applicable, of the Company or any successor entity.
SECTION 1.2 INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them thereby.
Section 1.3 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
10
<PAGE> 17
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1 FORM AND DATING.
The Securities and the Trustee's certificate of authentication,
in respect thereof, shall be substantially in the form of Exhibit A hereto,
which Exhibit is part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Company shall approve the form of the Securities and any notation, legend or
endorsement on them. Any such notations, legends or endorsements not contained
in the form of Security attached as Exhibit A hereto shall be delivered in
writing to the Trustee. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the forms of Securities
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign, or one Officer shall sign and one
Officer shall attest to, the Security for the Company by manual or facsimile
signature. The Company's seal shall be impressed, affixed, imprinted or
reproduced on the Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless and
the Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate the Securities for original issue
in an aggregate principal amount at maturity not to exceed $135,000,000 upon a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of Securities to be authenticated
and the date on which the Securities are to be
11
<PAGE> 18
authenticated. The aggregate principal amount at maturity of Securities
outstanding at any time may not exceed $117,500,000; provided, however, that
additional Securities may be issued pursuant to the over-allotment option
granted by the Company to the Initial Purchasers as provided in the Purchase
Agreement. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Securities in substitution of
Securities originally issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer, conversion or for exchange ("Registrar") and an office
or agency where Securities may be presented for payment ("Paying Agent") and
where notices and demands to or upon the Company in respect of the Securities
may be served. The Company may act as Registrar or Paying Agent, except that,
for the purposes of Articles III, VIII and XI and as otherwise specified in this
Indenture, neither the Company nor any Affiliate of the Company shall act as
Paying Agent. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may have one or more co-Registrars and one or
more additional Paying Agents. The term "Paying Agent" includes any additional
Paying Agent. The Company hereby initially appoints the Trustee as Registrar,
Paying Agent and conversion agent, and the Trustee hereby initially agrees so to
act.
The Company shall enter into an appropriate written agency
agreement with any Agent not a party to this Indenture, which agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall promptly notify the Trustee in writing of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Security.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Security.
12
<PAGE> 19
SECTION 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust for the
benefit of Holders and the Trustee all assets held by the Paying Agent for the
payment of principal of, interest on or Liquidated Damages with respect to, the
Securities (whether such assets have been distributed to it by the Company or
any other obligor on the Securities), and shall notify the Trustee in writing of
any Default in making any such payment. If either of the Company or a Subsidiary
of the Company acts as Paying Agent, it shall segregate such assets and hold
them as a separate trust fund for the benefit of the Holders and the Trustee.
The Company at any time may require a Paying Agent to distribute all assets held
by it to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent (if other than the Company or an Affiliate of the
Company) shall have no further liability for such assets.
SECTION 2.5 SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish or cause
to be furnished to the Trustee on or before the third Business Day preceding
each Interest Payment Date and at such other times as the Trustee may request in
writing a list in such form and as of such date as the Trustee reasonably may
require of the names and addresses of Holders.
SECTION 2.6 TRANSFER AND EXCHANGE.
(a) Global Security and Certificated Securities. So long as the
Securities are eligible for book-entry settlement with the Depositary, unless
otherwise required by law, all Securities offered and sold to qualified
institutional buyers as defined in Rule 144A under the Securities Act and all
Securities offered and sold in reliance on Regulation S shall be represented by
a Global Security registered in the name of the Depositary or the nominee of the
Depositary. The transfer and exchange of beneficial interests in the Global
Security which does not involve the issuance of a Security in certificated form
shall be effected through the Depositary, in accordance with this Indenture
(including restrictions on transfer set forth herein) and the procedures of the
Depositary therefor.
At any time at the request of the beneficial holder of an
interest in the Global Security to obtain a Security in certificated form, such
beneficial holder shall be entitled to obtain a Security in certificated form
upon written request to the Trustee in accordance with the standing instructions
and procedures existing between the Trustee and Depositary for the issuance
thereof. Upon receipt of any such request, the Trustee, will cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Trustee, the aggregate principal amount of the Global
Security, to be reduced by the principal amount of the Security in certificated
form issued upon such request to such beneficial holder and, following
13
<PAGE> 20
such reduction, the Company will execute and the Trustee will authenticate and
deliver to such beneficial holder (or its nominee) a Security or Securities in
certificated form in the appropriate aggregate principal amount in the name of
such beneficial holder (or its nominee) and bearing such restrictive legends as
may be required by this Indenture.
Any transfer of a beneficial interest in the Global Security
which cannot be effected through book-entry settlement must be effected by the
delivery to the transferee (or its nominee) of a Security or Securities in
certificated form registered in the name of the transferee (or its nominee) on
the books maintained by the Registrar in accordance with the transfer
restrictions set forth herein. With respect to any such transfer, the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Trustee, the aggregate principal amount of the
Global Security to be reduced by the principal amount of the respective
beneficial interest in the Global Security being transferred and, following such
reduction, the Company will execute and the Trustee will authenticate and
deliver to the transferee (or such transferee's nominee, as the case may be), a
Security or Securities in certificated form in the appropriate aggregate
principal amount in the name of such transferee (or its nominee) bearing such
restrictive legends as may be required by this Indenture.
A Security may be offered and sold to an institutional
accredited investor as defined in Rule 501(a)(1), (2), (3), or (7) under
Regulation D of the Securities Act, or a Person in which all of the equity
owners are such institutional accredited investors under Regulation D of the
Securities Act ("Institutional Accredited Investor") only if prior to such sale,
such Institutional Accredited Investor furnishes to the Trustee a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the Security ("Investment Letter"), a form of which is attached
hereto as Exhibit B. A Security sold to an Institutional Accredited Investor
will be issued in certificated form and may not be represented by the Global
Security.
(b) Transfer. So long as the Securities are eligible for book-entry
settlement, or unless otherwise required by law, upon any transfer of a Security
in certificated form to a qualified institutional buyer as defined in Rule 144A
under the Securities Act in accordance with Rule 144A or to a Person that is not
a U.S. Person in accordance with Regulation S, and upon receipt of the Security
or Securities in certificated form being so transferred, together with a
certification from the transferor that the transfer is being made in compliance
with Rule 144A or Regulation S, as the case may be, a form of which is attached
to the Security attached hereto as Exhibit A (or other evidence satisfactory to
the Trustee), the Trustee shall make an endorsement on the Global Security to
reflect an increase in the aggregate principal amount of the Security
represented by the Global Security, and the Trustee shall cancel such Security
or Securities in certificated form and cause, in accordance with the standing
instructions and procedures existing between the Depositary and the Trustee, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly provided that no Security in certificated form, or
portion thereof, in respect of which the Company or an Affiliate of the Company
held any beneficial interest shall be included in the Global Security until such
Security in certificated form is freely tradable in accordance with Rule 144(k);
provided further that the Trustee shall
14
<PAGE> 21
issue Securities in certificated form upon any transfer of a beneficial interest
in the Global Security to the Company or an Affiliate of the Company.
The Global Security 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 Depositary or by the
National Association of Securities Dealers, Inc. in order for the Securities to
be tradable on the PORTAL Market or as may be required for the Securities to be
tradable on any other market developed for trading of securities pursuant to
Rule 144A under the Securities Act 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 Securities 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 Securities are
subject.
(c) Legend on Securities. Every Security that bears or is required under
this Section 2.6(c) to bear the legend set forth in this Section 2.6(c)
(together with any Common Stock issued upon conversion of the Securities and
required to bear the legend set forth in Section 2.6(d)), shall be subject to
the restrictions on transfer set forth in this Section 2.6(c) (including those
set forth in the legend set forth below) unless such restrictions on transfer
shall be waived by written consent of the Company (with written notice to the
Trustee), and the Holder of each such Restricted Security, by such
Securityholder's acceptance thereof, agrees to be bound by all such restrictions
on transfer. As used in Section 2.6(c) and 2.6(d), the term "transfer"
encompasses any sale, pledge, transfer or other disposition whatsoever of any
Restricted Security.
Until two (2) years after the original issuance date of any
Security, any certificate evidencing such Security (and all Securities 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
2.6(d), if applicable) shall bear a legend in substantially the following form,
unless otherwise agreed by the Company in writing, with written notice thereof
to the Trustee:
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
FOREIGN SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE BENEFIT OF,
U.S. PERSONS, EXCEPT AS SET FORTH BELOW.
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), (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" (AS DEFINED IN RULE 902
OF REGULATION S UNDER THE SECURITIES
15
<PAGE> 22
ACT) AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS TWO
YEARS AFTER THE LATER OF THE INITIAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY
AND THE LAST DATE ON WHICH TEKELEC (THE "COMPANY") OR ANY "AFFILIATE" (AS
DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF
THE SECURITY (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER
THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF
SUCH SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO BANKERS TRUST COMPANY, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE
SECURITY 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
AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT), (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION
PROVIDED 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); AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY
BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS SECURITY TO BANKERS TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR
TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C),
(D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO BANKERS
TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT 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 ANY TRANSFER OF THE SECURITY
EVIDENCED HEREBY UPON OR AFTER THE RESTRICTION TERMINATION DATE.
16
<PAGE> 23
Any Security (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 Security for exchange to the Registrar in accordance with the provisions of
this Section 2.6, to be exchanged for a new Security or Securities, of like
tenor and aggregate principal amount and authorized denominations, which shall
not bear the restrictive legend required by this Section 2.6(c).
Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in the second paragraph of Section 2.6(a) and in
this Section 2.6(c)), the Global Security 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 DTC to act as Depositary with
respect to the Global Security. Initially, the Global Security shall be issued
to the Depositary, registered in the name of Cede & Co., as the nominee of the
Depositary, and deposited with the Securities Custodian for Cede & Co. The
Global Security, to the extent that it represents the interests of non-U.S.
Persons, will be held by Cede & Co. for the accounts of Morgan Guaranty Trust
Company of New York, Brussels office, as operator of the Euroclear System, or
"Euroclear", and Cedel, S.A., or "Cedel". Non-U.S. Persons holding beneficial
interests in the Global Security may do so only through Euroclear or Cedel, and
any resale or transfer of any such interest to a U.S. Person shall only be
permitted if such Person is a qualified institutional buyer as defined in Rule
144A under the Securities Act or an Institutional Accredited Investor that makes
such acquisition in accordance with the requirements of this Indenture.
The Trustee is hereby authorized and requested to execute and
deliver a Letter of Representation to the Depositary and, in connection with any
successor nominee for the Depositary or any successor Depositary, enter into
comparable arrangements, and shall have the same rights with respect to its
actions thereunder as it has with respect to its action under this Indenture.
If at any time the Depositary for the Global Security notifies
the Company that it is unwilling or unable to continue as Depositary for the
Global Security, the Company may appoint a successor Depositary with respect to
the Global Security. If a successor Depositary is not appointed by the Company
within 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 Securities, will authenticate and deliver, Securities in
certificated form, in an aggregate principal amount equal to the principal
amount of the Global Security, in exchange for the Global Security.
If a Security in certificated form is issued in exchange for any
portion of the Global Security after the close of business at the office or
agency where such exchange
17
<PAGE> 24
occurs on any Record Date and before the opening of business at such office or
agency on the next succeeding Interest Payment Date, interest will not be
payable on such Interest Payment Date in respect of such Security, but will be
payable on such Interest Payment Date only to the Person to whom interest in
respect of such portion of the Global Security is payable in accordance with the
provisions of this Indenture.
Securities in certificated form issued in exchange for all or a
part of the Global Security pursuant to this Section 2.6 shall be registered in
such names and in such authorized denominations as the Depositary, pursuant to
instruction from its direct or indirect participants or otherwise, shall
instruct the Trustee in writing. Upon execution and authentication, the Trustee
shall deliver such Securities in certificated form to the Person in whose names
such Securities in certificated form are so registered.
At such time as all interests in the Global Security have been
redeemed, repurchased, converted, canceled, exchanged for Securities in
certificated form, or transferred to a transferee who receives Securities in
certificated form, the Global Security shall, upon receipt thereof, be canceled
by the Trustee. At any time prior to such cancellation, if any interest in the
Global Security is exchanged for Securities in certificated form, redeemed,
converted, repurchased or canceled, or transferred to a transferee who receives
Securities in certificated form therefor or any Security in certificated form is
exchanged or transferred for part of the Global Security, the principal amount
of the Global Security 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
the Global Security, by the Trustee, to reflect such reduction or increase.
(d) Legend on Common Stock. Until two (2) years after the original
issuance date of any Security, any stock certificate representing Common Stock
issued upon conversion of such Security shall bear a legend in substantially the
following form, unless such Common Stock has been transferred 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 Securities 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
OR FOREIGN SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
AS SET FORTH BELOW.
THE HOLDER HEREOF AGREES THAT PRIOR TO THE DATE THAT IS TWO
YEARS AFTER THE LATER OF THE INITIAL ISSUANCE OF THE SECURITY UPON THE
CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED AND THE LAST
DATE ON WHICH TEKELEC (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144
UNDER THE
18
<PAGE> 25
SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE SECURITY OR THE COMMON STOCK
EVIDENCED HEREBY (THE "RESTRICTION TERMINATION DATE"): (1) IT WILL NOT RESELL OR
OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY
OR ANY SUBSIDIARY THEREOF, (B) 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 U.S. STOCK TRANSFER CORPORATION, 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 AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM REGISTRATION PROVIDED 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 BEFORE THE RESTRICTION TERMINATION DATE
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT WILL FURNISH U.S.
STOCK TRANSFER CORPORATION, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS
APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT 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 THE
RESTRICTION TERMINATION DATE.
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 2.6(d).
19
<PAGE> 26
(e) Cancellation and/or Adjustment of the Global Security. At such time
as all beneficial interests in the Global Security have either been exchanged
for Definitive Securities, redeemed, repurchased or canceled, the Global
Security shall be returned to or retained and canceled by the Trustee. At any
time prior to such cancellation, if any beneficial interest in the Global
Security is exchanged for Definitive Securities, redeemed, repurchased or
canceled, the principal amount of Securities represented by the Global Security
shall be reduced and an endorsement shall be made on the Global Security, by the
Trustee or the Securities Custodian, at the direction of the Trustee, to reflect
such reduction.
(f) Obligations with respect to Transfers and Exchanges of Definitive
Securities and the Global Security.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive Securities
and the Global Security at the Registrar's or co-Registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable in
connection therewith (other than any such transfer taxes, assessments, or
similar governmental charge payable upon exchanges or transfers pursuant to
Section 2.2 (fourth paragraph), 2.10, 3.7, 9.5, or 10.1 (final paragraph)).
(iii) The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of (a) any Definitive Security selected for
redemption in whole or in part pursuant to Article III, except the unredeemed
portion of any Definitive Security being redeemed in part, or (b) any Security
for a period beginning 15 days before the mailing of a notice of an offer to
repurchase pursuant to Article X hereof or the mailing of a notice of redemption
of Securities pursuant to Article III hereof and ending at the close of business
on the day of such mailing.
SECTION 2.7 REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Registrar,
Transfer Agent or Trustee or if the Holder of a Security claims and submits an
affidavit or other evidence, satisfactory to the Trustee, to the Trustee to the
effect that the Security has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Security if
the Trustee's requirements are met. If required by the Trustee or the Company,
such Holder must provide an indemnity bond or other indemnity, sufficient in the
judgment of both the Company and the Trustee, to protect the Company, the
Trustee or any Agent from any loss which any of them may suffer if a Security is
replaced. The Company may charge such Holder for its reasonable, out-of-pocket
expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion,
but subject to any conversion rights, may, instead of issuing a new Security,
pay such Security, upon satisfaction of the conditions set forth in the
preceding paragraph.
20
<PAGE> 27
Every new Security issued pursuant to this Section 2.7 in lieu
of any mutilated, destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Company, whether or not the
mutilated, destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and such new Security shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities duly
issued hereunder.
The provisions of this Section 2.7 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies of any Holder with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.
SECTION 2.8 OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee (including any Security represented by
the Global Security) except those canceled by it, those delivered to it for
cancellation, those reductions in the interest in the Global Security effected
by the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security, except as provided in Section
2.9.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date the Paying Agent (other than the Company
or an Affiliate of the Company) holds Cash or U.S. Government Obligations
sufficient to pay all of the principal and interest due on the Securities
payable on that date in accordance with Section 3.6 hereof and payment of the
Securities called for redemption is not otherwise prohibited pursuant to Article
XI hereof or otherwise, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.9 TREASURY SECURITIES.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, amendment, supplement,
waiver or consent, Securities owned by the Company or an Affiliate of the
Company shall be disregarded, except that, for the purposes of determining
whether the Trustee shall be protected in relying on any such direction,
amendment, supplement, waiver or consent, only Securities that the Trustee knows
are so owned shall be disregarded.
SECTION 2.10 TEMPORARY SECURITIES.
Until Definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be
21
<PAGE> 28
substantially in the form of Definitive Securities but may have variations that
the Company reasonably and in good faith considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate Definitive Securities in exchange for temporary
Securities. Until so exchanged, the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as permanent Securities
authenticated and delivered hereunder.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent (other than the Company or an Affiliate of the Company), and no one else,
shall cancel and, at the written direction of the Company, shall dispose of all
Securities surrendered for transfer, exchange, payment or cancellation. Subject
to Section 2.7, the Company may not issue new Securities to replace Securities
that have been paid or delivered to the Trustee for cancellation. No Securities
shall be authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section 2.11, except as expressly permitted in the form of
Securities and as permitted by this Indenture.
SECTION 2.12 DEFAULTED INTEREST.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
person in whose name that Security (or one or more predecessor Securities) is
registered at the close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date plus, to the
extent lawful, any interest payable on the defaulted interest (collectively,
herein called "Defaulted Interest") shall forthwith cease to be payable to the
registered holder on the relevant Record Date, and such Defaulted Interest may
be paid by the Company, at its election in each case, as provided in clause (1)
or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the persons in whose names the Securities (or their respective predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of Cash equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
Cash when deposited to be held in trust for the benefit of the persons entitled
to such Defaulted Interest as provided in this clause (1). Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than
22
<PAGE> 29
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 Holder at his address as it
appears in the Security register not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the persons in whose names the Securities (or their
respective predecessor Securities) are registered on such Special Record Date
and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.12, each
Security delivered under this Indenture upon transfer of or in exchange for or
in lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Security.
ARTICLE III
REDEMPTION
SECTION 3.1 RIGHT OF REDEMPTION.
Redemption of Securities, as permitted by any provision of this
Indenture, shall be made in accordance with Paragraph 5 of the Securities and
this Article III. The Company will not have the right to redeem any Securities
prior to November 2, 2002. On or after November 2, 2002, the Company will have
the right to redeem all or any part of the Securities at the Redemption Prices
specified in Paragraph 5 therein under the caption "Redemption," in each case
including accrued Original Issue Discount from the Issue Date to, but excluding,
the Redemption Date, accrued and unpaid interest and Liquidated Damages, if any,
to, but excluding, the Redemption Date.
SECTION 3.2 NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to Paragraph
5 therein, it shall notify the Trustee in writing of the Redemption Date and the
principal amount of Securities to be redeemed and whether it wants the Trustee
to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of
Securities to be redeemed pursuant to Paragraph 5 therein by crediting against
any such redemption Securities it
23
<PAGE> 30
has not previously delivered to the Trustee for cancellation, it shall so notify
the Trustee of the amount of the reduction and deliver such Securities with such
notice.
The Company shall give each notice to the Trustee provided for
in this Section 3.2 at least 30 days and not more than 60 days before the
Redemption Date (unless a shorter notice shall be satisfactory to the Trustee).
Any such notice may be canceled at any time prior to notice of such redemption
being mailed to any Holder and shall thereby be void and of no effect.
SECTION 3.3 SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed pursuant
to Paragraph 5 therein, the Trustee shall select the Securities to be redeemed
on a pro rata basis, by lot or by such other method as the Trustee shall
determine to be fair and appropriate and in such manner as complies with any
applicable depositary, legal and stock exchange or automated quotation system
requirements.
The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption and shall promptly notify
the Company in writing of the Securities selected for redemption and, in the
case of any Security selected for partial redemption, the principal amount
thereof to be redeemed. Securities in denominations of $1,000 may be redeemed
only in whole. The Trustee may select for redemption portions (equal to $1,000
or any integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.4 NOTICE OF REDEMPTION.
At least 30 days prior to, and not more than 60 days prior to, a
Redemption Date, the Company shall send a notice of redemption to the Trustee
and each Holder whose Securities are to be redeemed. At the Company's request,
the Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. Each notice of redemption shall identify the Securities to be
redeemed and shall state:
(1) the Redemption Date, and that the Securities called for redemption
may not be converted after the fifth Business Day prior to the Redemption Date;
(2) the Redemption Price, including the amount of accrued Original Issue
Discount from the Issue Date to, but excluding, the Redemption Date, and the
accrued and unpaid interest and Liquidated Damages, if any, to be paid upon such
redemption;
(3) the name, address and telephone number of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent at the address specified in such notice to collect the Redemption
Price;
24
<PAGE> 31
(5) that, unless (a) the Company defaults in its obligation to deposit
Cash with the Paying Agent in accordance with Section 3.6 hereof or (b) such
redemption payment is prohibited pursuant to Article XI hereof or otherwise,
Original Issue Discount, interest on, and Liquidated Damages with respect to,
Securities called for redemption ceases to accrue on and after the Redemption
Date and the only remaining right of the Holders of such Securities is to
receive payment of the Redemption Price, including accrued Original Issue
Discount from the Issue Date to, but excluding, the Redemption Date, accrued and
unpaid interest and Liquidated Damages, if any, to, but excluding, the
Redemption Date, upon surrender to the Paying Agent of the Securities called for
redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount, equal to $1,000 or any integral multiple thereof, of such
Security to be redeemed and that, after the Redemption Date, and upon surrender
of such Security, a new Security or Securities in aggregate principal amount
equal to the unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be redeemed,
as well as the aggregate principal amount of such Securities to be redeemed and
the aggregate principal amount of Securities to be outstanding after such
partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section 3.4 and
pursuant to the redemption provisions of Paragraph 5 of the Securities.
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.4, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price, including accrued and unpaid interest and
Liquidated Damages, if any, to the Redemption Date. Upon surrender to the
Trustee or Paying Agent, such Securities called for redemption shall be paid at
the Redemption Price, including accrued Original Issue Discount from the Issue
Date to, but excluding, the Redemption Date, and accrued and unpaid interest and
Liquidated Damages, if any, to, but excluding, the Redemption Date; provided
that if the Redemption Date is after a regular Record Date and on or prior to
the corresponding Interest Payment Date, the accrued interest and Liquidated
Damages, if any, shall be payable to the Holder of the redeemed Securities
registered on the relevant Record Date; and provided, further, that if a
Redemption Date is a Legal Holiday, payment shall be made on the next succeeding
Business Day and no interest or Liquidated Damages shall accrue for the period
from such Redemption Date to such succeeding Business Day.
SECTION 3.6 DEPOSIT OF REDEMPTION PRICE.
On or prior to the Redemption Date, the Company shall deposit
with the Paying Agent (other than the Company or an Affiliate of the Company)
Cash sufficient to pay the Redemption Price of, including accrued and unpaid
interest on, and Liquidated Damages with
25
<PAGE> 32
respect to, all Securities to be redeemed on such Redemption Date (other than
Securities or portions thereof called for redemption on that date that have been
delivered by the Company to the Trustee for cancellation). The Paying Agent
shall promptly return to the Company any Cash so deposited which is not required
for that purpose upon the written request of the Company.
If the Company complies with the preceding paragraph and the
other provisions of this Article III and payment of the Securities called for
redemption is not prohibited under Article XI or otherwise, Original Issue
Discount, interest and Liquidated Damages on the Securities to be redeemed will
cease to accrue on and after the applicable Redemption Date, whether or not such
Securities are presented for payment. Notwithstanding anything herein to the
contrary, if any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, Liquidated
Damages shall continue to accrue and be paid from the Redemption Date if so
required pursuant to Section 3 of the Registration Rights Agreement and Original
Issue Discount and interest shall continue to accrue and be paid from the
Redemption Date until such payment is made on the unpaid principal and, to the
extent lawful, on any interest not paid on such unpaid principal (giving effect
to accrual of Original Issue Discount), in each case at the rate and in the
manner provided in Section 4.1 hereof and the Security.
SECTION 3.7 SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.8 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
In connection with any redemption of the Securities, the Company
may arrange for the purchase and conversion of any of the Securities by an
agreement with one or more investment bankers or other purchasers to purchase
such Securities by paying to the Trustee in trust for the Holders, on or before
the date fixed for redemption, an amount not less than the applicable Redemption
Price, together with interest accrued to (but excluding) that date fixed for
redemption, of such Securities. Notwithstanding anything to the contrary
contained in this Article III, the obligation of the Company to pay the
Redemption Price of such Securities, 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 shall be filed with the Trustee prior
to the date fixed for redemption), any Securities 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 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 Securities shall be extended through such time), subject to
payment of the
26
<PAGE> 33
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 the
Securities. Without the Trustee's prior written consent, no arrangement between
the Company and such purchasers for the purchase and conversion of any
Securities shall increase or otherwise affect any of the powers, duties,
responsibilities or obligations of the Trustee as set forth in this Indenture,
and the Company agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising out of or in connection with any
such arrangement for the purchase and conversion of any of the Securities
between the Company and such purchasers to which the Trustee has not consented
in writing, including the reasonable costs and expenses, including reasonable
legal fees, incurred by the Trustee in the defense of any claim or liability
arising out of or in connection with the exercise or performance of any of its
powers, duties, responsibilities or obligations under this Indenture and this
indemnity shall survive the resignation or removal of the Trustee and/or the
termination of this Indenture.
ARTICLE IV
COVENANTS
SECTION 4.1 PAYMENT OF SECURITIES.
The Company shall pay the principal of, interest on, and
Liquidated Damages with respect to, the Securities on the dates and in the
manner provided in the Securities and the Registration Rights Agreement, as
applicable. An installment of principal of, interest on, or Liquidated Damages
with respect to, the Securities shall be considered paid on the date it is due
if the Trustee or Paying Agent (other than the Company or an Affiliate of the
Company) holds for the benefit of the Holders, on or before 10:00 a.m. New York
City time on that date, Cash deposited and designated for and sufficient to pay
the installment.
The Company shall pay interest on overdue principal and on
overdue installments of interest at the rate specified in the Securities
compounded semi-annually, to the extent lawful.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, The City
of New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange and for conversion and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. 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 address of the Trustee set
forth in Section 13.2.
27
<PAGE> 34
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
(1) The Company hereby initially designates the corporate trust office
of the Trustee as such office.
SECTION 4.3 CORPORATE EXISTENCE.
Subject to Article V, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and the corporate or other existence of each of its Subsidiaries in
accordance with the respective organizational documents of each of them and the
rights (charter and statutory) and corporate franchises of the Company and each
of its Subsidiaries; provided, however, that the Company shall not be required
to preserve, with respect to itself, any right or franchise, and with respect to
any of its Subsidiaries, any such existence, right or franchise, if (a) the
Company shall, in good faith, reasonably determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and (b) the loss thereof is not disadvantageous
in any material respect to the Holders.
SECTION 4.4 PAYMENT OF TAXES AND OTHER CLAIMS.
Except with respect to immaterial items, the Company shall, and
shall cause each of its Subsidiaries to, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon the Company or any of
its Subsidiaries or any of their respective properties and assets and (ii) all
lawful claims, whether for labor, materials, supplies, services or anything
else, which have become due and payable and which by law have or may become a
Lien upon the property and assets of the Company or any of its Subsidiaries;
provided, however, that neither the Company nor any Subsidiary shall be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed amounts adequate
reserves have been established in accordance with GAAP.
SECTION 4.5 MAINTENANCE OF PROPERTIES AND INSURANCE.
The Company shall cause all material properties used or useful
to the conduct of its business and the business of each of its Subsidiaries to
be maintained and kept in good condition, repair and working order (reasonable
wear and tear excepted) and supplied with all necessary equipment and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in its reasonable good faith judgment may be
28
<PAGE> 35
necessary, so that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this Section
4.5 shall prevent the Company or any Subsidiary from discontinuing any operation
or maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal is (a), in the judgment of the Company, desirable in
the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and (b) not disadvantageous in any material respect to the Holders.
The Company shall provide, or cause to be provided, for itself
and each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith judgment
of the Company is adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with (except for
self-insurance) reputable insurers or with the government of the United States
of America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the reasonable, good
faith judgment of the Company and adequate and appropriate for the conduct of
the business of the Company and such Subsidiaries in a prudent manner for
entities similarly situated in the industry, unless failure to provide such
insurance (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
SECTION 4.6 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee within 90 days
after the end of its fiscal year an Officers' Certificate complying with TIA
Section 314(a)(4) and stating whether the Company has kept, observed, performed
and fulfilled its obligations under this Indenture and further stating, as to
each such Officer signing such certificate, whether or not the signer knows of
any failure by the Company or any Subsidiary of the Company to comply with any
conditions or covenants in this Indenture and, if such signer does know of such
a failure to comply, the certificate shall describe such failure with
particularity. The Officers' Certificate shall also notify the Trustee should
the relevant fiscal year end on any date other than the current fiscal year end
date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any payment
to or by the Trustee in respect of the Securities, an Officers' Certificate
specifying such Default, Event of Default or fact and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not be deemed
to have knowledge of any Default, any Event of Default or any such fact unless
one of its Responsible Officers receives written notice thereof from the Company
or any of the Holders.
SECTION 4.7 REPORTS.
If the Company ceases to have a class of equity securities
registered under Section 12(b) or 12(g) of the Exchange Act or ceases to be
subject to Section 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and to each Holder (or shall supply to the Trustee for forwarding to
each Holder), within 15 days after it would have been required to
29
<PAGE> 36
file such with the SEC, annual and quarterly consolidated financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the SEC if the Company were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by the Company's certified independent public
accountants as such would be required in such reports to the SEC and, in each
case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required.
SECTION 4.8 LIMITATION ON STATUS AS INVESTMENT COMPANY.
Neither the Company nor any of its Subsidiaries shall become an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
SECTION 4.9 WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of, interest on, or Liquidated Damages with
respect to, the Securities 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 (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law,
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 4.10 RULE 144A INFORMATION REQUIREMENT.
If at any time there are Transfer Restricted Securities
outstanding and the Company shall cease to have a class of equity securities
registered under Section 12(g) of the Exchange Act or shall cease to be subject
to Section 15(d) of the Exchange Act, the Company shall furnish to the Holders
or beneficial holders of the Securities or the underlying Common Stock and
prospective purchasers of Securities or the underlying Common Stock designated
by the Holders of Transfer Restricted Securities, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act until such time as the Shelf Registration Statement has become
effective under the Securities Act. The Company shall also furnish such
information during the pendency of any suspension of effectiveness of the Shelf
Registration Statement.
SECTION 4.11 CALCULATION OF ORIGINAL ISSUE DISCOUNT.
The Issuer shall file with the Trustee promptly at the end of
each calendar year (i) a written notice specifying the amount of Original Issue
Discount (including daily rates
30
<PAGE> 37
and accrual periods) accrued on the Securities outstanding as of the end of such
year and (ii) such other specific information relating to such Original Issue
Discount as may then be relevant under the Code.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1 LIMITATION ON MERGER, SALE OR CONSOLIDATION.
(a) The Company shall not, directly or indirectly, consolidate with or
merge with or into another Person or sell, lease, convey or transfer all or
substantially all of its assets (other than to a wholly-owned Subsidiary or
Subsidiaries) whether in a single transaction or a series of related
transactions, to another Person or group of affiliated Persons, unless (i)
either (a) in the case of a merger or consolidation, the Company is the
surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Securities and this
Indenture; and (ii) no Default or Event of Default shall exist or shall occur
immediately after giving effect to such transaction; and (iii) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and, if a supplemental
indenture is required, such supplemental indenture comply with this Indenture
and that all conditions precedent relating to such transaction have been
satisfied.
(b) For purposes of clause (a) of this Section 5.1 and Section 12.6, the
sale, lease, conveyance, assignment, transfer, or other disposition of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger or any sale, lease, conveyance
or transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such sale, lease,
conveyance or transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture with the
same effect as if such successor corporation had been named therein as the
Company, and when a successor corporation duly assumes all of the obligations of
the Company pursuant hereto and pursuant to the Securities, the predecessor
shall be released from such obligations (except with respect to any obligations
that arise from or as a result of such transaction).
31
<PAGE> 38
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) failure to pay any installment of interest on, or Liquidated Damages
with respect to, the Securities as and when the same becomes due and payable, or
to perform any conversion of the Securities required under this Indenture, and
the continuance of such failure for a period of 30 days, whether or not such
payment is prohibited by Article XII;
(2) failure to pay all or any part of the principal of on the Securities
when and as the same become due and payable at maturity, redemption, by
acceleration or otherwise, including, without limitation, failure to pay all or
any part of the Repurchase Price on the Repurchase Date in accordance with
Article X, whether or not such payment is prohibited by Article XII;
(3) failure by the Company to observe or perform any covenant or
agreement contained in the Securities or this Indenture (other than a default in
the performance of any covenant or agreement which is specifically dealt with
elsewhere in this Section 6.1), and continuance of such failure for a period of
60 days after there has been given, by registered or certified mail, to the
Company by the Trustee, or to the Company and the Trustee by Holders of at least
25% in aggregate principal amount of the then outstanding Securities, a written
notice specifying such failure, requesting it to be remedied and stating that
such notice is a "Notice of Default" hereunder;
(4) failure by the Company or any Significant Subsidiary to pay
principal or interest when due (after giving effect to any applicable period of
grace) at maturity of any Indebtedness (other than non-recourse obligations), in
an amount in excess of $10,000,000 and the continuance of such failure for 30
days after there has been given, by registered or certified mail, to the Company
or to the Trustee by the Holders of at least 25% in aggregate principal amount
of the then outstanding Securities, a written notice specifying such default,
requesting that it be remedied and stating that such notice is a "Notice of
Default" hereunder;
(5) default by the Company or any Significant Subsidiary with respect to
any Indebtedness (other than non-recourse obligations), which default results in
the acceleration of Indebtedness having a principal amount in excess of
$25,000,000 without such Indebtedness having been discharged or such
acceleration having been rescinded or annulled for 30 days after there has been
given, by registered or certified mail, to the Company or to the Trustee by the
Holders of at least 25% in aggregate principal amount of the then outstanding
Securities, a
32
<PAGE> 39
written notice specifying such default, requesting that it be remedied and
stating that such notice is a "Notice of Default" hereunder;
(6) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered adjudging the Company or any of its Significant
Subsidiaries as bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization of the Company or any of its Significant Subsidiaries
under any bankruptcy or similar law, and such decree, judgment, or order shall
have continued undischarged and unstayed for a period of 60 days; or a decree or
order of a court of competent jurisdiction over the appointment of a receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of the Company, any
of its Significant Subsidiaries, or of the property of any such Person, or for
the winding up or liquidation of the affairs of any such Person, shall have been
entered, and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days;
(7) the Company or any of its Significant Subsidiaries shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or answer
or consent seeking reorganization under any bankruptcy or similar law or similar
statute, or shall consent to the filing of any such petition, or shall consent
to the appointment of a Custodian, receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency of it or any of its assets or property, or shall make a
general assignment for the benefit of creditors; or take any corporate action in
furtherance of or to facilitate, conditionally or otherwise, any of the
foregoing; or
(8) final unsatisfied judgments not covered by insurance, aggregating in
excess of $25,000,000 at any one time shall have been rendered against the
Company or any of its Significant Subsidiaries and not have been stayed, bonded
or discharged for a period (during which execution shall not be effectively
stayed) of 60 days (or, in the case of any such final judgment which provides
for payment over time, which shall so remain unstayed, unbonded or undischarged
beyond any applicable payment date provided therein).
Notwithstanding the 60-day period and notice requirement
contained in Section 6.1(3) above, with respect to a default under Article X the
60-day period referred to in Section 6.1(3) shall be deemed to have begun as of
the date the Change of Control notice is required to be sent in the event that
the Company has not complied with the provisions of Section 10.1 and the Trustee
or Holders of at least 25% in principal amount of the outstanding Securities
thereafter give the Notice of Default referred to in Section 6.1(3) to the
Company and, if applicable, the Trustee; provided, however, that if the breach
or default is a result of a default in the payment when due of the Repurchase
Price on the Repurchase Date, such Event of Default shall be deemed, for
purposes of this Section 6.1, to arise no later than on the last Repurchase
Date.
SECTION 6.2 ACCELERATION OF MATURITY DATE; RESCISSION AND
ANNULMENT.
If an Event of Default (other than an Event of Default specified
in Section 6.1(6) or (7) relating to the Company) occurs and is continuing,
then, and in every such
33
<PAGE> 40
case, unless the sum of the Issue Price and accrued Original Issue Discount from
the Issue Date of all of the outstanding Securities shall have already become
due and payable, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of then outstanding Securities, by a notice in
writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare the sum of the Issue Price plus accrued
Original Issue Discount from the Issue Date of all of the Securities (or the
Repurchase Price if the Event of Default includes failure to pay the Repurchase
Price, determined as set forth below), including in each case accrued interest
thereon and Liquidated Damages with respect thereto, to be due and payable
immediately. If an Event of Default specified in Section 6.1(6) or (7) relating
to the Company occurs, the sum of the Issue Price and accrued Original Issue
Discount from the Issue Date of all of the outstanding Securities, together with
all accrued interest thereon and Liquidated Damages with respect thereto will be
immediately due and payable without any declaration or other act on the part of
Trustee or the Holders.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter provided in this Article VI, the Holders
of no less than a majority in aggregate principal amount of then outstanding
Securities, by written notice to the Company and the Trustee, may rescind, on
behalf of all Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee Cash sufficient
to pay
(A) all overdue interest on, and Liquidated Damages with respect
to, all Securities,
(B) the sum of the Issue Price plus accrued Original Issue
Discount from the Issue Date of any Securities which would then be due otherwise
than by such declaration of acceleration, and interest thereon at the rate borne
by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest and Liquidated Damages at the rate borne by the
Securities (giving effect to accrual of Original Issue Discount), and
(D) all sums paid or advanced by the Trustee hereunder and the
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and any other amounts due the Trustee under Section 7.7, and
(2) all Events of Default, other than the non-payment of the principal
of, interest on and Liquidated Damages with respect to Securities that have
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 6.12, including, if applicable, any Event of Default
relating to the covenants contained in Section 10.1.
Notwithstanding the previous sentence of this Section 6.2, no
waiver shall be effective against any Holder for any Event of Default or Default
with respect to any covenant or provision which cannot be modified or amended
without the consent of the Holder of each outstanding Security affected thereby,
unless all such affected Holders agree, in writing, to waive
34
<PAGE> 41
such Event of Default or Default. No such waiver shall cure or waive any
subsequent Default or Event of Default or impair any right consequent thereon.
SECTION 6.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
The Company covenants that if an Event of Default in payment of
principal, interest or Liquidated Damages specified in clause (1) or (2) of
Section 6.1 occurs and is continuing, the Company shall, upon demand of the
Trustee, pay to it, for the benefit of the Holders of such Securities, the whole
amount then due and payable on such Securities for principal, interest,
Liquidated Damages and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal, Liquidated Damages and
on any overdue interest, at the rate borne by the Securities (giving effect to
accrual of Original Issue Discount), and, in addition thereto, such further
amount as shall be sufficient to cover the reasonable costs and expenses of
collection, including compensation to, and reasonable expenses, disbursements
and advances of the Trustee, its agents and counsel and any other amounts due
the Trustee under Section 7.7.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust in favor
of the Holders, may institute a judicial proceeding for the collection of the
sums so due and unpaid, may prosecute such proceeding to judgment or final
decree and may enforce the same against the Company or any other obligor upon
the Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders by such appropriate judicial proceedings as the Trustee shall deem
most effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, interest or Liquidated
Damages) shall be entitled and empowered, by intervention in such proceeding or
otherwise to take any and all actions under the TIA, including
35
<PAGE> 42
(1) to file and prove a claim for the whole amount of principal,
interest and Liquidated Damages owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel) and of the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same in accordance with
Section 6.6;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment, or composition affecting
the Securities or the rights of any Holder thereof or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust in favor of the Holders, and any
recovery of judgment shall, after provision for the payment of compensation to,
and expenses, disbursements and advances of the Trustee, its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6.6 PRIORITIES.
Any money collected by the Trustee pursuant to this Article VI
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
interest or Liquidated Damages, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7;
SECOND: To the holders of Senior Indebtedness of the Company to
the extent provided in Article XII;
36
<PAGE> 43
THIRD: To the Holders in payment of the amounts then due and
unpaid for principal of, interest on and Liquidated Damages with respect to, the
Securities in respect or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal, interest and Liquidated
Damages, respectively; and
FOURTH: The remainder, if any, shall be repaid to the Company.
SECTION 6.7 LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute or
order or direct the Trustee to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in principal amount of then
outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(C) such Holder or Holders have furnished to the Trustee
reasonable security or indemnity satisfactory to it against the costs, expenses
and liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice,
request and furnishing of indemnity has failed to institute any such proceeding;
and
(E) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
principal amount of then outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
INTEREST AND LIQUIDATED DAMAGES, AND TO CONVERT.
Notwithstanding any other provision of this Indenture but
subject to the provisions of Article XII, the Holder of any Security shall have
the right, which is absolute and unconditional, to receive payment of the
principal of, interest on and Liquidated Damages with respect to, such Security
when due (including, in the case of redemption, the Redemption Price on the
applicable Redemption Date, and in the case of the Repurchase Price, on the
applicable
37
<PAGE> 44
Repurchase Date) and to convert such Security in accordance with Article XII
and to institute suit for the enforcement of any such payment and right to
convert, and such rights shall not be impaired without the consent of such
Holder; provided, however, that the Holders of not less than 75% in aggregate
principal amount of then outstanding Securities, by a notice in writing to the
Company and to the Trustee, shall have the right to consent to postponement of
interest payments on the Securities in accordance with TIA Section 316(a)(2) .
SECTION 6.9 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.10 DELAY OR OMISSION NOT WAIVER.
No delay or omission by the Trustee or by any Holder of any
Security to exercise any right or remedy arising upon any Event of Default shall
impair the exercise of any such right or remedy or constitute a waiver of any
such Event of Default. Every right and remedy given by this Article VI or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 6.11 CONTROL BY HOLDERS.
The Holder or Holders of no less than a majority in aggregate
principal amount of then outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred upon the Trustee,
provided, that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture,
(2) the Trustee shall not determine that the action so directed would be
unduly prejudicial to the Holders not taking part in such direction, and
(3) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
38
<PAGE> 45
SECTION 6.12 WAIVER OF PAST DEFAULT.
The Holder or Holders of not less than a majority in aggregate
principal amount of then outstanding Securities may, on behalf of all Holders,
prior to the declaration of acceleration of the maturity of the Securities,
waive any past Default hereunder and its consequences, except a Default
(A) in the payment of the principal of, interest on, or
Liquidated Damages with respect to, any Security not yet cured, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder of
each outstanding Security affected.
Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair the exercise of any right arising therefrom.
SECTION 6.13 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Security by such Holder's acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the enforcement of
any right or remedy under this Indenture, or in any suit against the Trustee for
any action taken, suffered or omitted to be taken by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 6.13 shall not apply to
any suit instituted by the Company, to any suit instituted by the Trustee, to
any suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in aggregate principal amount of then outstanding Securities, or
to any suit instituted by any Holder for enforcement of the payment of principal
of, interest on or Liquidated Damages with respect to, any Security on or after
the respective Stated Maturity of such Security (including, in the case of
redemption, on or after the Redemption Date).
SECTION 6.14 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
39
<PAGE> 46
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If a Default or an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
its own affairs.
(b) Except during the continuance of a Default or an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are adverse to
the Trustee.
(2) In the absence of negligence or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
40
<PAGE> 47
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section 7.1.
(f) The Trustee shall not be liable for interest on any assets received
by it except as the Trustee may agree in writing with the Company. Assets held
in trust by the Trustee need not be segregated from other assets except to the
extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE.
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult with
counsel and may require an Officers' Certificate or an Opinion of Counsel, which
shall conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such certificate
or advice of counsel.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, 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.
(f) 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 Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have furnished to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Unless otherwise specifically provided for in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to the performance of
the Company's covenants in Article IV hereof. In addition, the Trustee shall not
be deemed to have knowledge of any Default or Event of Default except (i) any
Event of Default occurring pursuant
41
<PAGE> 48
to Sections 6.1(1) or 6.1(2), or (ii) any Default or Event of Default of which a
Responsible Officer of the Trustee shall have received written notification or
obtained actual knowledge.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company, any
of its Subsidiaries, or their respective Affiliates with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Securities and it shall not be accountable for
the Company's use of the proceeds from the Securities, or the use or application
of any funds received by a Paying Agent other than the Trustee, and it shall not
be responsible for any statement in the Securities, other than the Trustee's
certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Holder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal of, interest on or Liquidated Damages with respect to,
any Security (including the payment of the Repurchase Price on the Repurchase
Date and the payment of the Redemption Price on the Redemption Date), the
Trustee may withhold the 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 determines that withholding the notice is
in the interest of the Holders.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, the Trustee shall, if required by law,
mail to each Securityholder a brief report dated as of such May 15 that complies
with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b)
and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to
Securityholders shall be mailed to the Company and filed with the SEC, if
required by law, and each stock exchange, if any, on which the Securities are
listed.
42
<PAGE> 49
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company agrees to pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for all services rendered by it hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust). The Company shall reimburse the Trustee upon request for all
reasonable disbursements, expenses and advances incurred or made by it. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's agents, accountants, experts and counsel.
The Company agrees to indemnify the Trustee (in its capacity as
Registrar, Transfer Agent, Paying Agent and Trustee) and each of its officers,
directors, attorneys-in-fact and agents for, and hold it harmless against, any
claim, demand, expense (including but not limited to reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel), loss or
liability incurred by it without negligence, bad faith or willful misconduct on
its part, arising out of or in connection with the administration of this trust
and its rights or duties hereunder including all the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The Trustee shall
notify the Company of any claim asserted against the Trustee for which it may
seek indemnity; provided, however, that the Trustee's failure so to notify the
Company shall not relieve the Company of any obligation to indemnify the Trustee
hereunder except to the extent that such loss, liability, damage or expense
would have been avoided by prompt notification of the Company and then only to
the extent that such loss, liability, damage or expense could have been avoided
by such notification. The Company need not pay for any settlement made without
its written consent. The Company need not reimburse any expense or indemnify
against any loss or liability to the extent incurred by the Trustee through its
negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7,
the Company and the Holders agree that the Trustee shall have a lien prior to
the Securities on all assets held or collected by the Trustee, in its capacity
as Trustee, except assets held in trust to pay principal of or interest or
Liquidated Damages on particular Securities pursuant to Article III.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Company's obligations pursuant to Article VIII and any
rejection or termination of this Indenture under any Bankruptcy Law.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company in writing.
The Holder or Holders of a majority in principal amount of then outstanding
Securities may remove
43
<PAGE> 50
the Trustee by so notifying the Company and the Trustee in writing. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article VII shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of this Section 7.8.
If the instrument of acceptance by a successor Trustee required
by this Section 7.8 shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation or removal, the resigning or
removed Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. At any time within one year after a successor Trustee
appointed by the Company takes office, the Holder or Holders of a majority in
principal amount of then outstanding Securities may, with the Company's consent,
appoint a successor Trustee to replace such successor Trustee as so appointed by
the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 have been paid, the retiring Trustee shall transfer all property held by it
as trustee to the successor Trustee, subject to the lien provided in Section
7.7, the resignation or removal of the retiring Trustee shall become effective,
and the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the Company or any Holder or Holders
of at least 10% in principal amount of then outstanding Securities may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder or
Holders of at least 10% in principal amount of then outstanding Securities may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
44
<PAGE> 51
Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee, provided such
corporation shall be otherwise eligible under this Article VII, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
delivery the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of TIA
Sections 310(a)(1), (2) and (5). The Trustee shall have a combined capital and
surplus of at least $50,000,000 as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA Section 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION 8.1 SATISFACTION AND DISCHARGE OF INDENTURE.
The Company may terminate its obligations under this Indenture
(subject to the provisions of this Article VIII) when it shall have delivered to
the Trustee for cancellation all Securities theretofore authenticated (other
than any Securities which shall have been destroyed, lost or stolen and which
shall have been replaced or paid as provided in Article II hereof) and the
following conditions shall be satisfied:
(1) The Company has paid all sums payable under this Indenture; and
45
<PAGE> 52
(2) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating that
all conditions precedent have been complied with as contemplated by this Section
8.1.
SECTION 8.2 REPAYMENT TO THE COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, for the payment of the principal of, interest on or
Liquidated Damages with respect to any Security and remaining unclaimed for two
years after such principal, interest or Liquidated Damages has become due and
payable shall be paid to the Company on its written request; and the Holder of
such Security shall thereafter look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder, the Company, when authorized
by Board Resolutions, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or to make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided, that such action pursuant to this clause (1) does not adversely affect
the rights of any Holder in any material respect;
(2) to create additional covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company or
to make any other change that does not materially adversely affect the rights of
any Holder;
(3) to provide for collateral for or guarantors of the Securities;
(4) to evidence the succession of another Person to the Company and the
assumption by any such successor of the obligations of the Company herein and in
the Securities in accordance with Article V;
(5) to comply with the TIA; or
(6) to evidence and provide for the appointment of a successor Trustee
hereunder.
46
<PAGE> 53
SECTION 9.2 AMENDMENTS, SUPPLEMENTAL INDENTURES AND WAIVERS WITH
CONSENT OF HOLDERS.
Subject to the last sentence of this paragraph, with the consent
of the Holders of not less than a majority in aggregate principal amount of then
outstanding Securities, by written act of said Holders delivered to the Company
and the Trustee, the Company, when authorized by Board Resolutions, and the
Trustee may amend or supplement this Indenture or the Securities or enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or the Securities or of modifying in any manner the rights of the
Holders under this Indenture or the Securities. Subject to the last sentence of
this paragraph, the Holder or Holders of not less than a majority in aggregate
principal amount of then outstanding Securities may, in writing, waive
compliance by the Company with any provision of this Indenture or the
Securities. Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall, without the consent of the Holder of
each outstanding Security affected thereby:
(1) change the Stated Maturity of any Security or reduce the principal
amount thereof or the rate (or extend the time for payment) of Original Issue
Discount accrual, interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in which,
any Security or any premium or the interest thereon or Liquidated Damages with
respect thereto is payable, or impair the right to institute suit for the
enforcement of any such payment or the conversion of any Security on or after
the due date thereof (including, in the case of redemption, on or after the
Redemption Date), or reduce the Repurchase Price, or alter the terms of this
Indenture regarding a Repurchase Offer or redemption provisions in a manner
adverse to the Holders;
(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in this Indenture;
(3) adversely affect the right of such Holder to convert Securities; or
(4) provide that other provisions of this Indenture cannot be modified
or waived without the consent of the Holder of each outstanding Security
affected thereby.
It shall not be necessary for the consent of the Holders under
this Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture or
waiver.
47
<PAGE> 54
After an amendment, supplement or waiver under this Section 9.2
or Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under
this Article IX, the Company may, but shall not be obligated to, offer to any
Holder who consents to such amendment, supplement or waiver, or (at the option
of the Company) to all Holders, consideration for consent to such amendment,
supplement or waiver.
SECTION 9.3 COMPLIANCE WITH TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of his Security by written notice to
the Company or the Person designated by the Company as the Person to whom
consents should be sent if such revocation is received by the Company or such
Person before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which record date shall be the date so fixed by
the Company. If a record date is fixed, then notwithstanding the last sentence
of the immediately preceding paragraph, those Persons who were Holders at such
record date, and only those Persons (or their duly designated proxies), shall be
entitled to revoke any consent previously given, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (1) through (4) of Section 9.2, in which case, the amendment, supplement
or waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided, that any such
waiver shall not impair or affect the right of any Holder to receive payment of
principal of and interest on and Liquidated Damages with respect to a Security,
on or after the respective dates set for such amounts to become due and payable
as then expressed in such Security, or to bring suit for the enforcement of any
such payment on or after such respective dates.
48
<PAGE> 55
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee or require the Holder to put an appropriate notation on the
Security. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Any failure to make the appropriate notation or to issue a new Security
shall not affect the validity of such amendment, supplement or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officer's Certificate
stating that the execution of any amendment, supplement or waiver authorized
pursuant to this Article IX is authorized or permitted by this Indenture and
that all conditions precedent have been satisfied.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL
SECTION 10.1 REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER
UPON A CHANGE OF CONTROL.
(a) If a Change of Control occurs, each Holder shall have the right, at
such Holder's option, subject to the terms and conditions of this Indenture, to
require the Company to repurchase all or any part of such Holder's Securities
(provided, that the principal amount of such Securities must be $1,000 or an
integral multiple thereof) on a date to be established by the Company (the
"Repurchase Date") subject to the requirements of clause (1) and clause (2) of
subsection (b) of this Section 10.1), at a cash price (the "Repurchase Price")
equal to 100% of the Issue Price thereof plus accrued Original Issue Discount
to, but excluding, the Repurchase Date, together with accrued and unpaid
interest to, but excluding, the Repurchase Date.
(b) If, pursuant to this Section 10.1, the Company is required to
commence an offer to purchase Securities (a "Repurchase Offer"), the Company
shall follow the procedures set forth in this Section 10.1 as follows:
(1) the Repurchase Offer shall commence within 45 days following
a Change of Control;
49
<PAGE> 56
(2) the Repurchase Offer shall remain open for 20 Business Days
following its commencement, except to the extent that a longer period is
required by applicable law, but in any case the Repurchase Offer must be
completed and the Repurchase Date must occur not more than 75 Business Days
following the Change of Control (the "Repurchase Offer Period");
(3) upon the expiration of a Repurchase Offer, the Company shall
purchase all Securities tendered in response to the Repurchase Offer;
(4) if the Repurchase Date is on or after an interest payment
Record Date and on or before the related Interest Payment Date and Damage
Payment Date, any accrued interest and Liquidated Damages will be paid to the
Person in whose name a Security is registered at the close of business on such
Record Date, and no additional interest or Liquidated Damages will be payable to
Securityholders who tender Securities pursuant to the Repurchase Offer;
(5) the Company shall provide the Trustee with notice of the
Repurchase Offer (the "Change of Control Notice") at least 5 Business Days
before the commencement of any Repurchase Offer and no later than 30 days after
the Change of Control occurs; and
(6) on or before the commencement of any Repurchase Offer, the
Company or the Trustee (upon the request and at the expense of the Company)
shall send, by first-class mail, a notice to each of the Securityholders, which
(to the extent consistent with this Indenture) shall govern the terms of the
Repurchase Offer and shall state:
(i) that the Repurchase Offer is being made pursuant to such notice and
this Section 10.1 and that all Securities, or portions thereof, tendered will be
accepted for payment;
(ii) the Repurchase Price (including the amount of accrued Original
Issue Discount and accrued and unpaid interest and Liquidated Damages, if any),
the Repurchase Date and the Repurchase Put Date;
(iii) that any Security, or portion thereof, not tendered or accepted
for payment will continue to accrue interest and Liquidated Damages, if any;
(iv) that, unless the Company defaults in depositing Cash with the
Paying Agent in accordance with the last paragraph of this clause (b) or such
payment is prevented pursuant to Article XII, any Security, or portion thereof,
accepted for payment pursuant to the Repurchase Offer shall cease to accrue
interest and Liquidated Damages after the Repurchase Date;
(v) that Holders electing to have a Security, or portion thereof,
purchased pursuant to a Repurchase Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, to
50
<PAGE> 57
the Paying Agent (which may not for purposes of this Section 10.1,
notwithstanding anything in this Indenture to the contrary, be the Company or
any Affiliate of the Company) at the address specified in the notice prior to
the close of business on the earlier of (a) the third Business Day prior to the
Repurchase Date and (b) the third Business Day following the expiration of the
Repurchase Offer (such earlier date being the "Repurchase Put Date");
(vi) that Holders will be entitled to withdraw their election,
in whole or in part, if the Paying Agent (which may not for purposes of this
Section 10.1, notwithstanding anything in this Indenture to the contrary, be the
Company or any Affiliate of the Company) receives, up to the close of business
on the Repurchase Put Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities the
Holder is withdrawing and a statement that such Holder is withdrawing his
election to have such principal amount of Securities purchased; and
(vii) a brief description of the events resulting in such Change
of Control.
Any such Repurchase Offer shall comply with all applicable
provisions of Federal and state laws, including those regulating tender offers,
if applicable, and any provisions of this Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
On or before the Repurchase Date, the Company shall (i) accept
for payment Securities or portions thereof properly tendered pursuant to the
Repurchase Offer on or before the Repurchase Put Date, (ii) deposit with the
Paying Agent Cash sufficient to pay the Repurchase Price of all Securities or
portions thereof so tendered and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate listing the Securities or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to Holders of Securities so accepted payment in an amount equal to the
Repurchase Price (together with accrued and unpaid interest and Liquidated
Damages, if any), and the Trustee shall promptly authenticate and mail or
deliver to such Holders a new Security or Securities equal in principal amount
to any unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Repurchase Offer
on or as soon as practicable after the Repurchase Date.
SECTION 10.2 LIMITATION ON RIGHT TO REQUIRE REDEMPTION.
Notwithstanding anything herein to the contrary, no Holder shall
have any right to require redemption pursuant to this Article X if either (i)
the Last Sale Price (or if on any such Trading Day the Common Stock is not
quoted by any organization referred to in the definition of Last Sale Price, the
fair value of the Common Stock on such day, as conclusively determined by the
Board of Directors) on any five Trading Days during the 10 Trading Day period
immediately preceding the date of the Change in Control shall equal or exceed
105% of the Measuring Price in effect as of the date of the Change of Control or
(ii) with respect to any
51
<PAGE> 58
transaction described in clause (i) of the definition of "Change of Control", or
any transaction described in clause (ii) of the definition of "Change of
Control" (provided that if such transaction is a conveyance, transfer or lease
by the Company of all or substantially all of its assets such transaction is
accompanied by or immediately followed by the complete liquidation and
dissolution of the Company), all the consideration to be paid for the Common
Stock or the assets, as the case may be, in the transaction or transactions
constituting the Change in Control (A) has an aggregate fair market value of at
least 105% of the Measuring Price in effect immediately prior to the closing of
such transaction and (B) consists of cash, securities traded on a national
securities exchange or quoted on the National Association of Securities Dealers,
Inc. Automated Quotation System or the Nasdaq National Market or a combination
of cash and securities. "Measuring Price" as of the date of a Change of Control
means the amount obtained by aggregating the Issue Price and the accrued
Original Issue Discount from the Issue Date to, but excluding, the date of the
Change of Control, and dividing the resulting sum by the Conversion Rate in
effect immediately before the Change of Control.
ARTICLE XI
SUBORDINATION
SECTION 11.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company and each Holder, by its acceptance of Securities,
agree that (a) the payment of the principal of and interest on the Securities
and (b) any other payment in respect of the Securities, including on account of
the acquisition or redemption of the Securities by the Company and any
Liquidated Damages (including, without limitation, pursuant to Article X) is
subordinated, to the extent and in the manner provided in this Article XI, to
the prior payment in full of all Senior Indebtedness of the Company, whether
outstanding at the date of this Indenture or thereafter created, incurred,
assumed or guaranteed, and that these subordination provisions are for the
benefit of the holders of Senior Indebtedness.
This Article XI shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Indebtedness, and such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are made obligees hereunder and
any one or more of them may enforce such provisions.
SECTION 11.2 NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES.
(a) No payment may be made by the Company on account of the principal
of, interest on, or Liquidated Damages with respect to, the Securities, or to
acquire any of the Securities (including repurchases of Securities at the option
of the Holder pursuant to a Repurchase Offer) for cash or property (other than
Junior Securities), or on account of the redemption provisions of the
Securities, (i) upon the maturity of any Senior Indebtedness of the Company by
lapse of time, acceleration (unless waived) or otherwise, unless and until all
principal of and interest on such Senior Indebtedness are first paid in full (or
such payment is
52
<PAGE> 59
duly provided for), or (ii) in the event of default in the payment of any
principal of or interest on any Senior Indebtedness of the Company when it
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration or otherwise (a "Payment Default"), unless and until such
Payment Default has been cured or waived or otherwise has ceased to exist.
(b) Upon (i) the happening of an event of default (other than a Payment
Default) that permits, or would permit, with (w) the passage or time, (x) the
giving of notice, (y) the making of any payment in respect of the Securities
then required to be made, or (z) any combination thereof (collectively, a
"Non-Payment Default"), the holders of Senior Indebtedness having a principal
amount then outstanding in excess of $25,000,000 (or with respect to which
Senior Indebtedness the holders are obligated to lend the Company in excess of
$25,000,000 principal amount) or their representative immediately to accelerate
its maturity and (ii) written notice of such Non-Payment Default given to the
Company and the Trustee by the holders of an aggregate of at least $25,000,000
principal amount outstanding of such Senior Indebtedness (or holders of
commitments to lend an aggregate of at least $25,000,000 principal amount of
Senior Indebtedness) or their representative (a "Payment Notice"), then, unless
and until such Non-Payment Default has been cured or waived or otherwise has
ceased to exist, no payment (by set-off or otherwise) may be made by or on
behalf of the Company on account of the principal of, interest on, or Liquidated
Damages with respect to, the Securities, or to acquire or repurchase any of the
Securities for cash or property, or on account of the redemption provisions of
the Securities, in any such case other than payments made with Junior
Securities. Notwithstanding the foregoing, unless (i) the Senior Indebtedness in
respect of which such Non-Payment Default exists has been declared due and
payable in its entirety within 183 days after the Payment Notice is delivered as
set forth above (the "Payment Blockage Period"), and (ii) such declaration has
not been rescinded or waived, at the end of the Payment Blockage Period, the
Company shall be required to pay all sums not paid to the Holders of the
Securities during the Payment Blockage Period due to the foregoing prohibitions
and to resume all other payments as and when due on the Securities. Not more
than one Payment Notice may be given in any 365-day period, irrespective of the
number of defaults with respect to Senior Indebtedness during such period.
However, if any Payment Notice within such 365-day period is given by or on
behalf of any holders of Senior Indebtedness other than under the Loan
Agreement, the agent under the Loan Agreement shall be permitted to give another
Payment Notice within such 365-day period. In no event, however, may the total
number of days during which any Payment Blockage Period or Payment Blockage
Periods are in effect exceed 183 days in the aggregate during any consecutive
365-day period.
(c) In furtherance of the provisions of Section 11.1, in the event that,
notwithstanding the foregoing provisions of this Section 11.2, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee or the Holders or any Paying Agent at a time when such
payment or distribution is prohibited by the provisions of this Section 11.2,
then such payment or distribution (subject to the provisions of Section 11.7)
shall be received and held by the Trustee or such Holder or Paying Agent for the
benefit of the holders of Senior Indebtedness of the Company, and shall be paid
or delivered by the Trustee or such Holders or such Paying Agent, as the case
may be, to the holders of Senior Indebtedness of the Company remaining unpaid or
unprovided for or their representative or
53
<PAGE> 60
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness of the Company
may have been issued, ratably according to the respective aggregate amounts
remaining unpaid on account of the Senior Indebtedness of the Company held or
represented by each, for application to the payment of all Senior Indebtedness
of the Company in full after giving effect to any concurrent payment and
distribution to the holders of such Senior Indebtedness and all provision
therefor.
SECTION 11.3 SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL
SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION.
Upon any distribution of assets of the Company upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company, whether voluntary or involuntary, in bankruptcy, insolvency,
receivership or a similar proceeding or upon assignment for the benefit of
creditors or any marshalling of assets or liabilities:
(a) the holders of all Senior Indebtedness of the Company shall first be
entitled to receive payments in full (or have such payment duly provided for)
before the Holders are entitled to receive any payment on account of the
principal of, interest on, and Liquidated Damages with respect to, the
Securities (other than Junior Securities);
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than Junior
Securities) to which the Holders or the Trustee on behalf of the Holders would
be entitled (by setoff or otherwise), except for the provisions of this Article
XI, shall be paid by the liquidating trustee or agent or other Person making
such a payment or distribution directly to the holders of Senior Indebtedness of
the Company or their representative to the extent necessary to make payment in
full of all such Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than Junior Securities), shall be received by the
Trustee or the Holders or any Paying Agent (or, if the Company or any Affiliate
of the Company is acting as its own Paying Agent, money for any such payment or
distribution shall be segregated or held in trust) on account of the principal
of, interest on and Liquidated Damages with respect to, the Securities before
all Senior Indebtedness of the Company is paid in full, such payment or
distribution (subject to the provisions of Section 11.7) shall be received and
held in trust by the Trustee or such Holder or Paying Agent for the benefit of
the holders of such Senior Indebtedness, or their respective representative,
ratably according to the respective amounts of such Senior Indebtedness held or
represented by each, to the extent necessary to make payment as provided herein
of all such Senior Indebtedness remaining unpaid after giving effect to all
concurrent payments and distributions and all provisions therefor to or for the
holders of such Senior Indebtedness, but only to the extent that as to any
holder of such Senior Indebtedness, as promptly as practical following notice
from the Trustee to the holders of such Senior Indebtedness that such prohibited
54
<PAGE> 61
payment has been received by the Trustee, Holder(s) or Paying Agent (or has been
segregated as provided above), such holder (or a representative therefor)
notifies the Trustee of the amounts then due and owing on such Senior
Indebtedness, if any, held by such holder and only the amounts specified in such
notices to the Trustee shall be paid to the holders of such Senior Indebtedness.
SECTION 11.4 SECURITYHOLDERS TO BE SUBROGATED TO RIGHTS OF
HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all Senior Indebtedness of the
Company as provided herein, the Holders of Securities shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness
until all amounts owing on the Securities shall be paid in full, and for the
purpose of such subrogation no such payments or distributions to the holders of
such Senior Indebtedness by the Company, or by or on behalf of the Holders by
virtue of this Article XI, which otherwise would have been made to the Holders
shall, as between the Company and the Holders, be deemed to be payment by the
Company or on account of such Senior Indebtedness, it being understood that the
provisions of this Article XI are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
such Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article XI shall
have been applied, pursuant to the provisions of this Article XI, to the payment
of amounts payable under Senior Indebtedness of the Company, then the Holders
shall be entitled to receive from the holders of such Senior Indebtedness any
payments or distributions received by such holders of Senior Indebtedness in
excess of the amount sufficient to pay all amounts payable under or in respect
of such Senior Indebtedness in full.
SECTION 11.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article XI or elsewhere in this
Indenture or in the Securities is intended to or shall impair as between the
Company and the Holders, the obligation of each such Person, which is absolute
and unconditional, to pay to the Holders the principal of, interest on, and
Liquidated Damages with respect to, the Securities as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders and creditors of the Company
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article XI, of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy. Notwithstanding anything to the contrary in this
Article XI or elsewhere in this Indenture or in the Securities, upon any
distribution of assets of the Company referred to in this Article XI, the
Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders
55
<PAGE> 62
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other Person making any distribution to the Trustee or to
the Holders for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Indebtedness 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 XI so long as such court has been apprised of the provisions of,
or the order, decree or certificate makes reference to, the provisions of this
Article XI.
(1) Nothing in this Article XI shall apply to the claims
of, or payments to, the Trustee under or pursuant to Sections 6.6 and 7.7.
SECTION 11.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED
IN ABSENCE OF NOTICE.
The Trustee shall not at any time be charged with knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee unless and until a Responsible Officer of the Trustee or any
Paying Agent shall have received, no later than one Business Day prior to such
payment, written notice thereof from the Company or from one or more holders of
Senior Indebtedness or from any representative therefor and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, shall be entitled in all respects conclusively to assume
that no such fact exists.
SECTION 11.7 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
Amounts deposited in trust with the Trustee pursuant to and in
accordance with this Indenture shall be for the sole benefit of Securityholders
and, to the extent allocated for the payment of Securities, shall not be subject
to the subordination provisions of this Article XI. Otherwise, any deposit of
assets with the Trustee or the Agent (whether or not in trust) for the payment
of principal of or interest on any Securities shall be subject to the provisions
of Sections 11.1, 11.2, 11.3, 12.4 and 11.4; provided that, if prior to one
Business Day preceding the date on which by the terms of this Indenture any such
assets may become distributable for any purpose (including, without limitation,
the payment of either principal of or interest on any Security) the Trustee or
such Paying Agent shall not have received with respect to such assets the
written notice provided for in Section 11.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such date.
56
<PAGE> 63
SECTION 11.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination provisions contained in this Article XI
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 of
this Indenture, regardless of any knowledge thereof which any such holder may
have or be otherwise charged with. The holders of Senior Indebtedness may
extend, renew, modify or amend the terms of the Senior Indebtedness or any
security therefor and release, sell or exchange such security and otherwise deal
freely with the Company, all without affecting the liabilities and obligations
of the parties to this Indenture or the Holders.
SECTION 11.9 SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF SECURITIES.
Each Holder of the Securities by his acceptance thereof
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provisions
contained in this Article XI and to protect the rights of the Holders pursuant
to this Indenture, and appoints the Trustee his attorney-in-fact for such
purpose, including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors of the Company),
the immediate filing of a claim for the unpaid balance of his Securities in the
form required in said proceedings and cause said claim to be approved. If the
Trustee does not file a proper claim or proof of debt in the form required in
such proceeding prior to 30 days before the expiration of the time to file such
claim or claims, then the holders of the Senior Indebtedness or their
representatives are or is hereby authorized to have the right to file and are or
is hereby authorized to file an appropriate claim for and on behalf of the
Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Indebtedness or their
representatives to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Senior Indebtedness or their
representatives to vote in respect of the claim of any Securityholder in any
such proceeding.
SECTION 11.10 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all of the rights set forth in
this Article XI in respect of any Senior Indebtedness at any time held by it to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
57
<PAGE> 64
SECTION 11.11 ARTICLE XI NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of,
interest on, or Liquidated Damages with respect to, the Securities by reason of
any provision of this Article XI shall not be construed as preventing the
occurrence of a Default or an Event of Default under Section 6.1 or in any way
prevent the Holders from exercising any right hereunder other than the right to
receive payment on the Securities.
SECTION 11.12 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF SENIOR
INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and shall not be liable to any such holders
(other than for its willful misconduct or gross negligence) if it shall in good
faith mistakenly pay over or distribute to the Holders of Securities or the
Company or any other Person, cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article XI or
otherwise. Nothing in this Section 11.12 shall affect the obligation of any
other such Person to hold such payment for the benefit of, and to pay such
payment over to, the holders of Senior Indebtedness or their representatives.
ARTICLE XII
CONVERSION OF SECURITIES
SECTION 12.1 CONVERSION PRIVILEGE.
Subject to and upon compliance with the provisions of this
Article XII, at the option of the Holder thereof, any Security may at any time
commencing on the 90th day following the latest date of the initial issuance of
the Securities under this Indenture and ending as of the close of business on
the Stated Maturity, be converted, in whole, or in part in integral multiples of
$1,000 principal amount, into fully paid and non-assessable shares of Common
Stock issuable upon conversion of the Securities, at the Conversion Rate in
effect at the Date of Conversion, unless such Security or some portion thereof
shall have been called for redemption or delivered for repurchase prior to such
date and no default is made in making due provision for the payment of the
Redemption Price in accordance with the terms of this Indenture, in which case,
with respect to such Security or portion thereof as has been so called for
redemption or delivered for repurchase, such Security or portion thereof may be
so converted until and including, but not after, the close of business on the
Business Day prior to the Redemption Date or Repurchase Date, as applicable, for
such Security, unless the Company subsequently fails to pay the applicable
Redemption Price or Repurchase Price, as the case may be. A Holder of Securities
is not entitled to any rights of a Holder of Common Stock until such Holder has
converted such Holder's Securities into Common Stock, and then only to the
extent such Securities are deemed to have been converted into Common Stock under
this Article XII.
58
<PAGE> 65
SECTION 12.2 EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege with respect to
any Security in certificated form, the Holder of any Security to be converted
shall surrender such Security to the Company at any time during usual business
hours at its office or agency maintained for the purpose as provided in this
Indenture, accompanied by a fully executed written notice, in substantially the
form set forth on the reverse of the Security, that the Holder elects to convert
such Security or a stated portion thereof constituting an integral multiple of
$1,000 principal amount; provided, however, that notice received after 2:00 p.m.
New York City time will be considered to have been received on the following
Business Day. Such notice of conversion shall also state the name or names (with
address) in which the certificate or certificates for shares of Common Stock
shall be issued. Securities surrendered for conversion shall (if reasonably
required by the Company or the Trustee) be duly endorsed by, or be accompanied
by a written instrument or instruments of transfer in form satisfactory to the
Company duly executed by, the Holder or his attorney duly authorized in writing.
In order to exercise the conversion privilege with respect to any interest in a
Security in global form, the beneficial Holder must complete the appropriate
instruction form for conversion pursuant to the Depositary's book-entry
conversion program, deliver by book-entry delivery an interest in such Security
in global form, furnish appropriate endorsements and transfer documents if
required by the Company or the Trustee, and pay the funds, if any, required by
this Section 12.2. As promptly as practicable after the receipt of such notice
and the surrender of such Security as aforesaid, the Company shall, subject to
the provisions of Section 12.8 hereof, issue and deliver at such office or
agency to such Holder, or on his written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion of
Securities in accordance with the provisions of this Article XII and Cash, as
provided in Section 12.3 hereof, in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion. Such conversion shall be deemed
to have been effected immediately prior to the close of business on the date
(herein called the "Date of Conversion") on which such Security shall have been
surrendered as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become on the Date of Conversion the
holder or holders 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 cause the person or persons in whose name or
names the certificate or certificates for such shares are to be issued to be
deemed to have become the record holder or holders thereof for all purposes at
the opening of business on the next succeeding day on which such stock transfer
books are open but such conversion shall nevertheless be at the Conversion Rate
in effect at the close of business on the date when such Security shall have
been so surrendered with the conversion notice. In the case of conversion of a
portion, but less than all, of a Security, the Company shall as promptly as
practicable execute, and the Trustee shall authenticate and deliver to the
Holder thereof, at the expense of the Company, a Security or Securities in the
aggregate principal amount of the unconverted portion of the Security
surrendered. Upon the conversion of an interest in a Security in global form,
the Trustee shall make a notation of such Security in global form as to the
reduction in the principal amount represented thereby as a result of such
conversion. Except as otherwise expressly provided in this Indenture, no payment
or adjustment shall be made for interest or Original Issue Discount accrued on
any Security (or portion thereof) converted or for
59
<PAGE> 66
dividends or distributions on any Common Stock issued upon conversion of any
Security. If a Security is surrendered for conversion during the period between
the close of business on any Record Date and the opening of business on the next
following Interest Payment Date, the amount of interest accrued on the Date of
Conversion and payable on the Interest Payment Date shall not be canceled,
extinguished or forfeited, but rather shall be deemed to be paid in full to the
Holder thereof through delivery of the Common Stock (together with the Cash
payment, if any, in lieu of fractional shares) in exchange for the Security
being converted pursuant to the provisions hereof. The Company's delivery of the
fixed number of shares of Common Stock into which the Securities are convertible
will be deemed to satisfy the Company" obligation to pay the principal amount at
Stated Maturity of the Securities and all accrued interest and Original Issue
Discount that have not previously been (or are not simultaneously being) paid.
The Common Stock will be treated as issued first in payment of accrued interest
and Original Issue Discount and then in payment of Issue Price.
SECTION 12.3 FRACTIONAL INTERESTS.
No fractions of shares or scrip representing fractions of shares
shall be issued upon conversion of Securities. If more than one Security shall
be surrendered for conversion at one time by the same holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities so surrendered. If any
fraction of a share of Common Stock would, except for the foregoing provisions
of this Section 12.3, be issuable on the conversion of any Security or
Securities, the Company shall make payment in lieu thereof in an amount of Cash
equal to the value of such fraction computed on the basis of the last sale price
of the Common Stock as reported on the New York Stock Exchange (or if not listed
for trading thereon, then on the principal national securities exchange or on
the principal automated quotation system on which the Common Stock is listed or
admitted to trading) at the close of business on the Date of Conversion, or if
no such sale takes place on such day, the last sale price for such day shall be
the average of the closing bid and asked prices (regular way) on the New York
Stock Exchange (or if not listed for trading thereon, on the principal national
securities exchange or on the principal automated quotation system on which the
Common Stock is listed or admitted to trading) for such day (any such last sale
price being hereinafter referred to as the "Last Sale Price"). If on such
Trading Day the Common Stock is not quoted by any such organization, the fair
value of such Common Stock on such day, as reasonably determined in good faith
by the Board of Directors of the Company, shall be used.
SECTION 12.4 CONVERSION RATE.
The Conversion Rate shall initially be 56.3393 shares per $1,000
principal amount at maturity of the Securities and shall be adjusted as provided
in Section 12.5.
60
<PAGE> 67
SECTION 12.5 ADJUSTMENT OF CONVERSION RATE.
The Conversion Rate shall be subject to adjustment from time to
time as follows:
(a) In case the Company shall make or pay a dividend or make a
distribution in shares of Common Stock on the Common Stock, the Conversion Rate
in effect immediately following the record date fixed for the determination of
shareholders entitled to receive such dividend or other distribution shall be
increased by multiplying such Conversion Rate by a fraction of which the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on such date and the numerator shall be the sum of such number
of shares and the total number of shares constituting such dividend or other
distribution. An adjustment made pursuant to this subsection (a) shall become
effective immediately, except as provided in subsections (i) and (j) below,
after such record date.
(b) In case the Company shall (1) subdivide its outstanding shares of
Common Stock into a greater number of shares or (2) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Rate in effect immediately following the effectiveness of such action
shall be adjusted by multiplying such Conversion Rate by a fraction of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to such subdivision or combination and the numerator shall be
the number of shares outstanding immediately after giving effect to such
subdivision or combination. An adjustment made pursuant to this subsection (b)
shall become effective immediately, except as provided in subsections (i) and
(j) below, after the effective date of a subdivision or combination.
(c) In case the Company shall issue rights, options or warrants to all
or substantially all holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the then current
market price per share of the Common Stock (as determined pursuant to subsection
(g) below) on the record date fixed for determination of the shareholders
entitled to receive such rights, option or warrants, the Conversion Rate in
effect immediately following such record date shall be adjusted to the number
obtained by multiplying:
(i) such Conversion Rate by a fraction, of which
(ii) the denominator shall be (A) the number of shares of Common
Stock outstanding on such record date plus (B) the number of shares which the
aggregate offering price of the total number of shares so offered for
subscription or purchase would purchase at such current market price (determined
by multiplying such total number of shares by the exercise price of such rights,
options or warrants and dividing the product so obtained by such current market
price), and of which
(iii) the numerator shall be (A) the number of shares of Common
Stock outstanding on such record date plus (B) the number of additional shares
of Common Stock which are so offered for subscription or purchase.
61
<PAGE> 68
Such adjustment shall become effective immediately, except as
provided in subsections (i) and (j) below, after the record date for the
determination of holders entitled to receive such rights, options or warrants;
provided, however, that if any such rights, options or warrants issued by the
Company as described in this subsection (c) are only exercisable upon the
occurrence of certain triggering events, then the Conversion Rate will not be
adjusted as provided in this subsection (c) until such triggering events occur.
(d) In case the Company or any Subsidiary of the Company shall
distribute to all or substantially all holders of Common Stock, any of its
assets, evidences of indebtedness, cash or securities (other than (x) dividends
or distributions exclusively in cash, or (y) any dividend or distribution for
which an adjustment is required to be made in accordance with subsection (a) or
(c) above or (z) any distribution of rights or warrants subject to subsection
(l) below) then in each such case the Conversion Rate in effect immediately
following the record date fixed for the determination of the shareholders
entitled to such distribution shall be adjusted by multiplying such Conversion
Rate by a fraction of which the denominator shall be the then current market
price per share of the Common Stock (determined as provided in subsection (g)
below) on such record date less the then fair market value (as reasonably
determined in good faith by the Board of Directors of the Company) of the
portion of the assets so distributed applicable to one share of Common Stock,
and of which the numerator shall be such current market price per share of the
Common Stock. Such adjustment shall become effective immediately, except as
provided in subsections (i) and (j) below, after the record date for the
determination of shareholders entitled to receive such distribution.
(e) If the Company or any Subsidiary of the Company shall make any
distribution consisting exclusively of Cash (excluding any Cash portion of
distributions for which an adjustment is required to be made in accordance with
subsection (d) above, or Cash distributed upon a merger or consolidation to
which Section 12.6 applies) to all or substantially all holders of Common Stock
that constitutes an Excess Cash Dividend, then the Company shall pay to each
Holder of a Security in Cash, on the date of the distribution to the Common
Stock holders, the Excess Amount for each share of Common Stock into which such
Security is then convertible. A Cash distribution with respect to shares of
Common Stock will constitute an "Excess Cash Dividend" if the aggregate amount
of such Cash distribution, together with the aggregate amount of all other
distributions consisting exclusively of Cash (excluding any Cash portion of
distributions for which an adjustment is required to be made in accordance with
subsection (d) above, or Cash distributed upon a merger or consolidation to
which Section 12.6 applies) to all or substantially all holders of Common Stock
in the 12 month period preceding such Cash distribution, exceeds 15% of the last
sale price of the Common Stock as of the Trading Day immediately preceding the
date of declaration of such Cash distribution (the "Cash Limit"). The "Excess
Amount" of an Excess Cash Dividend is the amount by which such Cash distribution
exceeded the Cash Limit.
(f) In case the Company or any Subsidiary of the Company shall complete
a tender or exchange offer for all or any portion of the Common Stock (any such
tender or exchange offer being referred to as an "Offer") that involves an
aggregate consideration having a fair market value as of the expiration of such
Offer (the "Expiration Time") that, together with
62
<PAGE> 69
(i) any cash and the fair market value of any other consideration payable in
respect of any other tender or exchange offer, as of the expiration of such
other tender or exchange offer, expiring within the 12 months preceding the
expiration of such Offer and in respect of which no Conversion Rate adjustment
pursuant to this subsection (f) has been made and (ii) the aggregate amount of
any all-cash distributions referred to in subsection (e) of this Section 12.5 to
all holders of Common Stock within the 12 months preceding the expiration of
such Offer for which no Excess Amount payment pursuant to such subsection (e)
has been made, exceeds 15% of the product of the then current market price per
share (determined as provided in subsection (g) below) of the Common Stock on
the Expiration Time times the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, the Conversion Rate in
effect immediately following such Expiration Time shall be increased by
multiplying such Conversion Rate by a fraction of which the denominator shall be
(i) the product of the then current market price per share (determined as
provided in subsection (g) below) of the Common Stock on the Expiration Time
times the number of shares of Common Stock outstanding (including any tendered
shares) on the Expiration Time minus (ii) the fair market value of the aggregate
consideration payable to shareholders based on the acceptance (up to any maximum
specified in the terms of the Offer) of all shares validly tendered and not
withdrawn as of the Expiration Time (the shares deemed so accepted being
referred to as the "Purchased Shares") and the numerator shall be the product of
(i) such current market price per share on the Expiration Time times (ii) such
number of outstanding shares on the Expiration Time less the number of Purchased
Shares, such increase to become effective immediately prior to the opening of
business on the day following the Expiration Time.
For purposes of this subsection (f), the fair market value of
any consideration with respect to an Offer shall be reasonably determined in
good faith by the Board of Directors of the Company and described in a Board
Resolution.
(g) For the purpose of any computation under subsections (c), (d), (e)
and (f) above, the current market price per share of Common Stock on any date
shall be deemed to be the average of the Last Sale Prices of a share of Common
Stock for the five consecutive Trading Days selected by the Company commencing
not more than 20 Trading Days before, and ending not later than, the earlier of
the date in question and the date before the "`ex' date," with respect to the
issuance, distribution or Offer requiring such computation. If on any such
Trading Day the Common Stock is not quoted by any organization referred to in
the definition of Last Sale Price in Section 12.3, the fair value of the Common
Stock on such day, as reasonably determined in good faith by the Board of
Directors of the Company, shall be used. For purposes of this paragraph, the
term "`ex' date," when used with respect to any issuance, distribution or
payments with respect to an Offer, means the first date on which the Common
Stock trades regular way on the New York Stock Exchange (or if not listed or
admitted to trading thereon, then on the principal national securities exchange
or the Nasdaq Stock Market's National Market if the Common Stock is listed or
admitted to trading thereon) without the right to receive such issuance,
distribution or Offer.
(h) In addition to the foregoing adjustments in subsections (a), (b),
(c), (d), (e) and (f) above, the Company from time to time and to the extent
permitted by applicable Law, shall be
63
<PAGE> 70
permitted to increase the Conversion Rate by any amount for any period of at
least 20 days, in which case the Company shall give at least 15 days notice of
such reduction, if the Board of Directors has made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. The Company, at its option, shall be permitted to make such
other increases in the Conversion Rate, in addition to those set forth above in
subsections (a), (b), (c), (d), (e), (f) and the first sentence of this
subsection (h), as the Board of Directors deems advisable to avoid or diminish
any income tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such a dividend or distribution for United States federal income tax purposes.
(i) In any case in which this Section 12.5 shall require that an
adjustment be made immediately following a record date, the Company may elect to
defer the effectiveness of such adjustment (but in no event until a date later
than the effective time of the event giving rise to such adjustment), in which
case the Company shall, with respect to any Security converted after such record
date and on and before such adjustment shall have become effective (i) defer
paying any Cash payment pursuant to Section 12.3 hereof or issuing to the Holder
of such Security the number of shares of Common Stock and other capital stock of
the Company (or other assets or securities) issuable upon such conversion in
excess of the number of shares of Common Stock and other Capital Stock of the
Company issuable thereupon only on the basis of the Conversion Rate prior to
adjustment, and (ii) not later than five Business Days after such adjustment
shall have become effective, pay to such Holder the appropriate Cash payment
pursuant to Section 12.3 hereof and issue to such Holder the additional shares
of Common Stock and other Capital Stock of the Company issuable on such
conversion.
(j) No adjustment in the Conversion Rate shall be required unless such
adjustment would require an increase or decrease of at least 1.0% of the
Conversion Rate; provided, that any adjustments which by reason of this
subsection (j) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
XII shall be made to the nearest one-hundredth of a share, as the case may be.
(k) Whenever the Conversion Rate is adjusted as herein provided, the
Company shall promptly (i) file with the Trustee and each conversion agent an
Officers' Certificate setting forth the Conversion Rate after such adjustment
and setting forth a brief statement of the facts requiring such adjustment,
which certificate shall be conclusive evidence of the correctness of such
adjustment, and (ii) mail or cause to be mailed a notice of such adjustment to
each holder of Securities at his address as the same appears on the registry
books of the Company.
(l) If the Company distributes rights or warrants (other than those
referred to in subsection (c) above) pro rata to holders of Common Stock, so
long as any such rights or warrants have not expired or been redeemed by the
Company, the Company shall make proper provision so that the Holder of any
Security surrendered for conversion will be entitled to receive upon such
conversion, in addition to the shares 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 rights or warrants of separate certificates
evidencing such rights or warrants (the "Distribution Date"), the same
64
<PAGE> 71
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 the
rights or warrants, and (ii) if such conversion occurs after such 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 such Security so
converted was convertible immediately prior to such Distribution Date would have
been entitled on such Distribution Date in accordance with the terms and
provisions of and applicable to the rights or warrants.
SECTION 12.6 CONTINUATION OF CONVERSION PRIVILEGE IN CASE OF
RECLASSIFICATION, CHANGE, MERGER, CONSOLIDATION OR SALE OF ASSETS.
If any of the following shall occur, namely: (a) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the Securities (other than a change in par value, or from par
value to no par value, or from no par value, to par value, or as a result of a
subdivision or combination), (b) any consolidation or merger of the Company with
or into any other Person, or the merger of any other Person with or into the
Company (other than a merger which does not result in any reclassification,
change, conversion, exchange or cancellation of outstanding shares of Common
Stock) or (c) any sale, transfer or conveyance of all or substantially all of
the assets of the Company, then the Company, or such successor or purchasing
entity, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then outstanding shall have the right to convert such Security
only into the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, change,
consolidation, merger, sale, transfer or conveyance by a holder of the number of
shares of Common Stock issuable upon conversion of such Security immediately
prior to such reclassification, change, consolidation, merger, sale, transfer or
conveyance assuming such holder of Common Stock of the Company failed to
exercise his rights of an election, if any, as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, sale, transfer or conveyance (provided that if
the kind or amount of securities, cash, and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance is
not the same for each share of Common Stock of the Company held immediately
prior to such reclassification, change, consolidation, merger, sale, transfer or
conveyance in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this Section 12.6 the
kind and amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance by
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 XII. If, in
the case of any such consolidation, merger, sale or conveyance, the stock or
other securities and property (including cash) receivable thereupon by a holder
of shares of Common Stock includes shares of stock or other securities and
property (including cash) of a corporation other than the successor or
65
<PAGE> 72
purchasing corporation, as the case may be, in such consolidation, merger, sale
or conveyance, then such supplemental indenture shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the Holders of the Securities as the Board of Directors of the
Company shall reasonably consider necessary by reason of the foregoing. The
provisions of this Section 12.6 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental indenture
shall be mailed to each Holder of Securities at his address as the same appears
on the registry books of the Company.
Neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or securities or property (including cash) receivable by Holders of
Securities upon the conversion of their Securities after any such
reclassification, change, consolidation, merger, sale or conveyance or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Article VIII hereof, may accept as conclusive evidence of the correctness of any
such provisions, and shall be 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 12.7 NOTICE OF CERTAIN EVENTS.
In case:
(a) the Company shall declare a dividend (or any other distribution)
payable to the holders of Common Stock (other than cash dividends);
(b) the Company shall authorize the granting to the holders of Common
Stock of rights, warrants or options to subscribe for or purchase any shares of
stock of any class or of any other rights;
(c) the Company shall authorize any reclassification or change of the
Common Stock (including a subdivision or combination of its outstanding shares
of Common Stock), or any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or the
sale or conveyance of all or substantially all the property or business of the
Company;
(d) there shall be proposed any voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(e) the Company or any of its Subsidiaries shall complete an Offer;
then, the Company shall cause to be filed at the office or agency maintained for
the purpose of conversion of the Securities as provided in Section 12.2 hereof,
and shall cause to be mailed to each Holder of Securities, at his address as it
shall appear on the registry books of the Company,
66
<PAGE> 73
at least 20 days before the date hereinafter specified (or the earlier of the
dates hereinafter specified, in the event that more than one date is specified),
a notice stating the date on which (1) a record is expected to be taken for the
purpose of such dividend, distribution, rights, warrants or options or Offer, or
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution, rights, warrants or
options or to participate in such Offer are to be determined, or (2) such
reclassification, change, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding-up is expected to become effective and the date, if any
is to be fixed, as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification, change, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding-up.
SECTION 12.8 TAXES ON CONVERSION.
The Company will pay any and all documentary, stamp or similar
taxes payable to the United States of America or any political subdivision or
taxing authority thereof or therein in respect of the issue or delivery of
shares of Common Stock on conversion of Securities pursuant thereto; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of shares
of Common Stock in a name other than that of the Holder of the Securities to be
converted and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Company the amount of
any such tax or has established, to the satisfaction of the Company, that such
tax has been paid. The Company extends no protection with respect to any other
taxes imposed in connection with conversion of Securities.
SECTION 12.9 COMPANY TO PROVIDE STOCK.
The Company shall reserve, free from pre-emptive rights, out of
its authorized but unissued shares, sufficient shares to provide for the
conversion of the Securities from time to time as such Securities are presented
for conversion, provided, that nothing contained herein shall be construed to
preclude the Company from satisfying its obligations in respect of the
conversion of Securities by delivery of repurchased shares of Common Stock which
are held in the treasury of the Company.
If any shares of Common Stock to be reserved for the purpose of
conversion of Securities hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then the Company covenants that it
will in good faith and as expeditiously as possible use its best efforts to
secure such registration or approval, as the case may be, provided, however,
that nothing in this Section 12.9 shall be deemed to limit in any way the
obligations of the Company provided in this Article XII.
The Company covenants that all shares of Common Stock which may
be issued upon conversion of Securities will upon issue be fully paid and
non-assessable by the Company and free of preemptive rights.
67
<PAGE> 74
SECTION 12.10 DISCLAIMER OF RESPONSIBILITY FOR CERTAIN MATTERS.
Neither the Trustee nor any agent of the Trustee shall at any
time be under any duty or responsibility to any Holder of Securities to
determine whether any facts exist which may require any adjustment of the
Conversion Rate, or with respect to the Officers' Certificate referred to in
Section 12.5, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed or perform any calculations in
connection with conversion of Securities to shares of Common Stock, or herein or
in any supplemental indenture provided to be employed, in making the same.
Neither the Trustee nor any agent of the Trustee shall 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 (including cash), which may at any time
be issued or delivered upon the conversion of any Security; and neither the
Trustee nor any conversion agent makes any representation with respect thereto.
Neither the Trustee nor any agent of the Trustee shall be responsible for any
failure of the Company to issue, register the transfer of or deliver any shares
of Common Stock or stock certificates or other securities or property (including
cash) upon the surrender of any Security for the purpose of conversion or,
subject to Article VIII hereof, to comply with any of the covenants of the
Company contained in this Article XII.
SECTION 12.11 RETURN OF FUNDS DEPOSITED FOR REDEMPTION OF
CONVERTED SECURITIES.
Any funds which at any time shall have been deposited by the
Company or on its behalf with the Trustee or any other Paying Agent for the
purpose of paying the principal of and interest on any of the Securities and
which shall not be required for such purposes because of the conversion of such
Securities, as provided in this Article XII, shall after such conversion be
repaid to the Company by the Trustee or such other Paying Agent upon the written
request of the Company.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or
conflicts with the duties imposed by operation of the TIA, the imposed duties,
whether or not this Indenture has been qualified under the TIA, shall control.
SECTION 13.2 NOTICES.
Any notices or other communications to the Company or the
Trustee required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
68
<PAGE> 75
if to the Company:
Tekelec
26580 West Agoura Road
Calabasas, CA 91302
Attention: Corporate Secretary
Telecopy: (818) 880-0176
if to the Trustee:
Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Trust and Agency Services
Telecopy: (212) 250- 6961
Any party by notice to each other party may designate additional
or different addresses as shall be furnished in writing by such party. Any
notice or communication to any party shall be deemed to have been given or made
as of the date so delivered, if personally delivered; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and five Business Days
after mailing if sent by registered or certified mail, postage prepaid (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be
mailed to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and any other Person
shall have the protection of TIA Section 312(c).
69
<PAGE> 76
SECTION 13.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) An Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) an Opinion of Counsel (in form and substance reasonably satisfactory
to the Trustee) stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 13.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that 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 statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided, however,
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 13.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Paying Agent or Registrar may make reasonable
rules for its functions.
SECTION 13.7 LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in New York, New York are authorized or obligated by law or
executive order to close. If a payment date is a Legal Holiday at such place,
payment may be made at such place on
70
<PAGE> 77
the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 13.8 GOVERNING LAW.
This indenture and the Securities 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 giving effect
to any choice of law or conflicting provision or law that would cause the laws
of any jurisdiction other than the State of New York to be applied.
SECTION 13.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.10 NO RECOURSE AGAINST OTHERS.
No direct or indirect partner, employee, shareholder, director
or officer, as such, past, present or future of the Company or any successor
corporation, shall have any personal liability in respect of the obligations of
the Company under the Securities or this Indenture by reason of his, her or its
status as such partner, shareholder, employee, director or officer. Each
Securityholder by accepting a Security waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 13.11 SUCCESSORS.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 13.12 DUPLICATE ORIGINALS.
All parties may sign any number of copies or counterparts of
this Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 13.13 SEVERABILITY.
In case any one or more of the provisions in this Indenture or
in the Securities shall be held invalid, illegal or unenforceable, in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions shall not in
any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
71
<PAGE> 78
SECTION 13.14 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the 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 13.15 QUALIFICATION OF INDENTURE.
The Company shall qualify this Indenture under the TIA in
accordance with the terms and conditions of the Registration Rights Agreement
and shall pay all costs and expenses (including attorneys' fees for the Company
and the Trustee) incurred in connection therewith, including, but not limited
to, costs and expenses of qualification of this Indenture and the Securities and
printing this Indenture and the Securities. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel or
other documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 13.16 REGISTRATION RIGHTS.
Certain Holders of the Securities are entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
TEKELEC,
a California corporation
By: /s/ Michael L. Margolis
---------------------------------
Name: Michael L. Margolis
-------------------------------
Title: Chief Executive Officer
------------------------------
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Peter Lagatta
---------------------------------
Name: Peter Lagatta
-------------------------------
Title: Assistant Vice President
------------------------------
72
<PAGE> 79
EXHIBIT A
[FORM OF SECURITY]
TEKELEC
3.25% CONVERTIBLE SUBORDINATED DISCOUNT NOTE DUE 2004
No. ________________ CUSIP No. 879101 AA 1
$___________________
Tekelec, a California corporation (hereinafter called the "Company,"
which term includes any successors under the Indenture hereinafter referred to),
for value received, hereby promises to pay to ___________________, or registered
assigns, the principal sum of ___________________ Dollars, on November 2, 2004.
Interest Payment Dates: May 2 and November 2; commencing May 2, 2000.
Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
TEKELEC,
a California corporation [Seal]
By:_________________________________
Name:_______________________________
Title:______________________________
Attest:___________________________
Secretary
A-1
<PAGE> 80
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
BANKERS TRUST COMPANY, as Trustee
By:_________________________________
Authorized Signatory
Dated:______________________________
A-2
<PAGE> 81
TEKELEC
3.25% CONVERTIBLE SUBORDINATED DISCOUNT NOTE DUE 2004
THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH SECURITY:
THIS SECURITY IS ISSUED WITH ORIGINAL ISSUE DISCOUNT. THE ISSUE PRICE IS $853.54
PER $1,000 PRINCIPAL AMOUNT AT MATURITY. THE ISSUE DATE IS NOVEMBER 2, 1999. THE
YIELD TO MATURITY IS 6.75% PER ANNUM, COMPOUNDED SEMI-ANNUALLY.
[For Global Securities 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 THE DEPOSITARY AND
ANY PAYMENT HEREIN 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.(1)
[For all Securities:]
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
FOREIGN SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE BENEFIT OF
U.S. PERSONS, EXCEPT AS SET FORTH BELOW.
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), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT)
- --------
(1) The legend in this paragraph shall appear on Global Securities only.
A-3
<PAGE> 82
("INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) IT IS NOT A "U.S. PERSON" (AS
DEFINED IN RULE 902 OF REGULATION S UNDER THE SECURITIES ACT) AND IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S; (2)
AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF
THE INITIAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY AND THE LAST DATE ON WHICH
TEKELEC (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE
SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE SECURITY (THE "RESTRICTION
TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR
THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO THE
COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO BANKERS TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE SECURITY 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 AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904
OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM REGISTRATION PROVIDED 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); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY BEFORE
THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS SECURITY TO BANKERS TRUST COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C), (D) OR (E)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO BANKERS TRUST
COMPANY, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT 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 ANY TRANSFER OF THE SECURITY EVIDENCED
HEREBY UPON OR AFTER THE RESTRICTION TERMINATION DATE.
A-4
<PAGE> 83
1. Interest.
Tekelec, a California corporation (hereinafter called the "Company,"
which term includes any successors under the Indenture hereinafter referred to),
promises to pay interest on the principal amount at maturity of this Security at
the rate of 3.25% per annum, compounded semi-annually. To the extent it is
lawful, the Company promises to pay interest on any interest payment due but
unpaid on such principal amount at a rate of 3.25% per annum, compounded
semi-annually.
The Company will pay interest semi-annually on May 2 and November 2 of
each year (each, an "Interest Payment Date"), commencing May 2, 2000. Interest
on the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid on the Securities, from November 2,
1999. Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. Any such
interest not so punctually paid, and defaulted interest relating thereto, may be
paid to the Persons who are registered Holders at the close of business on a
Special Record Date for the payment of such defaulted interest, as more fully
provided in the Indenture referred to below. Except as provided below, the
Company shall pay principal and interest in such coin or currency of the United
States of America as at the time of payment shall be legal tender for payment of
public and private debts ("U.S. Legal Tender"). The Securities will be payable
as to principal, premium, interest and Liquidated Damages at the office or
agency of the Company maintained for such purpose within or without the City and
State of New York, or at the option of the Company, payment of principal,
premium, interest and Liquidated Damages may be made by check mailed to the
Holders at their addresses set forth in the registry of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of, premium and interest on and Liquidated Damages
with respect to Global Securities and all other Securities the Holders of which
shall have provided wire transfer instructions to the Company or the Paying
Agent.
3. Paying Agent and Registrar.
Initially, Bankers Trust Company (the "Trustee") will act as Paying
Agent, Registrar and conversion agent. The Company may change any Paying Agent,
Registrar or co-Registrar or conversion agent without notice to the Holders. The
Company or any of its Subsidiaries may, subject to certain exceptions, act as
Paying Agent, Registrar or co-Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of
November 2, 1999 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as
A-5
<PAGE> 84
defined in the Indenture unless otherwise defined herein. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and said Act for a statement of them.
The Securities are general unsecured obligations of the Company limited in
aggregate principal amount to $135,000,000.
5. Redemption.
The Securities may be redeemed in whole or from time to time in part at
any time on and after November 1, 2002, at the option of the Company, at the
Redemption Price (expressed as a percentage of principal amount) set forth below
with respect to the indicated Redemption Date, in each case, plus any accrued
but unpaid interest and Liquidated Damages to, but excluding, the Redemption
Date. The Securities may not be so redeemed prior to November 2, 2002. The
redemption price of a Security between these dates would include an additional
amount reflecting the additional Original Issue Discount accrued since the next
preceding Redemption Date in the table to the actual Redemption Date.
<TABLE>
<CAPTION>
(2)
(1) Accrued (3)
Security Issue Original Issue Redemption
Redemption Date Price Discount Price (1) + (2)
- --------------- ----- -------- ---------------
<S> <C> <C> <C>
November 2, 2002 $853.54 $81.99 935.53
November 2, 2003 $853.54 113.16 966.70
November 2, 2004 $853.54 146.46 1,000.00
</TABLE>
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
Notice of redemption will be sent by first class mail, postage prepaid,
at least 30 days prior to, but no more than 60 days prior to, the Redemption
Date to the Holder of each Security to be redeemed at such Holder's last address
as then shown upon the registry books of the Registrar. Securities may be
redeemed in part in integral multiples of $1,000 principal only.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date and payment of
the Securities called for redemption is not prohibited under Article XI of the
Indenture, the Securities called for redemption will cease to bear interest and
accrue Original Issue Discount and the only right of the Holders of such
Securities will be to receive payment of the Redemption Price, plus any accrued
and unpaid interest and Liquidated Damages, if any, to the Redemption Date.
A-6
<PAGE> 85
7. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000. A Holder may register the transfer
of, or exchange Securities in accordance with, the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption.
8. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of such
Security for all purposes.
9. Unclaimed Money.
If money for the payment of principal, interest or Liquidated Damages
remains unclaimed for two years, the Trustee and the Paying Agent(s) will pay
the money back to the Company at its written request. After that, all liability
of the Trustee and such Paying Agent(s) with respect to such money shall cease.
10. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented, and any existing Default or Event of Default or
compliance with any provision may be waived, with the written consent of the
Holders of not less than a majority in aggregate principal amount of the
Securities then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Securities to,
among other things, cure any ambiguity, defect or inconsistency, or make any
other change that does not adversely affect the rights of any Holder of a
Security.
11. Conversion Rights.
Subject to the provisions of the Indenture, the Holders have the right
to convert the principal amount of the Securities into fully paid and
nonassessable shares of Common Stock of the Company at the initial Conversion
Rate of 56.3393 shares per $1,000 principal amount at maturity of the
Securities, or at the adjusted Conversion Rate then in effect, if adjustment has
been made as provided in the Indenture, upon surrender of the Security to the
Company, together with a fully executed notice in substantially the form
attached hereto.
12. Ranking.
Payment of principal, interest on and Liquidated Damages with respect to
the Securities is subordinated, in the manner and to the extent set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness.
A-7
<PAGE> 86
13. Repurchase at Option of Holder Upon a Change of Control.
In accordance with the terms of the Indenture, if there is a Change of
Control, the Company shall be required to offer to purchase on the Repurchase
Date all outstanding Securities at a purchase price equal to the Issue Price
plus the accrued Original Issue Discount, plus accrued and unpaid interest and
Liquidated Damages, if any, to, but excluding, the Repurchase Date. Holders of
Securities will receive a Repurchase Offer from the Company prior to any related
Repurchase Date and may elect to have such Securities purchased by completing
the form entitled "Option of Holder to Elect Purchase" appearing below.
14. Successors.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
15. Defaults and Remedies.
If an Event of Default occurs and is continuing (other than an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization),
then in every such case, unless the principal of all of the securities shall
have already become due and payable, either the Trustee or the Holders of at
least 25% in aggregate principal amount of Securities then outstanding may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. Holders of Securities may not enforce
the Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the Securities then outstanding may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal, interest or Liquidated Damages), if it
determines that withholding notice is in their interest.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No shareholder, director, officer or employee, as such, past, present or
future, of the Company or any successor corporation shall have any personal
liability in respect of the obligations of the Company under the Securities or
the Indenture by reason of his, her or its status as such shareholder, director,
officer or employee. Each Holder of a Security by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
A-8
<PAGE> 87
18. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
19. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and UGMA (= Uniform Gifts to
Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
21. Additional Rights of Holders of Transfer Restricted Securities.
In addition to the rights provided to Holders of Securities under the
Indenture, Holders of Securities shall have all the rights set forth in the
Registration Rights Agreement.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement. Request
may be made to:
Tekelec
26580 West Agoura Road
Calabasas, CA 91302
Attention: Corporate Secretary
Telecopy: (818) 880-0176
A-9
<PAGE> 88
FORM OF ASSIGNMENT
I or we assign this Security to
________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
_____________________________________
and irrevocably appoint __________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
Dated: ________________________ Signed: _______________________________
__________________________________
(Sign exactly as name appears on
the other side of this Security)
A-10
<PAGE> 89
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Article X of the Indenture, check the box: [ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Article X of the Indenture, state the amount you want to be
purchased: $________________
Date: _____________________ Signature: _______________________________
(Sign exactly as your name
appears on the other side of this
Security)
A-11
<PAGE> 90
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES(2)
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
- ----------
(2) This schedule shall appear on Global Securities only.
A-12
<PAGE> 91
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 3.25% CONVERTIBLE SUBORDINATED DISCOUNT NOTES DUE 2004 OF TEKELEC
This Certificate relates to $___________ principal amount of Securities
held in *_____ book-entry or *______ definitive form by _____ (the
"Transferor").
1. The Transferor:
*[ ] (a) has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[ ] (b) has requested the Trustee by written order to exchange or
register the transfer of a Security or Securities.
2. In connection with any such request and in respect of each such
Security, the Transferor does hereby certify that Transferor is familiar with
the Indenture relating to the above-captioned Securities and as provided in
Section 2.6 of such Indenture, the transfer of this Security does not require
registration under the Securities Act because:
*[ ] (a) Such Security is being acquired for the Transferor's own
account, without transfer.
[ ] (b) Such Security is being transferred to a person who the
Transferor reasonably believes is a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) purchasing for its own account or for the
account of a qualified institutional buyer over which it exercises sole
investment discretion that is aware that the transfer is being made in reliance
on Rule 144A.
--------------------
* Check applicable box.
[ ] (c) Such Security is being transferred to an institutional investor
that is an "accredited investor" within the meaning of Rule 501(a)(1),(2),(3) or
(7) under the Securities Act which delivers a certificate in the form of Exhibit
B to the Indenture to the Trustee. An Opinion of Counsel, if so requested by the
Company or the Trustee, to the effect that such transfer is in compliance with
the Securities Act accompanies this Certificate.
[ ] (d) Such Security is being transferred to a person that is not a
U.S. Person in or located in the United States in accordance with Regulation S
under the Securities Act and a certificate in the form of Exhibit C to the
Indenture is being delivered to the Trustee.
A-13
<PAGE> 92
[ ] (e) Such Security is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act. An Opinion of Counsel, if so requested by the Company or the
Trustee, to the effect that such transfer is in compliance with the Securities
Act accompanies this Certificate.
____________________________________
[INSERT NAME OF TRANSFEROR]
By:_________________________________
Date:_______________________________
3. Affiliation with the Company [check if applicable]
[ ] (a) The undersigned represents and warrants that it is, or at some
time during which it held this Security was, an Affiliate of the Company.
(b) If 3(a) above is checked and if the undersigned was not an Affiliate
of the Company at all times during which it held this Security, indicate the
periods during which the undersigned was an Affiliate of the Company:
_______________________________________________________________________
(c) If 3(a) above is checked and if the Transferee will not pay the full
purchase price for the transfer of this Security on or prior to the date of
transfer indicate when such purchase price will be paid:
_________________________________
TO BE COMPLETED BY TRANSFEREE IF 2(b) ABOVE IS CHECKED AND THE
TRANSFEROR IS NOT A QUALIFIED INSTITUTIONAL BUYER:
The undersigned represents and warrants that it is a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act of 1933,
as amended, and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information.
Dated: __________________________
____________________________________
NOTICE: To be executed by an
officer.
A-14
<PAGE> 93
If none of the boxes under Section 2 of this certificate is checked or
if any of the above representations required to be made by the Transferee is not
made, the Registrar shall not be obligated to register this Security in the name
of any person other than the Holder hereof.
THE UNDERSIGNED HEREBY AGREES THAT, UNLESS THE BOX ABOVE UNDER ITEM 3(a)
IS CHECKED, THE UNDERSIGNED SHALL BE DEEMED TO HAVE REPRESENTED THAT IT IS NOT
NOR HAS IT BEEN AT ANY TIME DURING WHICH IT HELD THIS SECURITY AN AFFILIATE, AS
DEFINED IN RULE 144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF THE
COMPANY.
Dated: __________________________
____________________________________
NOTICE: The signature of the Holder
to this assignment must correspond
with the name as written upon the
face of this Security particular,
without alteration or any change
whatsoever.
A-15
<PAGE> 94
FORM OF CONVERSION NOTICE
To: Tekelec
The undersigned owner of this Security hereby: (i) irrevocably
exercises the option to convert this Security, or the portion hereof below
designated, for shares of Common Stock of Tekelec in accordance with the terms
of this Indenture referred to in this Security and (ii) directs that such shares
of Common Stock deliverable upon the conversion, together with any check in
payment for fractional shares and any Security(ies) 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 are to be delivered
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto. Any amount required to
be paid by the undersigned on account of interest accompanies this Security.
Dated ___________________
_________________________________
Signature
Fill in for registration of shares if to be delivered, and of
Securities if to be issued, otherwise than to and in the name of the registered
holder.
_________________________________
Social Security or other Taxpayer
Identifying Number
_________________________________
(Name)
_________________________________
(Street Address)
_________________________________
(City, State and Zip Code)
_________________________________
(Please print name and address)
Principal amount to be converted:
(if less than all)
$________________________
A-16
<PAGE> 95
EXHIBIT B
INVESTOR LETTER OF REPRESENTATION
Tekelec
26580 West Agoura Road
Calabasas, California 91302
Deutsche Bank Securities Inc.
Warburg Dillon Read LLC
c/o Deutsche Banc Alex. Brown
101 California Street, 48th Fl.
San Francisco, California 94111
Ladies and Gentlemen:
We are delivering this letter in connection with an offering of
Convertible Subordinated Discount Notes due 2004 (the "Notes"), which are
convertible into shares of Tekelec's Common Stock, without par value (the
"Common Stock"), all as described in the Offering Memorandum (the "Offering
Memorandum") relating to the offering.
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (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), (3) or
(7) under the Securities Act (an "Institutional Accredited Investor");
(ii) (A) any purchase of the Notes 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 Notes as fiduciary for the
account of one or more institutions for which we exercise sole
investment discretion;
(iii) In the event that we purchase any Notes, we will acquire
Notes having a minimum principal amount of not less than $250,000 for
our own account or for any separate account for which we are acting;
(iv) we have such knowledge and experience in financial and
business matters that we are capable of evaluating the merits and risks
of purchasing Notes;
B-1
<PAGE> 96
(v) we are not acquiring Notes with a view to distribute or
with any present intention of offering or selling Notes or the common
Stock issuable upon conversion thereof, except as permitted blow;
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
(vi) 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 access 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 Notes.
We understand that the Notes 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 Notes and the shares of Common Stock issuable upon
conversion thereof have not been registered under the Securities Act. We agree,
on our own behalf and on behalf of each account for which we acquire any Notes,
that if in the future we decide to resell or otherwise transfer such Notes or
the Common Stock issuable upon conversion thereof, such Notes or Common Stock
may be resold or otherwise transferred only (i) to Tekelec 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 transfer agent or registrar for such securities a signed letter
containing certain representations and agreements relating to the restrictions
on transfer or such securities (the form of which letter can be obtained from
such transfer agent or registrar); 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 for 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 (vii) 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 Notes.
We further agree to provide any person purchasing any of the Notes 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 registrar and
transfer agent for the Notes and the Common Stock will not be required to accept
for registration of transfer any Notes or any shares of Common Stock issued upon
conversion of the Notes except upon presentation of evidence satisfactory to the
Company that we have complied with the foregoing restrictions on transfer. We
further understand that any Notes and any shares of Common Stock issued upon
conversion of the Notes 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 any Notes or any shares of Common
Stock issuable upon conversion of the Notes transferred pursuant to clause (vi)
above.
B-2
<PAGE> 97
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 promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
________________________________________
(Name of Purchaser)
By: _____________________________________
Name:
Title:
Address
B-3
<PAGE> 98
EXHIBIT C
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION
WITH REGULATION S TRANSFERS
Bankers Trust Company Date:_________________
Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Services
Ladies and Gentlemen:
In connection with our proposed sale of 3.25% Convertible
Subordinated Discount Notes due 2004 of Tekelec (the "Company"), we confirm that
such sale has been effected pursuant to and in accordance with Regulation S
under the Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf knows that the transaction has been pre-arranged with a buyer in the
United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes; and
(6) if the circumstances set forth in Rule 904(c) under the
Securities Act are applicable, we have complied with the additional conditions
therein, including (if applicable) sending a confirmation or other notice
stating that the Notes may be offered and sold during the restricted period
specified in Rule 903(c)(2) or (3), as applicable, in accordance with the
provisions of Regulation S; pursuant to registration of the Notes under the
Securities Act; or
C-1
<PAGE> 99
pursuant to an available exemption from the registration requirements under the
Act.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S under the
Securities Act.
Very truly yours,
[Name of Transferor]
By:_________________________________
[Authorized Signature]
Upon transfer the Notes would be registered in the name of beneficial owner as
follows:
Name:____________________________________
Address:_________________________________
Taxpayer ID Number:______________________
C-2
<PAGE> 100
EXHIBIT D
FORM OF CONVERSION NOTICE
To: Tekelec
The undersigned owner of this Security hereby: (i) irrevocably exercises
the option to convert this Security, or the portion hereof below designated, for
shares of Common Stock of Tekelec in accordance with the terms of this Indenture
referred to in this Security and (ii) directs that such shares of Common Stock
deliverable upon the conversion, together with any check in payment for
fractional shares and any Security(ies) 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 are to be delivered
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto. Any amount required to
be paid by the undersigned on account of interest accompanies this Security.
Dated ___________________
Signature
Fill in for registration of shares if to be delivered, and of Securities
if to be issued, otherwise than to and in the name of the registered holder.
____________________________________
Social Security or other Taxpayer
Identifying Number
____________________________________
(Name)
____________________________________
(Street Address)
____________________________________
(City, State and Zip Code)
____________________________________
(Please print name and address)
Principal amount to be converted:
(if less than all)
$_______________________________
<PAGE> 1
EXHIBIT 4.2
TEKELEC
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of November 2, 1999, by and among Tekelec, a California corporation (the
"Company"), Deutsche Banc Securities Inc. and Warburg Dillon Read LLC,
(collectively, the "Initial Purchasers") pursuant to the Purchase Agreement
dated as of October 27, 1999 (the "Purchase Agreement"), between the Company and
the Initial Purchasers. In order to induce the Initial Purchasers 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 Purchasers, (i) for their benefit as
Initial Purchasers and (ii) for the benefit of the Holders from time to time of
the Notes (including the Initial Purchasers) and the Holders from time to time
of the Common Stock issued upon conversion of the Notes (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 shall have the following meanings:
(a) Affiliate: With respect to any specified Person, any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person . For purposes of this
definition, the term "control" 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 such Person, whether through the
ownership of voting securities, by contract, or otherwise, and the terms
"controlling," "controlled by," and "under direct or indirect common control
with" have meanings correlative thereto.
(b) 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.
(c) Common Stock: The shares of common stock, without par value,
of the Company and any other shares of common stock as may constitute "Common
Stock" for purposes of the Indenture, in each case, as issuable or issued upon
conversion of the Notes.
(d) Damages Accrual Period: See Section 2(c) hereof.
(e) Damages Payment Date: Each of the semi-annual interest
payment dates provided in the Indenture, whether or not Liquidated Damages (as
defined herein) are payable on such date.
<PAGE> 2
(f) Effectiveness Period: The period commencing with the date
hereof and ending on the earlier of the date that is two years after the latest
date of original issuance of the Notes and the date that all Registrable
Securities have ceased to be Registrable Securities.
(g) Effectiveness Target Date: See Section 2(a) hereof.
(h) Event: See Section 2(d) hereof.
(i) Event Date: See Section 2(d) hereof.
(j) Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
(k) Filing Date: See Section 2(a) hereof.
(l) Holder: See the second paragraph of this Agreement.
(m) Indemnified Party: See Section 5(c) hereof.
(n) Indemnifying Party: See Section 5(c) hereof.
(o) Indenture: The Indenture, dated as of November 2, 1999,
between the Company and Bankers Trust Company, as trustee, pursuant to which the
Notes are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
(p) Initial Purchasers: See the first paragraph of this
Agreement.
(q) Initial Shelf Registration: See Section 2(a) hereof.
(r) Liquidated Damages: See Section 2(d) hereof.
(s) Losses: See Section 5(a) hereof.
(t) Majority of Registrable Securities: A majority of the then
outstanding aggregate principal amount of Registrable Securities. For purposes
of this calculation, Registrable Securities which have been converted into
shares of Common Stock shall be deemed to bear the principal amount at which
such Registrable Securities were converted.
(u) Notice Holder: See Section 2(e) hereof.
(v) Notes: The 3.25% Convertible Subordinated Discount Notes due
2004 of the Company being issued and sold pursuant to the Purchase Agreement and
the Indenture.
(w) Person: Any natural person, corporation, partnership, limited
liability partnership, limited liability company, trust or other legal entity.
(x) Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a
2
<PAGE> 3
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any amendment or prospectus supplement, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by reference
in such Prospectus.
(y) Purchase Agreement: See the first paragraph of this
Agreement.
(z) Record Holder: (i) with respect to any Damages Payment Date
relating to the Notes, each Person who is a registered holder of such Notes 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 the Common Stock, each Person who is a registered
holder of such Common Stock 15 days prior to such Damages Payment Date.
(aa) Registrable Securities: Each Note and each share of Common
Stock into which the Notes are convertible or converted upon original issuance
thereof, and at all times subsequent thereto, and any Common Stock issued with
respect thereto upon any stock dividend, split or similar event, until, in the
case of any such Note or share of Common Stock, (i) it is effectively registered
under the Securities Act and disposed of in accordance with the Registration
Statement covering it, (ii) it is salable 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 an 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 consequences
of the fact that the Registrable Securities are owned by, or were previously
owned by, the Company or an Affiliate of the Company) are removed or removable
in accordance with the terms of the Indenture.
(bb) Registration Expenses: See Section 4 hereof.
(cc) 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. A Registration
Statement shall include without limitation the Initial Shelf Registration
Statement and any Subsequent Shelf Registration Statement.
(dd) Requisite Information: See Section 3(a) hereof.
(ee) 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.
(ff) 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.
(gg) SEC: The Securities and Exchange Commission.
3
<PAGE> 4
(hh) Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
(ii) Selling Holder: A Holder offering to sell Registrable
Securities.
(jj) Shelf Registration Statement: See Section 2(a) hereof.
(kk) Special Counsel: Gray Cary Ware & Freidenrich LLP or such
other successor counsel as shall be specified by the Holders of a Majority of
Registrable Securities, the fees and expenses of which will be paid by the
Company pursuant to Section 5 hereof.
(ll) Subsequent Shelf Registration Statement: See Section 2(b)
hereof.
(mm) Suspension Period: See Section 2(c).
(nn) TIA: The Trust Indenture Act of 1939, as amended.
(oo) Trustee: The Trustee under the Indenture.
(pp) Underwritten Registration or Underwritten Offering: A
registration in which the Registrable Securities are sold by Holders thereof to
an underwriter for reoffering to the public.
2. SHELF REGISTRATION STATEMENT.
(a) Subject to the provisions of Section 2(c) hereof, the Company
shall prepare and file with the SEC, as soon as practicable but in any event on
or prior to the date 90 days following the latest date of original issuance of
the Notes (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 Statement") registering the resale from time to time by the Holders
of all of the Registrable Securities (the "Initial Shelf Registration"). The
Initial Shelf Registration shall be on Form S-3 under the Securities Act or
another appropriate SEC Registration Statement form permitting registration of
such Registrable Securities for resale by such Holders in the manner or manners
designated by them. Subject to the provisions of Section 2(c) hereof, the
Company shall use its reasonable best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act as soon as
practicable but in any event on or prior to the date 150 days following the
Filing Date (the "Effectiveness Target Date"), and shall use its reasonable best
efforts 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 covering all of the Registrable
Securities has been declared effective under the Securities Act. Subject to the
provisions of Section 2(c) hereof, the Company further agrees to use its
reasonable best efforts to prevent the Initial Shelf Registration from
containing a material misstatement or omission not being effective and usable
for resale of the Registrable Securities during the Effectiveness Period.
4
<PAGE> 5
(b) Subject to the provisions of Section 2(c) hereof, if the
Initial Shelf Registration or any Subsequent Shelf Registration Statement 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 its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and, if an amendment of the Shelf Registration
Statement could reasonably be expected to obtain the withdrawal of the order
suspending the effectiveness thereof (a "Withdrawal") the Company shall, within
30 days of such cessation of effectiveness, amend the Shelf Registration
Statement in a manner reasonably expected to obtain the Withdrawal, or, in the
event that the Company reasonably determines that a Withdrawal is not likely to
be granted, file an additional Shelf Registration Statement covering all of the
Registrable Securities (a "Subsequent Shelf Registration Statement"). Subject to
the provisions of Section 2(c) hereof, if a Subsequent Shelf Registration
Statement is filed, the Company shall use its reasonable best 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's obligations under Sections 2(a), 2(b), 3(b),
3(c), 3(d)(iv), 3(e), 3(f), 3(g), 3(h), 3(i), 3(j), 3(k) and 3(m) (the
"Registration Obligations") shall be subject to its right as described in this
Section 2(c) to create a Suspension Period (as defined herein). In the event (i)
of the happening of any event of the kind described in Section 3(d)(ii),
3(d)(iii) or 3(d)(iv) hereof, (ii) of the existence of any fact or happening of
any event which makes any statement of a material fact in a 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 the
Registration Statement 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 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 light of the circumstances under which they were made, not misleading, or
(iii) that, in the good faith judgment of the Company, it is advisable to (X)
not file the Initial Shelf Registration Statement, a Subsequent Shelf
Registration Statement, or any other Registration Statement, (Y) not have the
Initial Shelf Registration Statement, a Subsequent Shelf Registration Statement
or any other Registration Statement become effective or remain effective, or (Z)
suspend the use of the Prospectus, in each such case 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 reasonably
believes public disclosure will be materially prejudicial to the Company, the
Company shall deliver a certificate in writing, signed by an authorized
executive officer of the Company, to the Trustee, the Special Counsel and any
Notice Holders that it is invoking its rights under this Section 2(c), and
thereafter the Company's Registration Obligations and, as the case may be, the
use of the Prospectus and Registration Statement, shall be suspended. The
Company will use its reasonable best efforts to terminate the period of time
covered by such suspension (the "Suspension Period") as soon as practicable, in
the case of suspension under Section 2(c)(i) or 2(c)(ii), and, in the case of a
pending development or event referred to in Section 2(c)(iii) hereof, as soon
as, in the good faith-judgment of the Company, public disclosure of such
material corporate development or similar material event
5
<PAGE> 6
would not have a material adverse effect on the Company. Notwithstanding the
foregoing, the Company shall not under any circumstances be entitled to create
Suspension Periods for an aggregate period of more than 90 days in any 12-month
period, nor shall it be entitled to impose any Suspension Period in excess of 30
consecutive days unless the basis for such imposition is a pending development
or event referred to in Section 2(c)(iii).
(d) 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
has not been filed on or prior to the Filing Date, (ii) the Initial Shelf
Registration has not been declared effective by the Effectiveness Target Date,
(iii) prior to the end of the Effectiveness Period, the SEC shall have issued a
stop order suspending the effectiveness of the Shelf Registration Statement or
proceedings have been initiated with respect to the Shelf Registration Statement
under Section 8(d) or 8(e) of the Securities Act, in either case without the
Company creating a Suspension Period therefor, (iv) the aggregate number of days
of Suspension Periods in a 12-month period exceeds the time permitted pursuant
to Section 2(c) hereof or (v) the length of any Suspension Period imposed as a
result of an event described in Section 2(c)(i) or 2(c)(ii) exceeds 30
consecutive days. Each of the Events of a type described in any of the foregoing
clauses (i) through (v) are individually referred to herein as an "Event." The
Filing Date in the case of clause (i), the Effectiveness Target Date in the case
of clause (ii), the date on which the effectiveness of the Shelf Registration
Statement has been suspended or proceedings with respect to the Shelf
Registration Statement under Section 8(d) or 8(e) of the Securities Act have
been commenced without the Company creating a Suspension Period in the case of
clause (iii), the date on which the aggregate number of days of Suspension
Periods in a 12-month period exceeds the time permitted by Section 2(c) hereof
in the case of clause (iv), and the date on which a Suspension Period imposed as
a result of events described in Section 2(c)(i) or 2(c)(ii) exceeds 30
consecutive days, being referred to herein as an "Event Date."
Notwithstanding the foregoing, the parties hereto agree that an Event
shall be deemed not to have occurred to the extent that the cause of said Event
is primarily due to the act or failure to act of one or more Holders or the
Initial Purchasers. An Event 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 Shelf Registration is filed
in the case of an Event of the type described in clause (i); the date the
Initial Shelf Registration is declared effective in the case of an Event of the
described in clause (ii); the date that all stop orders suspending effectiveness
of the Shelf Registration Statement have been removed and the proceedings
initiated with respect to the Shelf Registration Statement 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 (iii); the date of termination of the
Suspension Period which caused the aggregate number of days in Suspension
Periods in any 12-month period to exceed the number permitted by Section 2(c) in
the case of Events of the types described in clause (iv); and the date of
termination of the Suspension Period which was imposed as a result of events
described in Section 2(c)(i) or 2(c)(ii) and which exceeded 30 consecutive days
in the case of Events of the types described in clause (v).
6
<PAGE> 7
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 amount (the "Liquidated Damages"): (i) to each Holder of Notes that are
Registrable Securities, accruing at a rate equal to one-quarter of one percent
per annum (25 basis points) on the aggregate principal amount of Notes that are
Registrable Securities held by such Holder and (ii) to each Holder of shares of
Common Stock that are Registrable Securities, accruing at a rate equal to
one-quarter of one percent per annum (25 basis points) calculated on an amount
equal to the product of (x) the then-applicable Conversion Price (as defined in
the Indenture), times (y) the number of shares of Common Stock that are
Registrable Securities held by such Holder. Notwithstanding the foregoing, no
Liquidated Damages shall accrue as to any Registrable Securities from and after
the earlier of (x) the date such securities are no longer Registrable
Securities, and (y) 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 Notes or Common
Stock by depositing with the Trustee under the Indenture, in trust, for the
benefit of the Holders of Notes or Common Stock, as the case may be, entitled
thereto, at least one 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 Company to the Record Holders on each Damages
Payment Date by wire transfer of immediately available funds to the account
specified by them, or if no such accounts have been specified on or before the
Damage Payment Date by mailing checks to their registered addresses as they
appear in the register of the Notes, in the case of the Notes, and in the
register of the Company for the Common Stock, in the case of the Common Stock,
provided, however, that any Liquidated Damages accrued with respect to any Note
or portion thereof called for redemption on a Redemption Date, or repurchased in
connection with a Change of Control (as defined in the Indenture) on a
Repurchase Date (as defined in the Indenture), or converted into Common Stock on
a Date of Conversion (as defined in the Indenture) prior to the Damages Payment
Date, shall, in any such event, be paid instead to the Holder who submitted such
Note or portion thereof for redemption, repurchase or conversion on the
applicable Redemption Date, Repurchase Date or Date of Conversion, as the case
may be, on such date (or promptly following the Date of Conversion, in the case
of conversion of a Note). If a Holder of a Note submits a Note for conversion
during the period between a record date for the payment of Liquidated Damages
and the related Damages Payment Date, Liquidated Damages for the period from the
Date of Conversion through the next succeeding Damages Payment Date shall accrue
and be payable to the Holder of Common Stock received on conversion on the next
succeeding Damages Payment Date, notwithstanding that such Holder was not a
Record Holder with respect to such Damages Payment Date. The Trustee shall be
entitled, on behalf of the Holders of Notes and Common Stock to seek any
available remedy for the enforcement of this Agreement, including for the
payment of such Liquidated Damages. Nothing shall preclude a Holder of
Registrable Securities from pursuing or obtaining specific performance or other
equitable relief with respect to this Agreement.
7
<PAGE> 8
All of the Company's obligations set forth in this Section 2(d) 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 7(o)).
The parties hereto agree that the Liquidated Damages provided for in
this Section 2(d) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities (other than the Initial
Purchasers) by reason of the failure of the Shelf Registration Statement to be
filed or declared effective or available (absolutely or as a practical matter)
for effecting resales of Registrable Securities, as the case may be, in
accordance with the provisions hereof.
(e) Each Holder of Registrable Securities agrees that if such
Holder wishes to sell Registrable Securities pursuant to a Registration
Statement and related Prospectus, it will do so only in accordance with this
Section 2(e). Each Holder of Registrable Securities wishing to sell Registrable
Securities pursuant to a Registration Statement and related Prospectus agrees to
deliver written notice of such intent (the "Transfer Notice") to the Company at
least three (3) Business Days prior to any intended distribution of Registrable
Securities under such Registration Statement. Upon delivery of such Transfer
Notice, such Holder shall be deemed to be a "Notice Holder" for purposes of this
Agreement until the earlier of such Holder's disposition of the Registrable
Securities held by such Holder or the expiration of fifteen (15) Business Days
following the delivery of the Transfer Notice (such 15 Business Day period to be
tolled during a Suspension Period). If the Company indicates to any Holder of
the existence of a Suspension Period, such fact, as well as any other
information regarding the nature of the cause of such Suspension Period
disclosed to the Holder, shall be kept confidential by such Holder, 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, (iii) such information becomes generally
available to the public other than as a result of disclosure or failure to
safeguard by any such Holder or (iv) such information becomes available to any
such Holder from a source other than the Company and such source is not bound by
a confidentiality agreement. In the event disclosure is required under clause
(i) or (ii), the Holder shall notify the Company and give it a chance to apply
for a protective order or other confidentiality protection, and shall only
disclose such information to the extent required. The Holder shall not use the
fact of a Suspension Period, or any other material non-public information
disclosed by the Company to the Holder in connection with the purchase or sale
of any security of the Company or derivative security thereof.
Any Holder selling Registrable Securities pursuant to a Registration
Statement shall deliver a copy of the then current Prospectus to each purchaser
of such securities as required by the Securities Act, and shall otherwise comply
with all requirements of the Securities Act and Exchange Act in connection with
such sale.
3. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations under Section 2 hereof, the Company shall effect such
registrations to
8
<PAGE> 9
permit the sale of the Registrable Securities by various methods, and pursuant
thereto the Company shall as expeditiously as possible:
(a) Before filing with the SEC a Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall furnish
to Special Counsel copies of all such documents proposed to be filed. The filing
of reports or other materials under the Exchange Act shall not be considered a
filing of a Registration Statement or Prospectus or any amendments or
supplements thereto. Special Counsel shall have the right to object within two
business days of receipt of such copies to any erroneous information therein
concerning the Selling Holders or intended methods of distribution. The Company
shall use its reasonable best efforts to reflect in each such document
referenced in this paragraph so filed with the SEC such comments as the Special
Counsel may reasonably propose pursuant to the preceding sentence. The Company
shall consider in good faith any other comments which Special Counsel may make.
(b) Subject to the provisions of Section 2(c) hereof, 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, to permit the disposition of
all securities covered by such Registration Statement 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. Subject to the provisions of Section 2(c) hereof,
the Company shall ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any amendment or
supplement thereto complies in all material respects with the Securities Act and
the rules and regulations thereunder, (ii) any Shelf Registration Statement and
any amendment thereto does not, when it becomes effective, 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
(iii) any Prospectus forming part of any Shelf Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
or a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) Each Holder shall furnish to the Company such information
regarding the distribution of its Registrable Securities as is required by law
to be disclosed in the applicable Registration Statement (the "Requisite
Information") prior to effecting any sale pursuant to such Registration
Statement.
Subject to the provisions of Section 2(c) hereof, the Company shall
file, within 10 Business Days after the receipt of notice from any Holder which
includes the Requisite Information with respect to such Holder, a Prospectus
supplement pursuant to Rule 424 (or any similar provision then in force) under
the Securities Act or otherwise amend or supplement such Registration Statement
to include in the Prospectus the Requisite Information as to such Holder (and
the Registrable Securities held by such Holder), and the Company shall provide
such Holder
9
<PAGE> 10
and the Special Counsel within 10 Business Days after receipt of such notice
with a copy of such Prospectus as so amended or supplemented containing the
Requisite Information in order to permit such Holder to comply with the
Prospectus delivery requirements of the Securities Act in a timely manner with
respect to any proposed disposition of such Holder's Registrable Securities;
PROVIDED, HOWEVER, that notwithstanding the requirements of 3(a) hereof, the
Company shall not be required to provide any Holder with a copy of such
Prospectus as so amended or supplemented solely to contain the Requisite
Information in advance of filing the same with the SEC.
Subject to the provisions of Section 2(c) hereof, if (i) any such
Registration Statement refers to any Holder by name or otherwise as the Holder
of any securities of the Company, and (ii) (x) any such Holder has sold or
transferred all of its Registrable Securities, (y) the securities of the Company
held by such Holder shall have ceased to be Registrable Securities or (z) such
other event shall have occurred that makes such reference to such Holder by name
or otherwise not required by the Securities Act or any similar Federal statute
then in force, then such Holder shall have the right to require the deletion of
the reference to such Holder in such Registration Statement at any time
subsequent to the time that such reference ceases to be required.
(d) Notify the Notice Holders and the Special Counsel 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 (provided that the filing of
reports or other materials under the Exchange Act shall not be considered a
filing of a Registration Statement or Prospectus or any amendments or
supplements thereto); (ii) 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, (iii) 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 proceedings for such purpose, and (iv) subject
to the provisions of Section 2(c), of the Company's determination that a
post-effective amendment to a Registration Statement would be appropriate.
(e) Subject to the provisions of Section 2(c) hereof , use its
reasonable best 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.
(f) Subject to the provisions of Section 2(c) hereof, furnish to
each Selling Holder (if requested by such Selling Holder), the Special Counsel
and the Initial Purchasers, without charge, at least one conformed copy of the
Registration Statement or Registration 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.
10
<PAGE> 11
(g) Subject to the provisions of Section 2(c) hereof, deliver to
each Selling Holder, the Special Counsel and the Underwriters, 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
Selling 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) Subject to the provisions of Section 2(c) hereof, prior to
any public offering of Registrable Securities, (i) register or qualify or
cooperate with the Selling Holders 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 Selling Holder reasonably requests in writing, (ii) keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and (iii) do
any and 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 (a) qualify generally to do business in any jurisdiction where it is
not then so qualified or (b) take any action that would subject it to general
service of process in suits or to taxation in any such jurisdiction where it is
not then so subject.
(i) Subject to the provisions of Section 2(c), cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies in addition to
the SEC or authorities within the United States as may be necessary to enable
the Selling Holder or Holders thereof to consummate the disposition of such
Registrable Securities.
(j) During the Effectiveness Period (subject to the provisions of
Section 2(c) hereof), immediately upon the existence of any fact or the
occurrence of any event as a result of which (i) 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 (ii) 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 light of the circumstances under
which they were made, not misleading, promptly prepare and file 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 light of the circumstances under which they were made, not misleading, as
thereafter delivered to the purchasers of the
11
<PAGE> 12
Registrable Securities being sold thereunder; and in the case of a
post-effective amendment to a Registration Statement, use its reasonable best
efforts to cause it to become effective as soon as practicable.
(k) Subject to the provisions of Section 2(c) hereof, take all
such other reasonable actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities.
(l) Make generally available to its securityholders earnings
statements (which need not be audited) satisfying 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 45 days after the end of any
12-month period (or 90 days after the end of any 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
reasonable 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 12-month periods.
(m) Subject to Section 2(c), cooperate with the Selling Holders
of Registrable Securities, the Special Counsel and the Underwriters, if any, 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 the Holders may request.
(n) Not later than the effectiveness date of the Initial Shelf
Registration hereunder, provide a CUSIP number for the Registrable Securities
registered under such Registration Statement, and 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
Depository Trust Company.
(o) Cause all shares of Common Stock covered by the Registration
Statement to be listed on each securities exchange or quotation system on which
the Company's Common Stock 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 as are required under the Exchange
Act and to have such filings declared effective thereunder.
(p) Cooperate and assist in any filing required to be made with
the National Association of Securities Dealers, Inc.
(q) Cause the Indenture to be qualified under the TIA no later
than the date the Initial Shelf Registration is declared effective, and, in
connection therewith, cooperate with the Trustee and the Holders and the Special
Counsel to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its reasonable best efforts to cause the Trustee to execute all
documents as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable such Indenture to be so
qualified in a timely manner.
12
<PAGE> 13
4. REGISTRATION EXPENSES. All fees and expenses incident to the
Company's obligations under 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 with respect to filings
required to be made with the National Association of Securities Dealers, Inc.),
(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 reasonably requested by the Special Counsel, the Holders of a
Majority of Registrable Securities included in any Registration Statement and
Underwriters, if any, and (iii) reasonable fees and disbursements of counsel for
the Company in connection with the Shelf Registration Statement. In addition,
the Company shall pay the fees and expenses incurred in connection with the
listing or quotation of the securities to be registered on any securities
exchange or quotations system 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.
The Company's obligation contained in this Section 4 shall remain
operative and in full force and effect regardless of any termination of this
Agreement.
5. INDEMNIFICATION.
(a) Indemnification By The Company. The Company shall indemnify
and hold harmless each Holder, the directors, officers, employees and agents of
each such Holder and each Person, if any, who controls any such Holder (within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act) from and against all losses, liabilities, damages and expenses
(including without limitation, any reasonable legal or other expenses 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 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, in light of the circumstances under which they were
made, except insofar as such Losses arise out of or are based upon information
relating to any Holder furnished to the Company in writing by such Holder
expressly for use therein; and provided further, that the Company will not be
liable to any Holder with respect to any such untrue statement or omission made
in any preliminary Prospectus that is corrected in a final Prospectus (or any
amendment or supplement thereto) if the person asserting any such loss, claim,
damage or liability purchased Notes or Common Stock but was not sent or given a
copy of the final Prospectus (as amended or supplemented) in any case where such
delivery of the final Prospectus (as amended or supplemented) was required by
the Securities Act, unless such failure to deliver the Prospectus (as amended or
supplemented) was a result of noncompliance by the Company with Section 3
hereof. The Company shall also indemnify each underwriter, their officers and
directors, and each Person who controls such Person (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same
extent and with the same limitations as provided above with respect to the
indemnification of the Holders of Registrable Securities.
13
<PAGE> 14
(b) Indemnification By Holder of Registrable Securities. Each
Holder, agrees severally and not jointly to indemnify and hold harmless the
Company, the directors, officers, employees and agents of each such Holder and
each Person, if any, who controls the Company (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 or 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, in light of
the circumstances under which they were made, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
relating to such Holder 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 Selling 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
obligation, plus interest if such is awarded to any Purchaser from such Holder.
(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 Section 5(a) or 5(b) hereof, such Person (the "Indemnified Party") shall
promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Party") in writing, but failure so to notify an Indemnifying Party
shall not relieve such Indemnifying Party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel 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, (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, or (iii) the Indemnifying Party shall not have
employed counsel satisfactory to the Indemnified Party to represent the
Indemnified Party within a reasonable time after notice of commencement of the
action. 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 the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all indemnified parties under Section 5(a) or 5(b) hereof who are parties to
such proceeding or proceedings, and that all such fees and expenses shall be
reimbursed as they are incurred. 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. No Indemnifying
Party 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
14
<PAGE> 15
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such proceeding.
(d) Contribution. If the indemnification provided for in this
Section 5 is unavailable to an Indemnified Party under Section 5(a) or 5(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 Indemnifying Parties on the one hand and the Indemnified Party or Indemnified
Parties an 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 Indemnified Parties on the one
hand and of the Indemnified Party or Indemnifying 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 of the Notes pursuant to the Purchase Agreement. Benefits received by
the Initial Purchasers shall be deemed to be equal to the total purchase
discounts and commissions received by them pursuant to the Purchase Agreement
and benefits received by any other Holders shall be deemed to be equal to the
value of receiving Notes registered under the Securities Act. Benefits received
by any underwriter shall be deemed to be equal to the total underwriting
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 5(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 5(d), an
Indemnifying Party that is a Selling 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 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
15
<PAGE> 16
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 indemnity and contribution provisions contained in this Section 5
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
any Holder or any Person controlling any Holder, or the Company, its officers or
directors or any Person controlling the Company and (iii) the sale of any
Registrable Securities by any Holder.
6. 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 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. Notwithstanding the foregoing, nothing in this Section 6 shall
be deemed to require the Company to register any of its securities under any
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 the appropriate SEC Registration Statement form permitting
registration of the Registrable Securities for resale by the Holders thereof in
the manner or manners designated by them.
7. 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. 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 entered into
as of the date hereof, and shall not enter into on or after the date hereof, any
agreement with respect to its
16
<PAGE> 17
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 of 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 Registrable Securities. 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 so sold; provided, that the provisions of this sentence 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:
(x) 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
Section 7(e);
(y) if to the Company, to:
Tekelec
76580 West Agoura Road
Calabasas, CA 91302
Attention: Chief Executive Officer
Corporate Secretary
Facsimile No.: (818) 880-0176
with a copy to:
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, MO 63102-2750
Attention: J. Mark Klamer
Facsimile No.: (314) 259-6580
and
17
<PAGE> 18
(z) if to the Special Counsel to:
Gray Cary Ware & Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121
(858) 677-1400
Attention: Scott M. Stanton, Esq.
Facsimile No.: (858) 677- 1477
or to such other address as such Person may have furnished to the other Persons
identified in this Section 7(d) in writing in accordance herewith.
Copies of all notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in the Indenture.
(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, 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
Purchasers 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 an Initial Purchaser shall be deemed, for purposes
of this Agreement to be an assignee of such Initial Purchaser. The 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.
(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.
18
<PAGE> 19
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA 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 reasonable 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 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. Except as provided in the
Purchase Agreement and the Indenture, 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 securities sold pursuant to the Purchase Agreement and the Indenture. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter.
(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 best 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 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 Sections 2(d), 4 or 5 hereof,
each of which shall remain in effect in accordance with their terms.
(p) Third Party Beneficiaries. The Company and the Initial
Purchasers agree that each Holder shall be a third party beneficiary of this
Agreement.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first stated above.
TEKELEC
By: /s/ Michael Margolis
--------------------------------------
Michael Margolis,
President and Chief Executive Officer
Accepted as of the date first stated
above:
DEUTSCHE BANK SECURITIES INC.
WARBURG DILLON READ LLC
By: Deutsche Bank Securities Inc.
By: /s/ David DiPietro
--------------------------------------
Authorized Signatory
Name: David DiPietro
Title: Managing Director
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
This Credit Agreement ("Agreement") is made and entered into on April 18 1999,
by and between Tekelec, a California corporation ("Borrower") and Imperial Bank,
a California banking corporation ("Bank").
Subject to the terms and conditions of this Agreement, any security agreement(s)
executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor
of Bank, or any other agreements executed in conjunction therewith
(collectively, the "Loan Documents"), Bank shall make the loans and or advances
(individually a "Loan" and collectively "Loans") referred to below to Borrower.
In consideration of mutual covenants and conditions hereof, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.01 ASSET BASED FORMULA LINE OF CREDIT COMMITMENT (ABL LINE OF CREDIT)
(a) FORMULA LINE OF CREDIT. Accounts Receivable Borrowing Base Constrained.
Subject to all the terms and conditions of this Agreement, provided that no
event of default then has occurred and is continuing, Bank shall upon Borrower's
request, make advances ("ABL Loans") to Borrower, from time to time and in such
amounts as Borrower shall request up to an aggregate principal amount
outstanding not to exceed:
(1) Seventy Five percent (75%) of Eligible Accounts and in no event
more than $15,000,000 (the "ABL Line of Credit"), as such eligible Accounts
Receivable may be adjusted from time to time as provided for under 4.19 of this
agreement.
If at any time or for any reason, the outstanding principal amount of
the ABL Loan Account (as defined below) is greater than the lessor of: (x) the
Borrowing Base or (y) the ABL Line of Credit, Borrower shall immediately pay to
Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to
the terms of this Agreement, to make ABL Loans shall expire on the ABL Maturity
Date (as hereinafter defined), subject to Bank's right to renew said commitment
in its sole and absolute discretion at Borrowers request. Any such renewal of
said commitment shall not be binding upon Bank unless it is in writing and
signed by an officer of Bank. Provided that no Event of Default (as hereinafter
defined) has occurred and is continuing, all or any portion of the ABL Loans
advanced by Bank which are repaid by Borrower shall be available for reborrowing
in accordance with the terms hereof. Borrower promises to pay to Bank the entire
outstanding unpaid principal balance (and all accrued unpaid interest thereon)
of the ABL Loan Account on the earlier of demand by Bank or June 30, 2000 ("ABL
Maturity Date").
1
<PAGE> 2
Notwithstanding the above, the ABL Line of Credit automatically
converts to a ABL Streamline Revolving Line of Credit if outstandings under the
ABL Line of Credit exceed seventy five percent (75%) of borrowing availability.
(b) LIMITATION ON ADVANCE OF ANY ABL LOANS. Notwithstanding any of the
provisions contained in Section 1.01(a) hereof, within Ninety (90) days from the
date of this Agreement, a representative of Bank shall have conducted an audit
of Borrower's books and records relating to the Accounts and Inventory and any
other Collateral for the ABL Loans and made extracts therefrom, and arranged for
verification of the Accounts, directly with the account debtors or otherwise,
and of the Inventory all with results satisfactory to Bank, the cost of such
audit of which shall be at Borrower's sole expense. Based on Bank's review of
such audit, and prior to the advance of an ABL Loan in accordance with the terms
of this hereof, Bank may adjust the Borrowing Base percentage, in its sole and
reasonable discretion, as provided for under Section 4.19 hereof.
(c) LOAN LEDGER ACCOUNT. The amount of each ABL Loan made by Bank to Borrower
hereunder shall be debited to the loan ledger account of Borrower maintained by
Bank for the ABL Line of Credit (herein called the "ABL Loan Account") and Bank
shall credit the ABL Loan Account with all loan repayments in respect thereof
made by Borrower. ABL Loans may only be used for, (1) working capital and (2)
the issuance of letters of credit ("Letters of Credit").
(d) ABL LOANS INTEREST. Borrower further promises to pay to Bank from the date
of the advance of the initial ABL Loan through the ABL Maturity Date, on or
before the tenth (10) day of each month, interest on the unpaid balance of the
ABL Loan Account at a rate of interest equal to zero percent (0%) per annum in
excess of the rate of interest which Bank has announced as its prime lending
rate (the "Prime Rate'), which shall vary concurrently With any change in the
Prime Rate. Interest shall be computed at the above rate on the basis of the
actual number of days during which the principal balance of the ABL Loans are
outstanding divided by 360, which shall for interest computation purposes be
considered one (1) year.
(e) APPLICATION OF RECEIPTS. All sums received by Bank, whether from Borrower or
from Borrower's account debtors shall be applied to the outstanding ABL Loan
balance immediately upon receipt thereof by the Bank. The Borrower will be
charged, on a monthly basis, for the uncollected balance fees.
(f) CERTAIN DEFINITIONS. As used herein the following terms shall have the
following meanings:
"Accounts" means any right to payment for goods sold or leased, or
rented, or to be sold or to be leased, or to be rented, or for services rendered
or to be rendered no matter how evidenced, including accounts receivable,
contract rights, chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and receivables.
2
<PAGE> 3
"Collateral" means any and all property of Borrower which is assigned
or hereafter is assigned to Bank as security or in which Bank now has or
hereafter acquires a security interest.
"Eligible Accounts" Eligible Accounts shall only include such accounts
as Bank in its sole discretion shall determine are eligible from time to time.
"Eligible Accounts" shall also NOT include any of the following:
(1) All Accounts under which payment is not received within 90 days
from any invoice date.
(2) All Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset counterclaim or
other right to avoid or reduce the liability represented by the Account.
(3) Any Accounts if the account debtor or any other person liable in
connection therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has so notified Borrower.
(4) Account balances over 90 days from invoice date. Exception: Foreign
accounts covered by foreign credit insurance or Commercial Letters of Credit
that allow more extended terms may be considered on a case by case basis.
(5) Credit balances greater than 90 days from invoice date.
(6) Accounts due from a debtor if 40% or more of the aggregate amount
of accounts of such debtor have at that time remained unpaid for more then 90
days from invoice.
(7) For accounts representing more than 20% of Borrower's total
accounts receivable, the balance in excess of the 20% is not eligible. However,
the Bank may deem, in its sole discretion, the entire amount, or any portion
thereof, eligible.
(8) Accounts with respect to international transactions unless insured
by an insurance company acceptable to the Bank or covered by letters of credit
issued or confirmed by a bank acceptable to the Bank. Bank, in its sole
discretion, may deem as eligible amounts due from major, publicly owned foreign
companies.
(9) Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower, excluding
Tekelec Airtronic Companies.
(10) Accounts where the account debtor is a seller to Borrower, whereby
a potential offset (contra) exists.
(11) Consignment or guaranteed sales.
3
<PAGE> 4
(12) Bill and hold accounts.
(13) Collection accounts.
(14) C.O.D. accounts.
(15) Salesmen's accounts for promotional purposes.
(16) All United States Government receivables, unless formally assigned
to the Bank.
(17) Accounts representing billings for service or maintenance
contracts or for inventory or equipment on rent to the account debtor outside
the normal course of business.
(19) Pre-billings.
(g) REQUESTS FOR ABL LOANS. Requests for ABL Loans hereunder shall be in writing
duly executed by Borrower in a form satisfactory to Bank and shall contain a
certification setting forth the matters referred to in Section 1, which shall
disclose that Borrower is entitled to the amount of loan being requested.
(h) LETTER OF CREDIT USAGE AND SUBLIMIT. Subject to the availability of the ABL
Formula Line of Credit, at any time and from time to time from the date hereof
through the banking day immediately prior to the ABL Maturity Date, Bank shall
issue for the account of Borrower such standby and commercial letters of credit
("Letters of Credit") as Borrower may request, which request shall be made by
delivering to Bank a duly executed letter of credit application on Bank's
standard form; provided, however, that the outstanding and undrawn amounts under
all such Letters of Credit (i) shall not at any time exceed $1,000,000 and (ii)
shall be deemed to constitute ABL Loans for the purpose of calculating
availability under the ABL Line of Credit. Unless Borrower shall have deposited
with Bank cash collateral in an amount sufficient to cover all undrawn amounts
under each such Letter of Credit and Bank shall have agreed in writing, no
Letter of Credit shall have an expiration date that is later than the ABL
Maturity Date. All Letters of Credit shall be in form and substance acceptable
to Bank in its sole discretion and shall be subject to the terms and conditions
of Bank's form application and letter of credit agreement. Borrower will pay any
standard issuance and other fees that Bank notifies Borrower will be charged for
issuing and processing Letters of Credit for Borrower.
1.02 LATE CHARGE. If any installment payment, interest payment, principal
payment or principal balance due under the ABL Line of Credit is delinquent
twenty (20) or more days, Borrower agrees to pay Bank a late charge in the
amount of five percent (5%) of the payment so due and unpaid, in addition to the
payment; but nothing in this paragraph is to be construed as any obligation on
the part of the Bank to accept payment of any payment past due or less than the
total unpaid principal balance after maturity. All payments, at Bank's sole
discretion, shall be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
4
<PAGE> 5
1.03 DEFAULT RATE. If an Event of Default occurs hereunder, then during the
continuance thereof at the Bank's option, the interest rate shall be five
percent (5%) per year in excess of the rate otherwise applicable.
1.04 INTEREST CALCULATIONS. The term "Prime Rate" shall mean the rate that the
Bank has announced as its prime lending rate, which shall vary concurrently with
any change in the Prime Rate. Interest based on the Prime Rate shall vary
concurrently with any change in the Prime Rate. All interest shall be computed
at the rate specified in any note on the basis of the actual number of days
during which the principal balance of the corresponding Loans are outstanding
divided by 360, which shall for interest computation purposes be considered one
(1) year.
1.05 LOAN FEE(S). In addition to any other amounts due, or to become due,
concurrent with the execution hereof, in connection with the Formula Line of
Credit, Borrower shall pay to Bank a commitment fee of One Hundred One Thousand
Two Hundred Fifty Dollars ($101,250,00).
1.06 DOCUMENTATION FEE, COSTS AND EXPENSES. In addition to any other amounts
due, or to become due, concurrently with the execution hereof, Borrower agrees
to pay to Bank a documentation fee in the amount of $250.00, and all other costs
and expenses incurred by the Bank in the preparation of this Agreement, the
other Loan Documents and the perfection of any security interest granted to Bank
by Borrower.
1.07. COLLATERAL. Borrower shall grant or cause to be granted to Bank a first
priority lien on any and all assets of Borrower which is assigned or hereafter
is assigned to Bank as security or in which Bank now has or hereafter acquires a
security interest or pursuant to the terms of any security agreement, an
intellectual property security agreement or otherwise as security for all of
Borrower's obligations to Bank, all as may be subject to Section 5.03 herein
except for assets acquired from the purchase of IEX Corporation.
1.08 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest,
fees, costs, and/or expenses due under this Agreement by charging Borrower's
demand deposit account number 07-111-464 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
2. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
2.01 EXISTENCE AND RIGHTS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of California, without
limit as to the duration of its existence which shall survive at least five
years beyond the maturity of any Loans hereunder. Borrower is authorized and in
good standing to do business in the state of its incorporation; each Borrower
has the appropriate powers and adequate authority, rights and franchises to own
its property and to carry on its business as now conducted, and is duly
qualified and in good
5
<PAGE> 6
standing in each state in which the character of the properties owned by it
therein or the conduct of its business makes such qualification necessary; and
Borrower has the power and adequate authority to make and carry out this
Agreement. Borrower has no investment in any other business entity unless
specified in writing to Bank.
2.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement and the Loan Documents are duly authorized and do not require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, or similar document as the
case may be, and this Agreement is the valid, binding and legally enforceable
obligation of Borrower in accordance with its terms; subject only to bankruptcy,
insolvency or similar laws affecting creditors rights generally.
2.03 NO CONFLICT. The execution, delivery and performance of this Agreement and
the Loan Documents are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or by which it
or any of its property may be bound or affected, and do not cause any lien,
charge or other encumbrance to be created or imposed upon any such property by
reason thereof.
2.04 LITIGATION. Except as disclosed in writing to bank by Borrower, there is no
litigation or other proceeding pending or threatened against or affecting
Borrower which if determined adversely to Borrower or its interest would have a
material adverse effect on the financial condition of Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
2.05 FINANCIAL CONDITION. The consolidated balance sheet of Borrower as of March
31, 1999, and the related profit and loss statement for the 3 month period ended
as of that date, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit are true and correct, and said
balance sheet truly presents the financial condition of Borrower as of the date
thereof, and has been prepared in accordance with generally accepted accounting
principles on a basis consistently maintained. Since such date, except with
respect to Tekelec's acquisition of IEX Corporation, there have been no material
adverse changes in the financial condition or business of Borrower. Borrower has
no knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
2.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
5.03 hereof.
2.07 TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
6
<PAGE> 7
2.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
2.09 REGULATION U. None of the proceeds of any Loan shall be used to purchase or
carry margin stock (as defined within Regulation U of the Board of Governors of
the Federal Reserve system).
2.10 ERISA. All defined benefit pension plans as defined in the Employees
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet,
as of the date hereof, the minimum funding standards of Section 302 of ERISA,
and no Reportable Event or Prohibited Transaction as defined in ERISA has
occurred with respect to any such plan.
2.11 YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable, have
reviewed the areas within their operations and business which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the Year 2000 Problem and have made related appropriate inquiry of
material suppliers and vendors, and based on such review and program, the Year
2000 Problem is not likely to have a material adverse effect upon its financial
condition, operations or business as now conducted. "Year 2000 Problem" means
the possibility that any computer applications or equipment used by Borrower may
be unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates one or after December 31, 1999.
3. CONDITIONS PRECEDENT TO LOAN.
Prior to Bank being obligated to make any Loan pursuant to this Agreement, Bank
must receive all of the following, each of which must be in form and substance
satisfactory to Bank:
3.01 SECURITY AGREEMENT. Original, executed security agreement(s) by Borrower.
3.02 FINANCING STATEMENT. Financing statement(s) executed by Borrower.
3.03 INSURANCE. Borrower shall have delivered to Bank evidence of insurance
coverage required pursuant to that Agreement to Provide Insurance executed by
Borrower, in form, substance, amounts, covering risks and issued by companies
satisfactory to Bank, and where required by Bank, with loss payable endorsements
in favor of Bank.
3.05 ORGANIZATIONAL DOCUMENTS. Copies of the articles of incorporation, or
similar document, as the case may be, of the Borrower.
3.06 AUTHORIZATIONS. Certified copies of all action taken by the Borrower to
authorize the execution, delivery and performance of the Loan Documents.
7
<PAGE> 8
3.07 GOOD STANDING. Good standing certificates from the appropriate secretary of
state of the state in which the Borrower is organized and in each state in which
it is required to be qualified to do business, which the Bank acknowledges
receipt hereof.
3.08 ADDITIONAL DOCUMENTS. Such other documents as Bank may reasonably deem
necessary.
4. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under borrowings, or
other indebtedness, or so long as Bank has any obligation to extend credit to
Borrower it will, unless Bank shall otherwise consent in writing:
4.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
4.02 USE OF PROCEEDS. Use the proceeds of the Loans only for purposes specified
in Section l of this Agreement.
4.03 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment, and as required by that Agreement to Provide Insurance executed by
Borrower, with the Bank to be shown as Lenders Loss Payee on such policies.
4.04 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings in
such manner as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it to be adequate
with respect thereto.
4.05 RECORDS AND REPORTS. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit Bank's representatives to have access to, and to examine its
properties, books and records at all reasonable times and upon reasonable notice
during normal business hours; and furnish Bank:
8
<PAGE> 9
(a) QUARTERLY FINANCIAL STATEMENT. As soon as available and in any event within
forty-five (45) days after the close of each quarter, a consolidated balance
sheet, profit and loss statement and reconciliation of Borrower's capital
balance accounts as of the close of such period and covering operations for the
portion of Borrower's fiscal year ending on the last day of such period, all in
reasonable detail and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently maintained by
Borrower and certified by an appropriate officer of Borrower.
(b) ANNUAL FINANCIAL STATEMENT. As soon as available, and in any event within
ninety (90) days after and as of the close of each fiscal year of Borrower, a
consolidated report of audit of Company, all in reasonable detail, audited by an
independent certified public accountant selected by Borrower and reasonably
acceptable to Bank, in accordance with generally accepted accounting principles
on a basis consistently maintained by Borrower and certified by an appropriate
officer of Borrower;
(c) AUDIT REPORTS. Promptly after the receipt thereof by Borrower, copies of any
detailed audit reports submitted to Borrower by independent accountants in
connection with each annual or interim work on the accounts of Borrower made by
such accountants;
(d) ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND INVENTORY AGINGS REPORTS. Within
fifteen (15) days from each month-end, deliver to Bank a detailed accounts
receivable aging reconciled to the general ledger of Borrower, a detailed
accounts payable aging reconciled to the Borrower's general ledger and setting
forth the amount of any book overdraft or the amount of checks issued but not
sent and an inventory certification outlining both inventory composition and
activity for the month. All the foregoing will be in a form and with such detail
as Bank may request from time to time.
(e) BORROWING BASE CERTIFICATE. Deliver to Bank, within fifteen (15) days from
each month, end a Borrowing Base Certificate including sales and cash receipts.
After the Revolving Line of Credit is converted to streamline, deliver such
certificate on a daily basis.
(f) TRANSACTION REPORTS. In the event that the ABL Line of Credit converts to
streamline, deliver to Bank daily transaction reports, together with payments in
kind, including Collateral activity and appropriate loan activity, certified by
an authorized signer of Borrower. The daily reports delivered to Bank include
the following Bank forms: AC-1 Accounts Receivable And Inventory Transaction
Report, AC-1 Schedule of Accounts Receivable Assigned, and AC-3 Schedule of
Collections.
(g) LIST OF CUSTOMERS. If requested by Bank, on a quarterly basis or more
frequently, provide Bank with an alphabetized list of customers including
addresses.
(h) STOCKHOLDER, SECURITY AND EXCHANGE COMMISSION STATEMENTS AND REPORTS.
Promptly after the same are available, copies of all such proxy statements,
financial statements and reports as Borrower or any subsidiary shall send to its
members or stockholders as appropriate, if any,
9
<PAGE> 10
and copies of all reports which Borrower or any subsidiary may file with the
Securities and Exchange Commission.
(i) OTHER INFORMATION. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time.
4.06 CURRENT RATIO. Maintain on a quarterly basis a consolidated minimum ratio
of total current assets (excluding all amounts due from stockholders, officers
and affiliates) divided by total current liabilities (including all amounts due
to stockholders, officers and affiliates) of 0.85:1.00.
4.07 QUICK RATIO. Maintain on a quarterly basis a consolidated quick ratio of
cash and accounts receivable to current liabilities of at least 0.75:1.0.
4.08 EFFECTIVE TANGIBLE NET WORTH. Maintain on December 31, 1999 and on a
quarterly basis thereafter, a consolidated Effective Tangible Net Worth (defined
as stockholder's equity less any value for goodwill, trademarks, patents,
copyrights, leaseholds, organization expense and other similar intangible items,
and any amounts due from stockholders, officers and affiliates, other than the
Tekelec Airtronic Companies, of not less than Twenty Million Dollars
($20,000,000).
4.9 DEBT TO EFFECTIVE TANGIBLE NET WORTH. Maintain on a quarterly basis a
consolidated ratio of total liabilities to Effective Tangible Net Worth (defined
as stockholder's equity less any value for goodwill, trademarks, patents,
copyrights, leaseholds, organization expense and other similar intangible items,
and any amounts due from stockholders, officers and affiliates) of not greater
than 2.00:1.0.
4.10 FUNDED DEBT TO EBITDA. Maintain quarterly on a consolidated basis a ratio
of Funded Debt to EBITDA of not more than 3.00 to 1.00, except for financial
quarter ending March 31, 2000 at which time the covenant will be 4.50 to 1.00.
Funded Debt shall mean all liabilities of whatever nature or duration consisting
of indebtedness for borrowed money or indebtedness (including obligations under
capital leases) incurred to finance the purchase of any asset, plus the
$15,000,000 line of credit from Bank. EBITDA shall mean the sum of (a) net
income after taxes, plus (b) interest expense, plus (c) accrued federal and
state income taxes, plus (d) depreciation and amortization expense. Long Term
Debt shall mean those debts or renewals or extensions thereof whose original
terms exceed one (1) year. EBITDA will be calculated by multiplying that
quarter's EBITDA by four (4).
4.11 OTHER SUBMISSIONS. Submit to Bank written evidence satisfactory to Bank, at
Bank's sole discretion, no later than December 31, 1999 that significant
progress has been made on, the refinancing of the One Hundred Million Dollars
($100,000,000) Note Payable to the sellers of IEX Corporation.
4.12 ERISA. Cause all defined benefit pension plans, as defined in ERISA, of
Borrower to, at all times, meet the minimum funding standards of Section 302 of
ERISA, and ensure that no Reportable Event or Prohibited Transaction, as defined
in ERISA, will occur with respect to any such plan.
10
<PAGE> 11
4.13 LAWS. At all times comply with, or cause to be complied with, all laws,
statues, rules, regulations, orders and directions of any governmental authority
having jurisdiction over Borrower or Borrower's business.
4.14 USE OF PROCEEDS. Use the proceeds of the Loans only for the purposes
specified in Section 1 herein.
4.15 GAAP. Compliance with all financial covenants shall be calculated based on
generally accepted accounting principles applied on a consistent basis as
maintained by Borrower.
4.16 YEAR 2000 COMPLIANT. Borrower shall perform all acts reasonably necessary
to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest and (b) all customers, suppliers and vendors whose
compliance is likely to be material to Borrower's business, become Year 2000
Compliant in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation, monitoring
and testing of such systems. As used in this paragraph, "Year 2000 Compliant"
shall mean, in regard to any entity, that all software, hardware, firmware,
equipment, goods or systems utilized by or material to the business operations
or financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall, immediately
upon request, provide to Agent such certifications or other evidence of
Borrower's compliance with the terms of this paragraph as Bank may from time to
time require.
4.17 OPERATING ACCOUNTS. Maintain all primary accounts and banking relationship
with the Bank. Maintain, or cause to be maintained, on deposit with Bank,
non-interest bearing demand deposit balances sufficient to compensate Bank for
all services provided by Bank. Balances shall be calculated after reduction for
the reserve requirement of the Federal Reserve Board and uncollected funds. Any
deficiencies shall be charged directly to the Borrower on a monthly basis.
4.18 NOTICES. Promptly notify Bank in writing of (i) the occurrence of any Event
of Default hereunder or any event which upon notice and lapse of time would be
an Event of Default; (ii) all litigation affecting Borrower where the amount is
$1,000,000 or more; any substantial dispute which may exist between Borrower and
any governmental regulatory body or law enforcement authority; any change in
Borrower's name or principal place of business; or any other matter which has
resulted or might result in a material adverse change in Borrower's financial
condition or operations.
4.19 AUDITS. Permit representatives of Bank to conduct audits of Borrower's
books and records relating to the Accounts, Inventory and other Collateral and
make extracts therefrom, with results satisfactory to Bank, provided that Bank
shall use its best efforts to not interfere with the conduct of Borrower's
business, and to the extent possible to arrange for verification of the Accounts
directly with the account debtors obligated thereon or otherwise, all under
reasonable
11
<PAGE> 12
procedures acceptable to Bank and at Borrower's sole expense; provided further
that, prior to an Event of Default, Borrower shall not be responsible for the
expense of more than Two Thousand Five Hundred Dollars ($2,500) such audits, in
any fiscal year. Notwithstanding any of the provisions contained in Section
1.06(a) and 1.06(b) hereof, Borrower hereby acknowledges and agrees that upon
completion of any such audit Bank shall have the right to adjust the Borrowing
Base percentage, in its sole and reasonable discretion, based on its review of
the results of such collateral audit.
4.20 COVENANTS RELATING TO COLLATERAL. In addition to any covenants in any Loan
Document relating to any Collateral the Borrower agrees:
(a) To execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts, notices,
financing statements, and other documents and papers as Bank may require in
order to affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors obligated
on the Accounts, notice of Bank's interest in the Collateral.
(b) Until Bank exercises its rights to collect the Accounts and Inventory
proceeds pursuant to Section 4.20(e), Borrower will collect with diligence all
Borrower's Accounts and Inventory proceeds. Any collection of Accounts or
Inventory proceeds by Borrower, whether in the form of cash, checks, notes, or
other instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall maintain adequate systems to identify all such collections
separate and apart from all other funds and property so as to be capable of
identification as the property of Bank and deliver said collections, together
with the proceeds of all cash sales, daily to Bank in the identical form
received. The proceeds of such collections when received by Bank may be applied
by Bank directly to the payment of Borrower's Loan Account or any other
obligation secured hereby. Any credit given by Bank upon receipt of said
proceeds shall be conditional credit subject to collection. Returned items at
Bank's option may be charged to Borrower's general account. All collections of
the Accounts and Inventory proceeds shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each payment and such
other information as Bank may request.
(c) That until Bank exercises its rights to collect the Accounts or Inventory
proceeds pursuant to Section 4.20(e), Borrower may continue its present policies
with respect to returned merchandise and adjustments. However, Borrower shall,
within 10 days of the end of each month notify Bank of all cases outside the
normal course of business involving returns, repossessions, and loss or damage
of or to merchandise represented by the Accounts or constituting Inventory and
of any credits, adjustments or disputes arising in connection with the goods or
services represented by the Accounts or constituting Inventory and, in any of
such events, Borrower will immediately pay to Bank from its own funds (and not
from the proceeds of Accounts or Inventory) for application to Borrower's Loan
Account or any other obligation secured hereby the amount of any credit for such
returned or repossessed merchandise and adjustments made to any of the Accounts.
Until payment is made as provided herein or until release by Bank from its
12
<PAGE> 13
security interest, all merchandise returned to or repossessed by Borrower shall
be set aside and identified as the property of Bank and Bank shall be entitled
to enter upon any premises where such merchandise is located and take immediate
possession thereof and remove same.
(d) To promptly notify Bank of any attachment or other legal process levied
against any of the Collateral and any information received by Borrower relative
to the Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of the
Collateral or the rights and remedies of Bank in respect thereto.
(e) That Bank may at any time, following an Event of Default and the
continuation thereof, without prior notice to Borrower, collect the Accounts and
Inventory proceeds and may give notice of assignment to any and all account
debtors, and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and dispose of
all mail addressed to Borrower, to endorse the name of Borrower upon any checks
or other evidences of payment that may come into the possession of Bank upon the
Accounts or as proceeds of Inventory; to endorse the name of the undersigned
upon any document or instrument relating to the Collateral; in its name or
otherwise, to demand, sue for, collect and give acquittances for any and all
moneys due or to become due upon the Accounts; to compromise, prosecute or
defend any action, claim or proceeding with respect thereto; and to do any and
all things necessary and proper to carry out the purpose herein contemplated.
(f) To do all acts necessary to maintain, preserve and protect the Inventory,
keep all Inventory in good condition and repair and not to cause any waste or
unusual or unreasonable depreciation thereof.
(g) In the event any unpaid balance of Borrower's Loan Account shall exceed the
maximum amount of outstanding Loans to which the Borrower is entitled under
Section 1 hereof, Borrower shall immediately pay to Bank for credit to
Borrower's Loan Account the amount of such excess.
5. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as Bank has
any obligation to extend credit to Borrower, it will not, without Bank's written
consent:
5.01 TYPE OF BUSINESS; MANAGEMENT; CHANGE IN CONTROL. Make any substantial
change in the character of its business.
5.02 OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness outside the normal course of business for borrowed moneys other
than indebtedness incurred in connection with the acquisition of IEX Corporation
and the refinancing of such indebtedness and other than Loans from the Bank
except obligations now existing as shown in the financial statement dated March
31, 1999, excluding those obligations being refinanced by Bank, and other than
those Permitted Indebtedness as acknowledged by Bank hereto or sell or transfer,
either with or without recourse, any accounts or notes receivable or any moneys
due or to become due.
13
<PAGE> 14
5.03 LIENS AND ENCUMBRANCES. Create, incur, permit to exist, or assume outside
the normal course of business any mortgage, pledge, encumbrance, lien or charge
of any kind upon any asset now owned or hereafter acquired by it, other than
those in connection with the acquisition of IEX Corporation and those in
connection with the refinancing of the indebtedness thereof and other than liens
for taxes not delinquent and liens in Bank's favor and other than liens agreed
to in writing by Bank and other than those Permitted Liens as acknowledged by
Bank hereto.
5.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to
any person or other entity other than in the ordinary and normal course of its
business as now conducted or make any investment in the securities of any person
or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business other than those listed in Schedule
5.04 attached hereto.
5.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor,
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted, including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same and excluding the acquisition of IEX Corporation and those transactions
amounting to One Million Dollars or less.
6. EVENTS OF DEFAULT
The occurrence of any of the following events of default which, except for 6.04,
6.05 and 6.06, remains uncured for 10 days ("Events of Default") shall, at
Bank's option, terminate Bank's commitment to lend and make all sums of
principal and interest then remaining unpaid on all Borrower's indebtedness to
Bank immediately due and payable, all without demand, presentment or notice, all
of which are hereby expressly waived:
6.01 FAILURE TO PAY. Failure to pay any installment of principal or of interest
on any indebtedness of Borrower to Bank within five (5) days of its due date.
6.02 BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement or any Loan Document binding upon Borrower.
6.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any material
respect.
6.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
14
<PAGE> 15
6.05 JUDGMENTS, ATTACHMENTS. Any money judgment in excess of $1,000,000, writ or
warrant of attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or unstayed
for a period of ten (10) days or in any event later than five (5) days prior to
the date of any proposed sale thereunder.
6.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall not be dismissed within thirty (30) days
thereafter.
6.07 ADVERSE CHANGE. Any change which, in the reasonable opinion of Bank, is
materially adverse to the financial condition of Borrower or any Guarantor; or
should Bank, reasonably believe that the prospect of Borrower's payment or
performance hereunder or under any other agreement or instrument with Bank be
impaired.
6.08 OTHER DEFAULTS. Borrower, or any Guarantor of Borrower's obligations to
Bank, shall commit or do or fail to commit or do any act or thing which would
constitute an event of default under any of the terms of any other agreement,
document or instrument executed or to be executed by it concerning the
obligation to pay money.
6.09 ADVANCES. Notwithstanding anything to the contrary contained herein, Bank
shall have no duty to make advances while any event of default exists
notwithstanding any cure period provided for herein.
7. MISCELLANEOUS PROVISIONS
7.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of Bank
or any holder of notes issued hereunder, in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement or any note(s) issued in connection with
a Loan that Bank may make hereunder, are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
7.02 COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
7.03 ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand after
notice, with interest thereon from the date of expenditure at the rate
applicable to the Loan, reasonable attorneys' fees and all costs and expenses
paid or incurred by Bank in collecting or compromising the Loan after the
occurrence of an Event of Default whether or not suit is filed. If suit is
brought to enforce any provision of this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
15
<PAGE> 16
7.04 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.05 INUREMENT. The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assigns of Borrower.
7.06 APPLICABLE LAW. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and construed
according to the laws of the state of California, to the jurisdiction of whose
courts the parties hereby agree to submit.
7.07 OFFSET. In addition to and not in limitation of all rights of offset that
Bank or other holder of the Loan may have under applicable law, Bank or other
holder of any note issued hereunder shall, upon the occurrence of any Event of
Default or any event which with the passage of time or notice would constitute
such an Event of Default, have the right to appropriate and apply to the payment
of the Loan any and all balances, credits, deposits, accounts or monies of
Borrower then or thereafter with Bank or other holder, within ten (10) days
after the Event of Default, and notice of the occurrence of any Event of Default
by Bank to Borrower.
7.08 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.09 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
7.10 ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
7.11 REFERENCE PROVISION.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to, this Credit
Agreement, any security agreement executed by Borrower in favor of Bank or any
note executed by Borrower in favor of Bank or any other agreement or instrument
issued in favor of Bank by Borrower (collectively in this Section, the
"Agreement") which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
party subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their
16
<PAGE> 17
successor section ("CCP"), which shall constitute the exclusive remedy for the
settlement of any controversy, dispute or claim concerning this Agreement,
including whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Los Angeles County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP ss.170.6. The
referee shall (a) be requested to set the matter for hearing within sixty (60)
days after the date of selection of the referee and (b) try any and all issues
of law or fact and report a statement of decision upon them, if possible, within
ninety (90) days of the Claim Date. Any decision rendered by the referee will be
final, binding and conclusive and judgment shall be entered pursuant to CCP
ss.644 in any court in the state of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filing a petition for a hearing and/or trial. All discovery permitted
by this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of all hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee. The
party making such a request shall have the obligation to arrange for and pay for
the court reporter. The costs of the court reporter at the trial shall be borne
equally by the parties.
(c) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the state of California. The rules
of evidence applicable to proceedings at law in the state of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or
17
<PAGE> 18
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact. conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for appointment of
a referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by the reference procedure herein
described will be resolved and determined by arbitration. The arbitration will
be conducted by a retired judge of the Court, in accordance with the California
Arbitration Act, ss.1280 through ss.1294.2 of the CCP as amended from time to
time. The limitations with respect to discovery as set forth hereinabove shall
apply to any such arbitration proceeding.
7.12 This Agreement may be modified only by a writing signed by all parties
hereto.
This Agreement is executed on behalf of the parties by duly authorized officers
as of the date first above written.
IMPERIAL BANK TEKELEC
("Bank") ("Borrower")
By: Nunilo Soler By: Gilles C. Godin
-------------------------------- ---------------------------
Its: Vice President Its: V. P. Finance and CFO
-------------------------------- ---------------------------
By: Ronald W. Buckly
---------------------------
Its: V. P. General Counsel
---------------------------
18
<PAGE> 19
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment ("Amendment") amends that certain Credit Agreement
("Agreement") dated April 18, 1999 by and between Tekelec ("Borrower") and
Imperial Bank ("Bank") as follows:
1. Section 4.9 of the Agreement is hereby amended in its entirety to read as
follows:
DEBT TO NET WORTH. Maintain on a quarterly basis a consolidated ratio of
total liabilities to Net Worth of not greater than 2.00:1.00
Except as provided above, the Agreement remains unchanged.
5. This Amendment is effective as of July 30, 1999, and the parties hereby
confirm that the Agreement as amended is in full force and effect.
TEKELEC IMPERIAL BANK
("Borrower") ("Bank")
By: Gilles C. Godin By: Nunilo Soler
------------------------------- ---------------------------
Its: Vice Pres. Finance & CFO Its: Vice President
------------------------------- ---------------------------
By: Michael Margolis
-------------------------------
Its: President & CEO
-------------------------------
<PAGE> 1
EXHIBIT 10.2
3.25% CONVERTIBLE SUBORDINATED DISCOUNT NOTES DUE 2004
TEKELEC
PURCHASE AGREEMENT
October 27, 1999
Deutsche Bank Securities Inc.
Warburg Dillon Read LLC
c/o Deutsche Bank Securities Inc.
101 California Street, 48th Floor
San Francisco, California 94111
Ladies and Gentlemen:
Tekelec, a California corporation (the "Company"), confirms its agreement with
Deutsche Bank Securities Inc. and Warburg Dillon Read LLC(the "Initial
Purchasers") with respect to the sale by the Company and the purchase by the
Initial Purchasers, acting severally and not jointly, of the respective
principal amounts at maturity set forth in SCHEDULE A of the $117,500,000
aggregate principal amount at maturity of the Company's 3.25% Convertible
Subordinated Discount Notes due November 2, 2004 (the "Notes") to be issued
pursuant to the provisions of an indenture to be dated as of November 2, 1999
(the "Indenture") between the Company and Bankers Trust Company, as trustee (the
"Trustee"). Such $117,500,000 aggregate principal amount at maturity of Notes
are hereafter referred to as the "Firm Notes." Upon the request of the Initial
Purchasers, as provided in Section 2(b) of this Agreement, the Company shall
also issue and sell to the Initial Purchasers up to an additional $17,500,000
aggregate principal amount at maturity of Notes for the purpose of covering
over-allotments, if any. Such $17,500,000 aggregate principal amount at maturity
of Notes are hereinafter referred to as the "Option Notes." The Firm Notes and
Option Notes collectively constitute all of the Notes, and, as used herein, the
term "Notes" refers to the Firm Notes and the Option Notes, collectively.
The Notes are convertible into shares of the Company's common stock, without par
value (the "Common Stock"), at any time after the 90th day following the latest
date of the original issuance thereof and before the close of business on the
maturity date of the Notes, unless previously redeemed or repurchased. The
Common Stock issuable upon conversion of the Notes is sometimes hereinafter
referred to as the "Underlying Stock." Notes issued in book-entry form will be
issued to Cede& Co. as nominee of The Depository Trust Company ("DTC") pursuant
to a letter agreement, to be dated as of the Closing Date (as defined in Section
3) among the Company, the Trustee and DTC. Notes may also be issued in
certificated form to Institutional Accredited Investors (as hereinafter defined)
in accordance with the terms hereof and of the Indenture.
1
<PAGE> 2
The Company understands that the Initial Purchasers propose to make an offering
of the Notes on the terms and in the manner set forth herein and agrees that the
Initial Purchasers may resell, subject to the conditions set forth herein, all
or a portion of the Notes to purchasers ("Subsequent Purchasers") at any time
after the date of this Agreement. The Notes will be offered and sold by the
Initial Purchasers without being registered under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon exemption therefrom. Pursuant
to the terms of the Notes and the Indenture, investors that acquire Notes may
only resell or otherwise transfer such Notes if such Notes are hereafter
registered under the Securities Act or if an exemption from the registration
requirements of the Securities Act is available (including, without limitation,
the exemption afforded by Rule 144A ("Rule 144A") of the rules and regulations
promulgated under the Securities Act by the Securities and Exchange Commission
(the "Commission")).
The Company has prepared and will deliver to the Initial Purchasers, on the date
hereof, copies of a final offering memorandum dated October 27, 1999 (the
"Offering Memorandum"), setting forth information regarding the Company, the
Notes and the Underlying Stock. The Offering Memorandum is to be used by the
Initial Purchasers in connection with their solicitation of purchases of, or
offering of, the Notes. "Offering Memorandum," unless otherwise stated, include
exhibits thereto and any documents incorporated therein by reference. The
Company hereby confirms that it has authorized the use of the Offering
Memorandum in connection with the offering and sale of the Notes.
Holders (including subsequent transferees) of the Notes (the "Holders") will
have the registration rights set forth in the Registration Rights Agreement (the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the Company has agreed to file with the Commission a shelf registration
statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement") to cover public resales of the Notes and the Underlying Stock by the
Holders.
Capitalized terms used herein without definition have the respective meanings
specified therefor in the Offering Memorandum. For purposes hereof, "Rules and
Regulations" means the rules and regulations adopted by the Commission under the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), as applicable.
All references in this Agreement to financial statements and schedules and other
information which is "contained," "included," "stated," or "described" in the
Offering Memorandum (or other references of like import) shall be deemed to mean
and include all such financial statements and schedules and other information
which is incorporated by reference in the Offering Memorandum.
1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to, and agrees with, each of the Initial Purchasers as of the date hereof, and
as of the Closing Date and the Option Closing Date (as defined in Section 2(b)
hereof), if any, as follows:
(a) The Offering Memorandum, as of its date, together with each
amendment or supplement thereto, as of its date, contains all the information
that, if requested by a
2
<PAGE> 3
prospective purchaser, would be required to be provided pursuant to Rule
144A(d)(4) under the Securities Act. The Offering Memorandum does not, and at
the Closing Date and any Option Closing Date will not, and any amendment or
supplement thereto, if any, as of its date, will not, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The preceding sentence does not apply to
information contained in or omitted from the Offering Memorandum (or any
supplement or amendment thereto) in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Initial Purchaser
specifically for use therein (the "Initial Purchasers' Information"). The
parties acknowledge and agree that the Initial Purchasers' Information consists
solely of the last paragraph at the bottom of the front cover page concerning
the terms of the offering by the Initial Purchasers, the legend concerning
overallotment and trading activities of the Initial Purchasers on the inside
front cover page and the paragraphs under the caption "Plan of Distribution" in
the Offering Memorandum. The Company is subject to Sections 13 or 15(d) of the
Exchange Act.
(b) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of California,
with corporate power and authority to own or lease its properties and conduct
its business as described in the Offering Memorandum. Each of the subsidiaries
of the Company as listed on SCHEDULE B hereto (collectively, the "Subsidiaries")
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with the
corporate power and authority to own or lease its properties and conduct its
business as described in the Offering Memorandum. The Subsidiaries are the only
material subsidiaries, direct or indirect, of the Company. The Company and each
of the Subsidiaries are duly qualified to transact business in all jurisdictions
in which the conduct of their business requires such qualification except for
jurisdictions where failure to so qualify, together with all other such
failures, would not have a material adverse effect upon the business,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries (defined below) taken as a whole.
The outstanding shares of capital stock of each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and non-assessable and are
owned by the Company or another Subsidiary free and clear of all liens,
encumbrances and equities and claims, except (i) for encumbrances disclosed in
the Offering Memorandum, (ii) for encumbrances relating to any indebtedness
disclosed in the Offering Memorandum and (iii) the pledge of the shares of IEX
Corporation to secure the payment of the IEX notes described in the Offering
Memorandum; and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in the Subsidiaries are
outstanding. Other than the Subsidiaries, the Company does not own, control or
hold any equity interest in excess of 5% of any corporation, partnership,
limited liability company, joint venture or other entity.
(c) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
and no preemptive rights of stockholders exist with respect to any of the Common
Stock or the issuance of additional shares of Common Stock upon the conversion
of the Notes. The offering or sale of the Notes and the Underlying Stock as
contemplated by this Agreement do not give rise to any rights, other than
3
<PAGE> 4
those which have been waived or satisfied, for or relating to the registration
of any shares of Common Stock.
(d) [Reserved]
(e) The information set forth under the caption "Capitalization"
in the Offering Memorandum is true and correct. Neither the Company nor any
Subsidiaries is a party to or bound by any instrument, agreement or other
arrangement, including, but not limited to, any voting trust agreement,
stockholders' agreement or other agreement or instrument, affecting the
securities or rights or obligations of securityholders of the Company or of the
Subsidiaries or providing for any of them to issue, sell, transfer or acquire
any capital stock, rights, warrants, options or other securities of the Company
or the Subsidiaries, except for this Agreement, the Indenture, and as set forth
in the Offering Memorandum. The Notes and the Company's capital stock conform in
all material respects to all statements with respect thereto contained in the
Offering Memorandum.
(f) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Offering Memorandum, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Offering Memorandum presents fairly the
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company.
(g) PricewaterhouseCoopers LLP, who have certified certain of the
financial statements included as part of the Offering Memorandum, are
independent public accountants as required by the Securities Act and the Rules
and Regulations.
(h) There is no action or proceeding pending or, to the knowledge
of the Company, threatened against the Company, or any of the Subsidiaries
before any court or administrative agency which the Company believes is likely
to result in any material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and of the Subsidiaries taken as a whole, except as set
forth in the Offering Memorandum.
(i) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial statements
(or as described in the Offering Memorandum) hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Offering
Memorandum) and the pledge of shares of IEX Corporation to secure the Company's
obligations to the former IEX Corporation shareholders described in the Offering
Memorandum or which are not material in amount. The Company and the Subsidiaries
occupy
4
<PAGE> 5
their leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the Offering
Memorandum.
(j) The Company and the Subsidiaries have filed all Federal,
State, local and foreign income tax returns (or appropriate requests for
extension) which have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by them or any of them to
the extent that such taxes have become due and are not being contested in good
faith. All tax liabilities have been adequately provided for in the financial
statements of the Company.
(k) Since the respective dates as of which information is given
in the Offering Memorandum, as it may be amended or supplemented, there has not
been any material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and of the Subsidiaries taken as a whole, except as set
forth in the Offering Memorandum, as it may be amended or supplemented. The
Company and the Subsidiaries have no material contingent obligations which are
not disclosed in the Company's financial statements which are included in the
Offering Memorandum.
(l) Neither the Company nor any of the Subsidiaries is or with
the giving of notice or lapse of time or both, will be, in violation of or in
default under its Charter or By-Laws, or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which violation or default would
reasonably be expected to have a material adverse change in the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and of the Subsidiaries
taken as a whole. The execution and delivery of this Agreement, the Indenture,
and the Registration Rights Agreement and the consummation of the transactions
herein and therein contemplated and the fulfillment of the terms hereof and
thereof will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company or any Subsidiary is
a party, or of the Charter or By-Laws of the Company or any order, rule or
regulation applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction, which conflict or default could reasonably be expected to have a
material adverse effect on the ability of the parties hereto to consummate the
transactions contemplated by this Agreement or on the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and of the Subsidiaries taken as a whole.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary under state securities or Blue Sky laws)
has been obtained or made and is in full force and effect.
5
<PAGE> 6
(n) The Company and each of the Subsidiaries holds all licenses,
certificates, permits and other approvals from governmental authorities
(collectively, "Permits") which are necessary to own their properties and to
conduct their businesses, including, without limitation, such Permits as are
required under such federal and state telecommunication laws and regulations as
are applicable to the Company and the Subsidiaries, except where such failure to
have or hold such Permits, together with all other such failures, would not have
a material adverse effect upon the business, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
the Subsidiaries taken as a whole; the Company and each of the Subsidiaries has
fulfilled and performed all of its material obligations with respect to such
Permits, and no event or change in condition has occurred which (i) allows, or
after notice or lapse of time would allow, revocation or termination thereof or
(ii) results in any other material impairment of the rights of the holder of any
such Permit, subject in each case to such qualifications as may be set forth in
the Offering Memorandum.
(o) Neither the Company nor any of the Subsidiaries has infringed
any patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the Subsidiaries
taken as a whole. The Company knows of no material infringement by others of
patents, patent rights, trade names, trademarks or copyrights owned by or
licensed to the Company or any of the Subsidiaries.
(p) Neither the Company, nor any of its affiliates, has taken or
may take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Notes or otherwise.
(q) Neither the Company nor any Subsidiary is, or as a result of
the consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the Offering
Memorandum will become, an "investment company" within the meaning of such term
under the Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Company and each of its Subsidiaries carries, or is
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of its respective businesses and the value of its respective
properties and as is customary for companies engaged in similar industries.
6
<PAGE> 7
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) (including,
but not limited to, the filing of Form 5500s for prior periods, if required) has
occurred with respect to any "pension plan" (as defined in ERISA) for which the
Company would have any liability; the Company has not incurred and does not
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(u) The property, assets and operations of the Company and the
Subsidiaries comply in all respects with all applicable federal, state or local
law, common law, doctrine, rule, order, decree, judgment, injunction, license,
permit or regulation relating to environmental matters (the "Environmental
Laws"), except to the extent that failure to comply with such Environmental Laws
would not have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole. None of the property, assets or
operations of the Company and the Subsidiaries is the subject of any federal,
state or local investigation evaluating whether any remedial action is needed to
respond to a release into the environment of any substance regulated by, or form
the basis of liability under, any Environmental Laws (a "Hazardous Material"),
or is in contravention of any Environmental Law that would have a material
adverse effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and Subsidiaries
taken as a whole. Neither the Company nor any Subsidiary has received any notice
or claim, nor are there pending, reasonably anticipated or, or to the Company's
knowledge, threatened lawsuits against them with respect to violations of an
Environmental Law or in connection with the release of any Hazardous Material
into the environment, in each case which, individually or in the aggregate,
would have a material adverse effect on the condition (financial or other),
business, properties, prospects, net worth or results of operations of the
Company and the Subsidiaries taken as a whole. Neither the Company nor any
Subsidiary has any material contingent liability in connection with any release
of Hazardous Material into the environment.
(v) [Reserved]
(w) The Company's Common Stock, without par value, is registered
pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq Stock
Market, Inc.'s Nasdaq National Market (the "Nasdaq National Market"), and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the NASD is contemplating
terminating such registration or listing. The Company has filed in a timely
manner all reports and other information required to be filed with the
Commission pursuant to the Exchange Act
7
<PAGE> 8
during the twelve calendar months and any portion of a month immediately
preceding the date of the Offering Memorandum (or during such shorter period of
time that the Company has been subject to the reporting requirements of the
Exchange Act). At or prior to 90 days following the Closing Date, the Company
will file an application to list the Underlying Stock on the Nasdaq National
Market.
(x) The Notes will be issued pursuant to the terms and conditions
of the Indenture, and each of the Indenture and the Registration Rights
Agreement conforms, or will conform, to the description thereof contained in the
Offering Memorandum. The Notes have been duly authorized and, when validly
authenticated, issued, delivered and paid for in the manner contemplated by the
Indenture, will be duly authorized, validly issued and outstanding obligations
of the Company entitled to the benefits of the Indenture. The shares of Common
Stock issuable upon conversion of the Notes will, upon such issuance, be duly
authorized, validly issued, fully paid and non-assessable, and the Company has
duly authorized and reserved for issuance upon conversion of the Notes the
shares of Common Stock issuable upon such conversion. The Notes and the
Underlying Stock are not and will not be subject to any preemptive or other
similar rights of any securityholder of the Company or the Subsidiaries; all
corporate action required to be taken for the authorization, issue and sale of
the Notes and the Underlying Stock has been duly and validly taken; and the
certificates representing the Notes and the Underlying Stock will be in due and
proper form. Upon the issuance and delivery pursuant to the terms of this
Agreement and the Indenture of the Notes to be sold by the Company hereunder and
thereunder, the Initial Purchasers will acquire good and marketable title
thereto free and clear of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever, except
as such restrictions which may arise under the Securities Act, the Exchange Act
and the Registration Rights Agreement.
(y) (i) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Notes and the Underlying Stock upon
conversion of the Notes, to enter into this Agreement, the Indenture and the
Registration Rights Agreement and to consummate the transactions provided for in
such agreements; (ii) this Agreement has been duly and properly authorized,
executed and delivered by the Company and, as of the Closing Date, each of the
Indenture and the Registration Rights Agreement will have been duly and properly
authorized, executed and delivered by the Company; and (iii) this Agreement
constitutes, and when the Company has duly executed and delivered the
Registration Rights Agreement and the Indenture such documents will constitute
(assuming the due execution and delivery hereof and thereof by the Trustee and
the Initial Purchasers, as applicable), legal, valid and binding agreements of
the Company enforceable against the Company in accordance with their respective
terms, except to the extent that enforcement hereof or thereof may be limited by
(a) bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity) and except to the extent that rights to
indemnification and contribution contained in this Agreement may be limited by
federal or state securities laws on public policy relating thereto.
8
<PAGE> 9
(z) The Notes satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act, and the Notes are eligible for trading in
the Private Offerings, Resale and Trading through Automated Linkages ("PORTAL")
market.
(aa) Neither the Company nor any affiliate (as such term is
defined in Rule 501(b) under the Securities Act) of the Company has, directly or
through any agent, sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any "security" (as defined in the Securities Act),
which is or could reasonably be expected to be integrated with the sale of the
Notes in a manner that would require the registration of the Notes under the
Securities Act. Other than pursuant to this Agreement, the Company has no
contract, arrangement or understanding with any broker, finder, investment
banking firm, financial advisor or similar firm or agent which would give rise
to any right of such person to receive any commission, fee or other payment as a
result of the transactions contemplated by this Agreement.
(bb) None of the Company, any affiliate (as such term is defined
in Rule 501(b) under the Securities Act) of the Company and any other person
acting on its or their behalf has engaged, in connection with the offering of
the Notes, in any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act.
(cc) Neither the Company nor, to the Company's knowledge, any of
its affiliates has engaged in any "directed selling efforts" with respect to the
Notes in the United States which would result in a failure to comply with the
provisions of Regulation S under the Securities Act. The Company has implemented
"offering restrictions," as that term is defined in Regulation S under the
Securities Act, with respect to the offer and sale of the Notes contemplated by
this Agreement and the Offering Memorandum.
2. SALE TO THE INITIAL PURCHASERS.
(a) On the basis of the representations, warranties and
agreements contained herein, and subject to the terms and conditions set forth
herein, the Company agrees to issue and sell to each Initial Purchaser,
severally and not jointly, and each Initial Purchaser, severally and not
jointly, agrees to purchase from the Company, the Firm Notes at a purchase price
and the aggregate principal amount as set forth in SCHEDULE A opposite the name
of such Initial Purchaser.
(b) In addition, on the basis of the representations, warranties
and agreements contained herein, and subject to the terms and conditions set
forth herein, the Company hereby grants an option to the Initial Purchasers to
purchase any or all of the Option Notes at a price equal to $827.93 per $1,000
principal amount at maturity of the Notes. Such option will expire thirty days
after the date hereof, and may be exercised in whole or in part only for the
purpose of covering overallotments which may be made in connection with the
offering and distribution of the Firm Notes upon notice by the Initial
Purchasers to the Company setting forth the aggregate principal amount of Option
Notes as to which the Initial Purchasers are then exercising the option and the
time and date of delivery and payment therefor. The time and date of delivery
and payment (the "Option Closing Date") shall be determined by the Initial
Purchasers, but shall not be later than five full business days after the
exercise of such option unless otherwise agreed
9
<PAGE> 10
by the Company and the Initial Purchasers. If the option is exercised as to all
or a portion of the Option Notes, the principal amount of Option Notes to be
purchased by each Initial Purchaser shall be in the same proportion to the total
principal amount of Option Notes being purchased as the total principal amount
of Firm Notes set forth in SCHEDULE A opposite the name of such Initial
Purchaser bears to the total principal amount of Firm Notes.
(c) The Initial Purchasers have advised the Company that it is
their intention, as promptly as they deem appropriate after the Company shall
have furnished the Initial Purchasers with copies of the Offering Memorandum, to
resell the Notes pursuant to the procedures and upon the terms set forth in the
Offering Memorandum, including not to solicit any offer to buy or offer to sell
the Notes by means of any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act. Each of the Initial Purchasers warrants and agrees with the Company that it
has solicited and will solicit offers for Notes within the United States only
from, and will offer Notes within the United States only to persons that it
reasonably believes to be either (i) "Qualified Institutional Buyers" or "QIBs"
in transactions that meet the requirements for an exemption from the
registration requirements of the Securities Act under Rule 144A or (ii)
"accredited investors" as that term is defined under Rule 501(a)(1), (2), (3) or
(7) of Regulation D under 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), (3) or (7) of Regulation D under the Securities Act (hereinafter
"Institutional Accredited Investors"). Each of the Initial Purchasers warrants
and agrees with the Company that it has solicited and will solicit offers for
Notes outside the United States only from, and will offer Notes outside the
United States only to (i) persons that it reasonably believes to be QIBs in
transactions that meet the requirements for an exemption from the registration
requirements of the Securities Act under Rule 144A or (ii) persons that it
reasonably believes are not "U.S. persons" as that term is defined in Regulation
S under the Securities Act. Sales to persons described in the two immediately
preceding sentences are hereinafter referred to as the "Exempt Resales." Each of
the Initial Purchasers represents and warrants, severally and not jointly, that
it is an Institutional Accredited Investor with such knowledge and experience in
financial and business matters as are necessary to evaluate the merits and risks
of an investment in the Notes, and is acquiring its interest in the Notes not
with a view to the distribution or resale thereof, except resales in compliance
with the registration requirements or exemption provisions of the Securities Act
and that neither it, nor anyone acting on its behalf, will offer the Notes so as
to bring the issuance and sale of the Notes within the provisions of Section 5
of the Securities Act. Each of the Initial Purchasers further represents and
warrants, severally and not jointly, that it is not a pension or welfare plan
(as defined in Section 3 of ERISA) and is not acquiring the Notes on behalf of a
pension or welfare plan. The Company acknowledges and agrees that the Initial
Purchasers may sell Notes to any affiliate of the Initial Purchasers and any
such affiliate may sell Notes purchased by it to the Initial Purchasers,
provided that any such affiliate, and the Initial Purchasers following a
purchase from any such affiliate, will remain bound by the provisions of this
Agreement; each of the Initial Purchasers also agrees that it will provide
written notice to any such affiliate who acquires Notes from the Initial
Purchaser of the restrictions on resale of the Notes set forth in this
Agreement. The Initial Purchasers agree that, prior to or simultaneously with
the confirmation of sale by any of them to any Subsequent Purchaser of any
10
<PAGE> 11
of the Notes purchased from the Company pursuant hereto, the Initial Purchasers
shall furnish to that Subsequent Purchaser a copy of the Offering Memorandum
(and any amendment thereof or supplement thereto that the Company shall have
furnished to the Initial Purchasers prior to the date of such confirmation of
sale). In addition to the foregoing, the Initial Purchasers agree and understand
that the Company and, for purposes of the opinions to be delivered to the
Initial Purchasers pursuant to Sections 6(b) and 6(c) hereof, counsel to the
Company and counsel to the Initial Purchasers, respectively, may rely upon the
accuracy and truth of the foregoing representations, warranties and covenants in
this Section 2 and the Initial Purchasers hereby consent to such reliance.
(d) Each Initial Purchaser, severally and not jointly, hereby
represents and warrants to, and agrees with, the Company that (i) no form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) has been or will be used by the Initial Purchasers or
any of their Initial Purchasers in connection with the offer and sale of any of
the Notes including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising except
pursuant to a registered public offering as provided in the Registration Rights
Agreement; (ii) it will otherwise act in accordance with the terms and
conditions set forth in this Agreement in connection with the placement of the
Notes contemplated hereby; (iii) it has not engaged in any "directed selling
efforts" with respect to the Notes in the United States which would result in a
failure to comply with the provisions of Regulation S under the Securities Act;
and (iv) not to engage in hedging transactions with respect to the Notes or the
Common Stock prior to the date one year following the Closing Date except in
compliance with the Securities Act.
3. DELIVERY OF AND PAYMENT FOR THE NOTES. Delivery of, and payment for,
the Firm Notes shall be made at 9:00 a.m., San Francisco, California time, on
November 2, 1999, or at such other date or time, not later than ten full
business days thereafter, as shall be agreed by the Initial Purchasers and the
Company (such date and time being referred to herein as the "Closing Date").
Delivery of, and payment for, the Firm Notes and the Option Notes shall be made
at the offices of Deutsche Bank Securities Inc., San Francisco, California, or
any such other place as shall be agreed by the Initial Purchasers and the
Company. In addition, in the event that any or all of the Option Notes are
purchased by the Initial Purchasers, delivery of such Option Notes and payment
of the purchase price for such Option Notes shall be made at the above-mentioned
offices of Deutsche Bank Securities Inc., or any such other place as shall be
agreed by the Initial Purchasers and the Company, on each date of delivery as
specified in the notice from the Initial Purchasers to the Company. Payment
shall be made to the Company by wire transfer of same day funds payable to the
order of the Company, against delivery to the Initial Purchasers of certificates
for the Notes to be purchased by them. On the Closing Date, payment will be made
against delivery of one or more global Notes in registered form in such
denominations and registered in such names, or otherwise, as the Initial
Purchasers shall have requested, including one or more global Note to be
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.,
as nominee of DTC. The Company shall make the certificates for the Notes
available for examination and packaging by the Initial Purchasers not later than
10:00 a.m. (San
11
<PAGE> 12
Francisco, California time) on the last business day prior to the Closing Date,
or Option Closing Date, as the case may be, at the offices of the Trustee or its
agent in New York, New York.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the Initial Purchasers as follows:
(a) The Company will furnish promptly to the Initial Purchasers
and counsel for the Initial Purchasers, without charge, as many copies of the
Offering Memorandum (and of any amendments or supplements thereto) as may be
reasonably requested; to furnish to the Initial Purchasers on the date hereof a
copy of the independent accountants' report included in the Offering Memorandum
signed by the accountants rendering such report; and the Company hereby consents
to the use of the Offering Memorandum, and any amendments and supplements
thereto, in connection with Exempt Resales of the Notes.
(b) The Company will notify Deutsche Bank Securities Inc.
promptly, and confirm such advice in writing, of any of the following events
which (A) make any statement of a material fact made in the Offering Memorandum
false or misleading in any material respect or (B) if not disclosed in the
Offering Memorandum, would constitute a material omission therefrom:
(i) any filing made by the Company of information relating to
the offering of the Notes with any securities exchange or any other regulatory
body in the United States or any other jurisdiction, and
(ii) prior to the completion of the placement of the Notes by
the Initial Purchasers as evidenced by a notice in writing from the Initial
Purchasers to the Company, any material adverse change in the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and of the Subsidiaries
taken as a whole, except as set forth in the Offering Memorandum.
In such event, or if prior to the completion of the placement of the Notes by
the Initial Purchasers as evidenced by a notice in writing from the Initial
Purchasers to the Company, any event shall occur as a result of which it is
necessary, in the reasonable opinion of the Company, its counsel, the Initial
Purchasers or counsel for the Initial Purchasers, to amend or supplement the
Offering Memorandum in order that the Offering Memorandum not include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading in light of the circumstances then
existing, the Company will forthwith amend or supplement the Offering Memorandum
by preparing and furnishing to each Initial Purchaser an amendment or amendments
of, or a supplement or supplements to, the Offering Memorandum (in form and
substance satisfactory in the reasonable opinion of counsel for the Initial
Purchasers) so that, as so amended or supplemented, the Offering Memorandum will
not include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances existing at the time it is delivered to a Subsequent Purchaser,
not misleading.
12
<PAGE> 13
(c) The Company agrees that if the delivery of the Offering
Memorandum is required at any time in connection with the sale of the Notes and
if at such time any events shall have occurred as a result of which the Offering
Memorandum as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were made
when the Offering Memorandum is delivered, not misleading, or if for any other
reason it shall be necessary at such time to amend or supplement the Offering
Memorandum in order to comply with any law, the Company will notify Deutsche
Bank Securities Inc. immediately thereof, and promptly prepare and furnish to
the Initial Purchasers an amended Offering Memorandum or a supplement to the
Offering Memorandum so that statements in the Offering Memorandum, as so amended
or supplemented, will not, in light of the circumstances under which they were
made when it is so delivered, be misleading, or so that the Offering Memorandum
will comply with applicable law. The Initial Purchasers' delivery of any such
amendment or supplement shall not constitute a waiver of any of the conditions
set forth in Section 6 hereof.
(d) The Company agrees to not amend or supplement the Offering
Memorandum without the consent of the Initial Purchasers, which consent shall
not be unreasonably withheld, and to promptly advise the Initial Purchasers when
any document filed under the Exchange Act which is incorporated into the
Offering Memorandum shall have been filed with the Commission.
(e) The Company agrees, during the one-year period following the
Closing Date, to furnish to the Initial Purchasers, upon request, all reports
and other communications furnished to shareholders and copies of all reports,
documents, information and financial statements filed with the Commission or any
national securities exchange on which any class of securities of the Company
shall be listed; provided, however, that the Company shall not be required to
furnish any such reports, documents, information or financial statements which
is available through the Commission's EDGAR service or any such reports,
documents, information or financial statements which are filed confidentially.
(f) The Company will use the proceeds from the sale of the Notes
in the manner described in the Offering Memorandum.
(g) The Company will, in connection with the offering of the
Notes and consistent with its course of conduct in preparing the Offering
Memorandum, make its officers, employees, independent accountants and legal
counsel reasonably available upon request by the Initial Purchasers.
(h) The Company will use its reasonable best efforts to do and
perform all things required to be done and performed under this Agreement by it
that are within its control prior to or after the Closing Date and to use
reasonable efforts to satisfy all conditions precedent on its part to the
delivery of the Notes.
(i) None of the Company, its affiliates (as defined in Rule
501(b) under the Securities Act) or any person (other than the Initial
Purchasers and their respective affiliates, as
13
<PAGE> 14
to whom the Company makes no representation) acting on its behalf will engage,
in connection with the offering of the Notes, in any form of general
solicitation or general advertising within the meaning of Rule 502(c) under the
Securities Act, nor will any person acting on its or their behalf, directly or
indirectly, make offers or sales of any security, or solicit offers to buy any
security, under circumstances that would require the registration of the Notes
under the Securities Act.
(j) Until such time as the Shelf Registration Statement is
initially declared effective by the Securities and Exchange Commission, or all
of the restrictive legends required to be placed on the Notes and Underlying
Stock pursuant to the Indenture have been otherwise removed or are otherwise
removable, the Company will not purchase any of the Notes other than Notes which
upon such purchase are canceled and not reissued. For purposes of this Section
4(j), the term "affiliate" shall mean the definition of such term in Rule
144(a)(1) under the Securities Act.
(k) The Company will not, so long as the Notes are outstanding,
be or become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to be
registered under Section 8 of the Investment Company Act, and will not be or
become, or be or become owned by, a closed-end investment company required to be
registered, but not registered thereunder.
(l) The Company will cooperate with the Initial Purchasers and
counsel for the Initial Purchasers to qualify the Notes and the shares of Common
Stock issuable upon conversion of the Notes for offering and sale under the
applicable securities laws of such states and other jurisdictions (domestic or
foreign) as the Initial Purchasers may reasonably designate in writing, and to
maintain such qualifications in effect for as long as is required to complete
the sale of the Notes and the sale of the shares of Common Stock issuable upon
conversion of the Notes; provided, however, that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process or to subject it to taxation in any
jurisdiction where it is not so qualified or so subject. In each jurisdiction in
which the Notes or such shares of Common Stock issuable upon conversion of the
Notes have been so qualified, the Company will file such statements and reports
as may be required in connection with the distribution of the Notes.
(m) The Company agrees that no future offer and sale of debt
securities of the Company of any class will be made if, as a result of the
doctrine of "integration" referred to in Rule 502 under the Securities Act, such
offer and sale would render invalid the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof or by Rule
144A (for the purpose of (i) the sale of the Notes by the Company to the Initial
Purchasers, (ii) the resale of the Notes by the Initial Purchasers to Subsequent
Purchasers or (iii) the resale of the Notes by such Subsequent Purchasers to
others).
(n) So long as any of the Notes or Common Stock issued upon the
conversion of the Notes are "restricted securities" within the meaning of Rule
144(a)(3) under the Securities Act, the Company will, during any period in which
it is not subject to and in compliance with
14
<PAGE> 15
Sections 13 or 15(d) of the Exchange Act, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by such
holder) of such restricted securities, upon the request of such holder or
prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act. This covenant is intended to be for the
benefit of the holders, and prospective purchasers designated by such holders,
from time to time of such restricted securities.
(o) The Company will use its reasonable best efforts to comply
with the Registration Rights Agreement and all agreements set forth in any
representation letters of the Company to DTC relating to the approval of the
Notes for "book-entry" transfers;
(p) The Company will not take any action prior to the execution
and delivery of the Indenture which, if taken after such execution and delivery,
would have violated any of the covenants contained in the Indenture.
(q) The Company will not knowingly take any action prior to the
Closing Date which in the Company's reasonable judgment would require the
Offering Memorandum to be amended or supplemented pursuant to Section 4(c)
hereof.
(r) The Company will maintain a transfer agent and, if necessary
under the laws of the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Common Stock.
(s) From and after the Closing, the Company will use its
reasonable efforts to permit the Notes to continue to be designated as PORTAL
securities in accordance with the rules and regulations adopted by the National
Association of Securities Dealers, Inc. relating to the PORTAL market. Upon
request of the Initial Purchasers, the Company will use its reasonable efforts
to permit the Notes to be listed for trading on the Luxembourg Stock Exchange.
(t) The Company will cooperate with the Initial Purchasers and
use its reasonable efforts to permit the Notes and the Underlying Stock to be
eligible for clearance and settlement through DTC.
(u) Without the prior written consent of Deutsche Bank Securities
Inc., the Company will not, during the period beginning on the date of this
Agreement and ending 90 days after such date, directly or indirectly, offer to
sell, sell, grant any option for the sale or otherwise dispose of, any Common
Stock or securities convertible into Common Stock, other than (i) the Notes to
be sold hereunder to the Initial Purchasers or Common Stock issued upon
conversion of the Notes, (ii) any shares of Common Stock issued by the Company
upon the exercise or the conversion of an option , warrant or right to acquire a
security outstanding on the date hereof and (iii) any shares of Common Stock
issued or options to purchase Common Stock granted pursuant to existing employee
benefit plans of the Company.
15
<PAGE> 16
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay all of the expenses and fees
incident to the performance of its obligations under this Agreement, the
Indenture and the Registration Rights Agreement, including, regardless of
whether any sale of the Notes to the Initial Purchasers is consummated:
(i) the fees and expenses of accountants and counsel for the
Company,
(ii) all costs and expenses incurred by the Company in
connection with the preparation, duplication, printing (including mailing and
handling charges), and delivery to the Initial Purchasers of the Offering
Memorandum and any amendments and supplements thereto,
(iii) all costs and expenses incurred by the Company in
connection with the reproduction of this Agreement, the Registration Rights
Agreement, the Indenture and such other documents as may be required in
connection with the offering, purchase, sale and delivery of the Notes,
(iv) the printing, issuance and delivery of the Notes,
(v) costs and expenses of travel, food and lodging of Company
personnel in connection with the "road show," information meetings and
presentations, and fees and expenses of the transfer agent and registrar,
(vi) fees and expenses of the Trustee, including the
Trustee's counsel, in connection with the Indenture and the Notes,
(vii) the qualification of the Notes and the shares of Common
Stock issuable upon conversion of the Notes under state securities laws in
accordance with the provisions of Section 4(l), including filing fees and
disbursements of counsel for the Initial Purchasers,
(viii) any fees incurred in connection with the designation
of the Notes as PORTAL securities in connection with the PORTAL market and
designation of the Underlying Stock for quotation on the Nasdaq National Market,
and
(ix) all other costs and expenses incident to the performance
of its obligations hereunder which are not specifically otherwise provided for
in this Section.
(b) The Initial Purchasers shall pay their own costs and
expenses, including costs and expenses of their counsel, any transfer taxes on
Notes which they may sell and expenses incident to their sale of Notes.
6. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The obligations of
the Initial Purchasers hereunder are subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing
16
<PAGE> 17
Date and each Option Closing Date, if any, as if they had been made on and as of
the Closing Date or each Option Closing Date, as the case may be; and the
performance by the Company on and as of the Closing Date and each Option Closing
Date, if any, of its covenants and obligations hereunder and to the following
further conditions:
(a) The Company shall not have advised the Initial Purchasers
that, and the Initial Purchasers shall not have otherwise become aware of the
fact that, the Offering Memorandum, or any supplement or amendment thereto,
contains an untrue statement of fact which is material, or omits to state a fact
which is material and is required to be stated therein or is necessary to make
the statements, in light of the circumstances under which they were made, not
misleading. No order suspending the sale of the Notes in any jurisdiction shall
have been issued on either the Closing Date or the relevant Option Closing Date,
if any, and no proceedings for that purpose shall have been instituted or shall
be threatened.
(b) At Closing Date, and the Option Closing Date, if any, the
Initial Purchasers shall have received the favorable opinion of Bryan Cave, LLP,
counsel to the Company, dated the Closing Date, addressed to the Initial
Purchasers and in form and substance reasonably satisfactory to the Initial
Purchasers, and attached hereto as Exhibit A. In rendering such opinion Bryan
Cave, LLP may rely as to matters governed by the laws of states other than
California or Federal laws on local counsel licensed to practice in such
jurisdictions, provided that in each case Bryan Cave, LLP shall state that they
believe that they and the Initial Purchasers are justified in relying on such
other counsel. In rendering such opinion, such counsel may also rely, as to
matters of fact, on certificates of officers of the Company and of governmental
officials, in which case their opinion shall state that they are so doing. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that the Offering Memorandum as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (except that
such counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Bryan Cave,
LLP may state that their belief is based upon the procedures set forth therein,
but is without independent check and verification.
(c) The Initial Purchasers shall have received at or prior to the
Closing Date a memorandum or summary, in form and substance satisfactory to the
Initial Purchasers, with respect to the qualification for offering and sale by
the Initial Purchasers of the Notes under the State securities or Blue Sky laws
of such jurisdictions as the Initial Purchasers may reasonably have designated
to the Company ("Blue Sky Memorandum").
(d) The Initial Purchasers and its counsel shall have received,
on each of the dates hereof, the Closing Date and the Option Closing Date, as
the case may be, a letter dated the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance satisfactory to you, of
PricewaterhouseCoopers LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating that in their opinion the financial
statements and
17
<PAGE> 18
schedules examined by them and included in the Offering Memorandum comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Initial Purchasers with respect to the financial statements and
certain financial and statistical information contained in the Offering
Memorandum.
(e) The Initial Purchasers shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Corporate Controller of the
Company to the effect that, as of the Closing Date or the Option Closing Date,
as the case may be, each of them severally represents in their respective
capacities as officers of the Company and on behalf of the Company as follows:
(i) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement, the Indenture and the Registration Rights Agreement on its parts to
be performed or satisfied at or prior to the Closing Date or the Option Closing
Date, as the case may be;
(ii) The final Offering Memorandum has been printed and
copies thereof have been distributed to the Initial Purchasers and no stop order
suspending the sale of the Notes in any jurisdiction has been issued and no
proceedings for that purpose has been commenced or, to the knowledge of the
Company, is threatened;
(iii) He has carefully examined the Offering Memorandum and,
in his opinion, as of the date of the Offering Memorandum, the statements
contained in the Offering Memorandum were true and correct, and such Offering
Memorandum did not omit to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, and since
the date of the Offering Memorandum, no event has occurred which should have
been set forth in a supplement to or an amendment of the Offering Memorandum
which has not been so set forth in such supplement or amendment; and
(iv) Since the respective dates as of which information is
given in the Offering Memorandum, there has not been any material adverse change
or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole, whether or not arising in the
ordinary course of business.
(f) The Company shall have furnished to the Initial Purchasers
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Initial Purchasers may reasonably have requested.
18
<PAGE> 19
(g) The Notes shall have been approved by the National
Association of Securities Dealers, Inc. for trading in the PORTAL market.
(h) Trading in the Common Stock shall not have been suspended by
the Nasdaq National Market at any time on or after the date of this Agreement,
other than any trading halts imposed generally on shares quoted on the Nasdaq
National Market.
(i) The Company shall have executed and delivered the
Registration Rights Agreement on the Closing Date.
(j) The Indenture shall have been duly executed and delivered by
the Company and the Trustee and the Notes shall have been duly executed and
delivered by the Company and duly authenticated by the Trustee.
(k) If any event shall have occurred that requires the Company
under Section 4(b) or 4(c) hereof to prepare an amendment or supplement to the
Offering Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchasers shall have been given a reasonable opportunity to comment
thereon, and copies thereof delivered to the Initial Purchasers.
(l) There shall not have occurred any invalidation of Rule 144A
under the Securities Act by any court or any withdrawal or proposed withdrawal
of any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
which in the judgment of the Initial Purchasers would materially impair the
ability of the Initial Purchasers to purchase, hold or effect resales of the
Notes as contemplated hereby.
The opinions and certificates mentioned in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Initial Purchasers and to Gray
Cary Ware & Freidenrich LLP, counsel for the Initial Purchasers.
If any of the conditions hereinabove provided for in this Section
6 shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the initial Purchasers hereunder may be terminated
by the Initial Purchasers by notifying the Company of such termination in
writing or by telegram at or prior to the Closing Date or the Option Closing
Date, as the case may be.
In such event, the Company and the Initial Purchasers shall not
be under any obligation to each other (except to the extent provided in Sections
5 and 9 hereof).
19
<PAGE> 20
7. SUBSEQUENT OFFERS AND RESALES OF THE NOTES. Each of the Initial
Purchasers and the Company hereby establishes and agrees to observe the
following procedures in connection with the offer and sale by the Initial
Purchasers of the Notes.
(a) Offers have been and will be, and sales of the Notes will be,
made by the Initial Purchasers only in transactions that are Exempt Resales.
Without limiting the foregoing, each of the Initial Purchasers agrees that,
prior to the date one year following the Closing Date, it will not make any
offers or sales of the Notes except in compliance with (a) the provisions of
Rules 903 or 904 or Regulation S under the Securities Act, (b) pursuant to a
registration statement filed pursuant to the Securities Act with respect to the
Notes or (c) pursuant to an available exemption from the registration
requirements of the Securities Act . With respect to Institutional Accredited
Investors, the Initial Purchasers shall not confirm any resale of the Notes
until they have received an executed "Letter to be Delivered by Institutional
Accredited Investors" (a form of which is attached hereto as Schedule D), signed
on behalf of such Institutional Accredited Investor.
(b) The Notes have been and will be offered by the Initial
Purchasers only by approaching prospective Subsequent Purchasers on an
individual basis. No general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act will be used in connection with
the offering of the Notes. Each of the Initial Purchasers agrees that it will
not engage in any "directed selling efforts" in the United States which would
result in a failure to comply with the restrictions of Regulation S under the
Securities Act. Each of the Initial Purchasers agrees, with respect to resales
made in reliance upon Rule 144A (other than through the PORTAL Market) of any of
the Notes purchased from the Company hereunder, to deliver either with the
confirmation of such resale or otherwise prior to settlement of such resale a
notice to the effect that the resale of such Notes has been made in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Rule 144A. Each of the Initial Purchasers agrees, with respect to
resales made in reliance upon Regulation S under the Securities Act of any of
the Notes purchased from the Company hereunder, to deliver either with the
confirmation of such resale or otherwise prior to settlement of such resale a
notice to the effect that the resale of such Notes has been made in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Regulation S. Each of the Initial Purchasers agrees, with respect to
resales to a distributor, a dealer (as defined in Section 2(a)(12) of the
Exchange Act), or a person receiving a selling concession, fee or other
remuneration, prior to the expiration of one year following the Closing Date,
made in reliance upon Regulation S under the Securities Act of any of the Notes
purchased from the Company hereunder, to deliver either with the confirmation of
such resale or otherwise prior to settlement of such resale a notice to the
effect that the purchaser is subject to the same restrictions on offers and
sales that apply to a distributor.
(c) In connection with the original distribution of the Notes,
the Company agrees that, prior to any offer or resale of the Notes by the
Initial Purchasers, the Initial Purchasers and their counsel shall have the
right to make reasonable inquiries into the business of the Company and its
Subsidiaries. The Company agrees to provide answers to each prospective
Subsequent Purchaser of Notes who so requests information concerning the Company
and its
20
<PAGE> 21
Subsidiaries (to the extent such information is available or can be acquired and
made available to prospective Subsequent Purchasers without unreasonable effort
or expense and to the extent the provision thereof is not prohibited by
applicable law) and the terms and conditions of the offering of the Notes, as
provided in the Offering Memorandum.
(d) Counsel for the Initial Purchasers shall deliver to the
Company the Blue Sky Memorandum in form and substance satisfactory to the
Company on or prior to the Closing Date.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Initial Purchaser (for purposes of this Section 8, "Initial Purchasers" shall
include the officers, directors, partners, employees and agents of such Initial
Purchaser, and each person, if any, who controls such Initial Purchaser
("controlling person") within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act) from and against any and all losses, claims,
damages, expenses or liabilities, joint or several (and actions, proceedings,
suits and litigation in respect thereof), whatsoever, as the same are incurred,
to which the Initial Purchaser or any such officer, director, partner, employee,
agent or controlling person may become subject, under the Securities Act, the
Exchange Act or any other statute or at common law or otherwise, insofar as such
losses, claims, damages, expenses, liabilities, actions, proceedings, suits or
litigation arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum or any
amendment or supplement thereto or (ii) the omission or alleged omission
therefrom of a 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 will reimburse any reasonable legal or other expenses
incurred by the Initial Purchaser or any such officer, director, partner,
employee, agent or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action, proceeding, suit or
litigation; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, expense, liability,
action, proceeding, suit or litigation arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
the Offering Memorandum or any such amendment or supplement in reliance upon and
in conformity with the Initial Purchasers' Information. The indemnity agreement
shall be in addition to any liability which the Initial Purchasers may have at
common law or otherwise.
(b) Each Initial Purchaser severally and not jointly will
indemnify and hold harmless the Company, each of its officers, directors,
partners, employees and agents and each person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several (and actions, proceedings, suits and litigation in
respect thereof), whatsoever, as the same are incurred, to which the Company or
any such officer, director, partner, employee, agent or controlling person may
become subject, under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise, insofar as such losses, claims, damages,
liabilities, actions, proceedings, suits or litigation arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained
21
<PAGE> 22
in the Offering Memorandum or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a 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 will reimburse any
reasonable legal or other expenses incurred by the Company or any such officer,
director, partner, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action,
proceeding, suit or litigation; PROVIDED, HOWEVER, that each Initial Purchaser
will be liable in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission has
been made in the Offering Memorandum or such amendment or supplement, in
reliance upon and in conformity with Initial Purchasers' Information.
Notwithstanding the provisions of this Section 8(b), (i) no Initial Purchaser
shall be required to make any payment pursuant to this Section 8(b) in excess of
the amount of the commissions applicable to the Notes purchased by such Initial
Purchaser, and (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
indemnification from any person who was not guilty of such fraudulent
misrepresentation. This indemnity agreement will be in addition to any liability
which such Initial Purchaser may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure. In case
any such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred 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 at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 45 days of presentation) the
reasonable fees and expenses of the counsel retained by the indemnified party in
the event (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 or (iii) the indemnifying party shall have failed to
assume the defense and employ counsel acceptable to the indemnified party within
a reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any
22
<PAGE> 23
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. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Initial Purchasers on the other from the offering of the Notes.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Initial Purchasers on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
commissions received by the Initial Purchasers, in each case as set forth in the
Plan of Distribution Section of the Offering Memorandum. The relative fault
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 Company on the
one hand or the Initial Purchasers on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 8(d). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), (i) no Initial Purchaser
shall be required to contribute any amount in excess of the commissions
applicable to the Notes purchased by such Initial Purchaser, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of
23
<PAGE> 24
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers' obligations in this Section 8(d) to contribute are several in
proportion to their respective obligations as Initial Purchasers and not joint.
(e) In any proceeding relating to the Offering Memorandum or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the jurisdiction of any court
already having jurisdiction over the Company.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Initial Purchaser or any person
controlling any Initial Purchaser, the Company, its directors or executive
officers or any persons controlling the Company, (ii) acceptance of any Notes
and payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Initial Purchaser, to the Company, its directors or executive
officers, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 8.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto
shall be deemed to be representations, warranties and agreements at the Closing
Date and each Option Closing Date, as the case may be, and the agreements of the
Company and the provisions with respect to the payment of expenses contained in
Section 5 and the respective indemnity agreements contained in Section 8 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Initial Purchasers, the Company, its
Subsidiaries or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Notes to the Initial Purchasers.
10. TERMINATION.
(a) Subject to Section 11(b), the Initial Purchasers shall have
the right to terminate this Agreement, by notice to the Company, at any time at
or prior to the Closing Date (i) if any domestic or international event or act
or occurrence has disrupted, or in the Initial Purchasers' opinion will in the
immediate future disrupt, the financial markets; (ii) if the United States shall
have become involved in a war or major hostilities, or there shall have been an
escalation in an existing war or major hostilities, or a national emergency
shall have been declared in the United States; (iii) if the Company or its
Subsidiaries shall have sustained a loss material to the Company or its
Subsidiaries by fire, flood, accident, hurricane, earthquake, theft, sabotage or
other calamity or malicious act which, whether or not such loss shall have been
24
<PAGE> 25
insured, will, in the Initial Purchasers' opinion, make it inadvisable to
proceed with the delivery of the Notes; or (iv) if there shall have been such a
material adverse change in the general market, political or economic conditions
in the United States or elsewhere, as in the Initial Purchasers' reasonable
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Notes.
(b) If this Agreement is terminated by the Initial Purchasers in
accordance with the provisions of Section 11(a), such termination shall be
without liability of any party to any other party provided that Sections 5 and 9
hereof shall survive such termination and remain in full force and effect.
11. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Notes which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Notes to be purchased on an Option Closing Date, the Initial Purchasers
may, at their option, by notice from the Initial Purchasers to the Company,
terminate the Initial Purchasers' obligation to purchase Option Notes from the
Company on such date) without any liability on the part of any nondefaulting
party other than pursuant to Sections 5 and 9. No action taken pursuant to this
Section 12 shall relieve the Company from liability, if any, in respect of such
default.
12. DEFAULT BY INITIAL PURCHASERS. If on the Closing Date or any Option
Closing Date, as the case may be, any Initial Purchaser shall fail to purchase
and pay for the portion of the Notes which such Initial Purchaser has agreed to
purchase and pay for on such date (otherwise than by reason of any default on
the part of the Company), Deutsche Bank Securities Inc. shall use its reasonable
efforts to procure within 36 hours thereafter one or more of the other Initial
Purchasers, or any others, to purchase from the Company such principal amounts
as may be agreed upon, and upon the terms set forth herein, of the Firm Notes or
Option Notes, as the case may be, which the defaulting Initial Purchaser or
Initial Purchasers failed to purchase. If during such 36 hours Deutsche Bank
Securities Inc. shall not have procured such other Initial Purchasers, or any
others, to purchase the principal amount of Firm Notes or Option Notes, as the
case may be, agreed to be purchased by the defaulting Initial Purchaser or
Initial Purchasers, then (i) if the aggregate principal amount of Firm Notes or
Option Notes, as the case may be, with respect to which such default shall occur
does not exceed 10% of the total principal amount of Firm Notes or Option Notes,
as the case may be, covered hereby, the other Initial Purchasers shall be
obligated, severally, in proportion to the respective principal amounts of Firm
Notes or Option Notes, as the case may be, which they are obligated to purchase
hereunder, to purchase the principal amount of Firm Notes or Option Notes, as
the case may be, which such defaulting Initial Purchaser or Initial Purchasers
failed to purchase, or (ii) if the aggregate principal amount of Firm Notes or
Option Notes, as the case may be, with respect to which such default shall occur
exceeds 10% of the total principal amount of Firm Notes or Option Notes, as the
case may be, covered hereby, the Company or Deutsche Bank Securities Inc. will
have the right, by written notice given within the next 36-hour period to the
parties to this Agreement, to terminate this Agreement without liability on the
part of the non-defaulting Initial Purchasers or of the Company except to the
extent provided in Sections 5 and 8 hereof. In the event of a default by
25
<PAGE> 26
any Initial Purchaser or Initial Purchasers, as set forth in this Section 12,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as Deutsche Bank Securities Inc. may
determine in order that the required changes in the Offering Memorandum or in
any other documents or arrangements may be effected. The term "Initial
Purchaser" includes any person substituted for a defaulting Initial Purchaser.
Any action taken under this Section 12 shall not relieve any defaulting Initial
Purchaser from liability in respect of any default of such Initial Purchaser
under this Agreement.
13. NOTICES. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be given in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication to the following:
Deutsche Bank Securities Inc.
Warburg Dillon Read LLC
c/o Deutsche Bank Securities Inc.
101 California Street, 48th Floor
San Francisco, California 94111
Attention: General Counsel
with a copy to:
Gray Cary Ware & Freidenrich LLP
Attention: Scott Stanton, Esq.
4365 Executive Drive, Suite 1600
San Diego, California 92121-2189.
Tekelec
Attention: Chief Executive Officer
Corporate Secretary
26580 West Agoura Road
Calabasas, California 91302,
with a copy to:
Bryan Cave, LLP
Attention: J. Mark Klamer, Esq.
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750.
14. PARTIES. This Agreement shall inure to the benefit of and shall be
binding upon the Initial Purchasers and the Company and their respective
successors. Except as otherwise provided herein, this Agreement is not intended
(nor shall it be construed) to give any person, firm or corporation, other than
the parties hereto and their respective successors, heirs and legal
representatives, and the officers, directors, partners, employees, agents and
controlling persons
26
<PAGE> 27
referred to in Sections 8(a) and 8(b) and their heirs and legal representatives,
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision herein contained. Except as otherwise provided
herein, this Agreement and all conditions and provisions hereof is intended to
be for the sole and exclusive benefit of the Initial Purchasers and the Company
and their respective successors, and said officers, directors, partners,
employees, agents and controlling persons and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Notes from the Initial Purchasers shall be deemed to be a successor
by reason merely of such purchase.
15. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
SPECIFIED TIMES OF DAY REFER TO SAN FRANCISCO, CALIFORNIA TIME UNLESS OTHERWISE
SPECIFIED.
16. ENTIRE AGREEMENT, AMENDMENTS. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing signed by the
Initial Purchasers and the Company.
27
<PAGE> 28
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
TEKELEC
By: /s/ Michael L. Margolis
------------------------------------
Name: Michael L. Margolis
-----------------------------
Title: Chief Executive Officer
----------------------------
Confirmed and accepted as of the date first stated above.
DEUTSCHE BANK SECURITIES INC.
WARBURG DILLON READ LLC
By: DEUTSCHE BANK SECURITIES INC.
By: /s/ David DiPietro
------------------------------------
Authorized Signatory
Name: David DiPietro
Title: Managing Director
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount at
Initial Purchasers Purchase Price Maturity
<S> <C> <C>
Deutsche Bank Securities Inc. $ 63,233,154 $ 76,375,000
Warburg Dillon Read LLC 34,048,621 41,125,000
------------ ------------
Total $ 97,281,775 $117,500,000
</TABLE>
<PAGE> 30
SCHEDULE B
Subsidiary Jurisdiction of Incorporation
IEX Corporation Nevada
Tekex Ltd. U.S. Virgin Islands
Tekelec Limited United Kingdom
Tekelec, Ltd. Japan
<PAGE> 31
SCHEDULE C
Michael L. Margolis
Gary Crockett
Cecil E. Boyd
Danny L. Parker
Ronald W. Buckly
Davide Frankie
Teresa Pippin
Lee Smith
Jean-Claude Asscher
Robert V. Adams
Daniel L. Brenner
Howard Oringer
Jon F. Rager
<PAGE> 32
SCHEDULE D
Form of Letter to be Delivered by Institutional Accredited Investors
Tekelec
76580 West Agoura Road
Calabasas, California 91302
Deutsche Bank Securities Inc.
Warburg Dillon Read LLC
c/o Deutsche Bank Securities Inc.
101 California Street, 48th Floor
San Francisco, California 94111
Ladies and Gentlemen:
We are delivering this letter in connection with an offering of
Convertible Subordinated Notes due 2002 (the "Notes"), which are convertible
into shares of the Company's Common Stock, without par value (the "Common
Stock"), all as described in the Offering Memorandum (the "Offering Memorandum")
relating to the offering.
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule
501(a) (1), (2), (3) or (7) under the Securities Act of 1933 (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), (3) or
(7) under the Securities Act (an "Institutional Accredited Investor");
(ii) (A) any purchase of the Notes 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 Notes as fiduciary for the account
of one or more institutions for which we exercise sole investment
discretion;
(iii) In the event that we purchase any Notes, we will acquire
Notes having a minimum principal amount of not less than $250,000 for
our own account or for any separate account for which we are acting;
(iv) we have such knowledge and experience in financial and
business matters that we are capable of evaluating the merits and risks
of purchasing Notes;
1
<PAGE> 33
(v) we are not acquiring Notes with a view to distribute or with
any present intention of offering or selling Notes or the Common Stock
issuable upon conversion 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
(vi) 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 access 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 Notes.
We understand that the Notes 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 Notes 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
Notes, that if in the future we decide to resell or otherwise transfer such
Notes or the Common Stock issuable upon conversion thereof, such Notes or Common
Stock may be resold or otherwise transferred only (i) to Tekelec 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 transfer agent or registrar for such securities a
signed letter containing certain representations and agreements relating to the
restrictions on transfer or such securities (the form of which letter can be
obtained from such transfer agent or registrar), 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 for 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 (vii)
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 Notes. We further agree to provide any person
purchasing any of the Notes 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 registrar and transfer agent for the Notes and the Common
Stock will not be required to accept for registration of transfer any Notes or
any shares of Common Stock issued upon conversion of the Notes except upon
presentation of evidence satisfactory to the Company that we have complied with
the foregoing restrictions on transfer. We further understand that any Notes and
any shares of Common Stock issued upon conversion of the Notes 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 any Notes or any shares of Common Stock issuable upon conversion of
the Notes transferred pursuant to clause (vi) above.
2
<PAGE> 34
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 promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
(Name of Purchaser)
By:
Name:
Title:
Address:
3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,644
<SECURITIES> 27,264
<RECEIVABLES> 74,049
<ALLOWANCES> 1,227
<INVENTORY> 21,864
<CURRENT-ASSETS> 166,834
<PP&E> 49,357
<DEPRECIATION> 30,648
<TOTAL-ASSETS> 360,123
<CURRENT-LIABILITIES> 168,916
<BONDS> 0
0
0
<COMMON> 98,328
<OTHER-SE> 69,510
<TOTAL-LIABILITY-AND-EQUITY> 360,123
<SALES> 149,156
<TOTAL-REVENUES> 149,156
<CGS> 56,263
<TOTAL-COSTS> 56,263
<OTHER-EXPENSES> 93,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,858
<INCOME-PRETAX> 174
<INCOME-TAX> 4,898
<INCOME-CONTINUING> (4,724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,724)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
