<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-07651
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
VENTRITEX, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 77-0056340
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
701 EAST EVELYN AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 738-4883
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------------
FRANK M. FISCHER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VENTRITEX, INC.
701 EAST EVELYN AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 738-4883
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
Copies to:
<TABLE>
<S> <C>
J. CASEY MCGLYNN, ESQ. FRANK H. GOLAY, ESQ.
JOHN A. FORE, ESQ. SULLIVAN & CROMWELL
CHRISTOPHER D. MITCHELL, ESQ. 444 SOUTH FLOWER STREET
WILSON SONSINI GOODRICH & ROSATI SUITE 1200
PROFESSIONAL CORPORATION LOS ANGELES, CA 90071
650 PAGE MILL ROAD (213) 955-8000
PALO ALTO, CA 94304
(415) 493-9300
</TABLE>
------------------------------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box. /
/
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY PRICE(2) FEE
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% Convertible Subordinated Notes Due
, 2001.......................... $100,000,000 100% $100,000,000 $34,483(4)
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Common Stock, $0.001 par value...................... (3) N/A N/A N/A
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</TABLE>
(1) Includes $10,000,000 aggregate principal amount of the Notes issuable upon
exercise of an option granted by the Company to the Underwriter to cover
over-allotments.
(2) Estimated in accordance with Rule 457 under the Securities Act of 1933
solely for purposes of computing the registration fee.
(3) Such indeterminable number of shares of Common Stock as may be required for
issuance upon conversion of the Notes being registered hereunder. This
Registration Statement also applies to Rights under the Company's Preferred
Shares Rights Agreement, which are attached to and tradeable only with the
shares of Common Stock registered hereby. No registration fees are required
for such rights as they will be issued for no additional consideration.
(4) Entire amount previously paid.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED AUGUST 2, 1996
$50,000,000
VENTRITEX, INC.
% CONVERTIBLE SUBORDINATED NOTES DUE , 2001
---------------------
The Notes are convertible at any time prior to maturity, unless previously
redeemed or repurchased, into shares of Common Stock, par value $.001 per share
("Common Stock"), of Ventritex, Inc. (the "Company") at a conversion rate of
shares per each $1,000 principal amount of Notes (equivalent to a
conversion price of approximately $ per share), subject to adjustment in
certain circumstances. On August 1, 1996, the last reported bid price of the
Common Stock, which is traded under the symbol "VNTX" on the Nasdaq National
Market, was $13 3/4 per share.
Interest on the Notes is payable on and of each year,
commencing , 1997. The Notes are redeemable in whole or in part at the
Company's option at any time on or after , 1999 at the redemption
prices set forth herein, plus accrued interest to the date of redemption. See
"Description of Notes -- Optional Redemption." The Notes are not entitled to any
sinking fund. The Notes will mature on , 2001.
In the event of a Change of Control (as defined herein), each holder of
Notes may require the Company to repurchase its Notes, in whole or in part, for
cash or, at the Company's option, Common Stock (valued at 95% of the average
closing prices for the five trading days immediately preceding and including the
third trading day prior to the repurchase date) at a repurchase price of 100% of
the principal amount of Notes to be repurchased, plus accrued interest to the
repurchase date. See "Description of Notes -- Repurchase at Option of Holders
Upon a Change of Control."
The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of the Company and
effectively subordinated in right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of June 30, 1996, the Company had
no outstanding indebtedness that would have constituted Senior Indebtedness. As
of the same date, the Company's subsidiaries had no outstanding indebtedness for
money borrowed. See "Description of Notes -- Subordination."
The Notes will be represented by a Global Note registered in the name of the
nominee of The Depository Trust Company ("DTC"), which will act as depositary.
Beneficial interests in the Global Note will be shown on, and transfers thereof
will be effected only through, records maintained by DTC and its direct and
indirect participants. Except as described herein, Notes in definitive form will
not be issued. The Notes will be issued in registered form in denominations of
$1,000 and integral multiples thereof. See "Description of the Notes --
Book-Entry."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
------------------------------------------------------
<S> <C> <C> <C>
Per Note..................................... % % %
Total(4)..................................... $ $ $
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $400,000 payable by the Company.
(4) The Company has granted the Underwriter an option for 30 days to purchase up
to an additional $7,500,000 principal amount of Notes at the initial public
offering price shown above, less the underwriting discount, solely to cover
over-allotments, if any. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be $ , $ and $ , respectively. See
"Underwriting."
---------------------
The Notes offered hereby are offered by Goldman, Sachs & Co., as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the Notes will be
ready for delivery in book-entry form only through the facilities of DTC in New
York, New York, on or about , 1996 against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
---------------------
The date of this Prospectus is , 1996.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities
in any State in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any
such State.
<PAGE> 3
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AND THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
FOR CALIFORNIA RESIDENTS
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, AS OF THE DATE OF THIS PROSPECTUS, SUCH SECURITIES MAY BE SOLD ONLY
TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER THE
SECURITIES ACT OF 1933, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST
COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING TRUSTS, CORPORATIONS
OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S
AFFILIATES WHICH ARE UNDER COMMON CONTROL, HAVE A NET WORTH ON A CONSOLIDATED
BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS
(WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE
ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE FOREGOING OR
(3) ANY PERSON (OTHER THAN A PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING
THE SECURITIES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE
AMOUNT OF THE SECURITIES OFFERED HEREBY. EACH CALIFORNIA RESIDENT PURCHASING
SECURITIES OFFERED HEREBY WILL BE DEEMED TO REPRESENT BY SUCH PURCHASE THAT IT
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL NOT SELL OR
OTHERWISE TRANSFER ANY OF SUCH SECURITIES TO A CALIFORNIA RESIDENT UNLESS THE
TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL
ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING SUCH, WILL
BE DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
Cadence(R), Cadet(R), Contour(TM), HVS(R) and Ventritex(R) are trademarks
of the Company. This Prospectus also includes trademarks of companies other than
the Company.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes appearing
elsewhere in this Prospectus, including information incorporated by reference
herein. Unless otherwise indicated, all information in this Prospectus assumes
that the Underwriter's over-allotment option is not exercised. As used in this
Prospectus, unless otherwise indicated, references to the "Company" and
"Ventritex" are to Ventritex, Inc. and its consolidated subsidiaries.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results of operations could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors set forth under "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
Ventritex, Inc. ("Ventritex" or the "Company") designs, develops,
manufactures and sells implantable defibrillators and related products for the
treatment of ventricular tachycardia and ventricular fibrillation. Ventricular
tachycardia and ventricular fibrillation are the most serious and
life-threatening forms of abnormal heart rhythms ("arrhythmias"). The Company's
principal product, the Cadet V-115 implantable defibrillator, is an electronic
device that is implanted in the patient's pectoral (chest) or abdominal region
and is connected to the patient's heart with defibrillation leads, which are
typically implanted transvenously. The Cadet V-115 is the successor to the
Company's Cadence V-100 and V-110 implantable defibrillators, which are
considerably larger than the V-115 and are implanted in the patient's abdominal
region. The Cadet has the same functional and performance characteristics as
larger Ventritex implantable defibrillators and offers features, including high
defibrillation energy output and extended electrogram ("EGM") storage, superior
to competing defibrillators that can be implanted pectorally. As of June 30,
1996, approximately 1,000 Cadet and 17,250 Cadence implants had been performed
at over 550 sites. The Company's defibrillators monitor the heartbeat and
deliver electrical pulses or shocks to the heart to terminate ventricular
tachycardia and ventricular fibrillation in patients. In ventricular
tachycardia, the heart's ventricles contract at an abnormally rapid rate and
typically deliver less blood to the body's tissues and organs. Episodes of
ventricular tachycardia occur unpredictably and can progress to ventricular
fibrillation. In ventricular fibrillation, the heart's normal electrical
impulses become disorganized and erratic and the heart ceases to pump blood. If
ventricular fibrillation is not terminated quickly, the individual will
experience a sudden cardiac death ("SCD") episode during which the individual
will become unconscious and, without prompt medical intervention, typically will
die.
The Company believes that the most effective therapy for the treatment of
individuals who are at high risk of experiencing an SCD episode is generally an
implantable defibrillator. The annual mortality rate from SCD for patients
receiving an implantable defibrillator is between 1% and 3%, which is
substantially less than the annual mortality for high risk SCD patients who
receive drug therapy but do not receive an implantable defibrillator. Since the
first defibrillator implant in 1981, the Company estimates that, through 1995,
over 90,000 defibrillators had been implanted in patients in the United States,
including approximately 22,000 in 1995.
The Company was incorporated in California in January 1985, and changed its
state of incorporation from California to Delaware in December 1994. The Company
maintains its principal executive offices at 701 East Evelyn Avenue, Sunnyvale,
CA 94086, and its telephone number is (408) 738-4883.
RECENT DEVELOPMENTS
In May 1996, the Company received approval from the United States Food and
Drug Administration ("FDA") to expand the labeling of the Cadet V-115
defibrillator, for which the Company received FDA approval of a pre-market
approval ("PMA") supplement in December 1995, to include pectoral implantation
of the defibrillator unit. In addition, in May 1996, the Company's PMA
application for its TVL transvenous defibrillation lead system was approved by
the FDA. The combination of the Cadet V-115 defibrillator and the TVL lead
system enables the Company to offer a pectorally implantable defibrillator
3
<PAGE> 5
together with a transvenous lead system, which is the preferred system
configuration for implantable defibrillators. Beginning with the quarter ended
June 30, 1995, the Company's sales and market share were adversely affected by
the introduction of pectorally implantable defibrillators by competitors, and
the Company believes that the ability to offer the Cadet for pectoral
implantation will provide the Company with an opportunity to improve its
competitive position. In addition, the Company has developed a new, smaller
implantable defibrillator, the Contour, and is developing new transvenous lead
systems. In June 1996, the Company submitted a PMA supplement for the Contour to
the FDA. To date, a limited number of Contour defibrillators have been implanted
in patients in the United States and Europe.
THE OFFERING
SECURITIES OFFERED......... $50,000,000 aggregate principal amount of %
Convertible Subordinated Notes due , 2001
(the "Notes"). The Company has granted the
Underwriter an option for 30 days to purchase up to
$7,500,000 additional aggregate principal amount of
Notes, solely to cover over-allotments.
INTEREST................... Interest on the Notes is payable at the rate set
forth on the cover page hereof, semi-annually on
each and , commencing
, 1997.
CONVERSION RIGHT........... The Notes are convertible at any time prior to
maturity, unless previously redeemed or
repurchased, into shares of Common Stock at a
conversion rate of shares per $1,000
principal amount of Notes (equivalent to a
conversion price of approximately $ per
share), subject to adjustment in certain
circumstances as described herein. See "Description
of Notes -- Conversion Rights."
SUBORDINATION.............. The Notes are subordinated in right of payment to
all existing and future Senior Indebtedness (as
defined herein) of the Company. As of June 30,
1996, the Company had no outstanding indebtedness
that would have constituted Senior Indebtedness.
The Notes are also effectively subordinated in
right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of
June 30, 1996, the Company's subsidiaries had no
outstanding indebtedness for money borrowed. The
Indenture will not restrict the incurrence of
Senior Indebtedness or other indebtedness by the
Company or any subsidiary. See "Description of
Notes -- Subordination."
OPTIONAL REDEMPTION........ The Notes will be redeemable at the Company's
option, in whole or in part, at any time on or
after , 1999 at the redemption prices set
forth herein plus accrued interest to the date of
redemption. See "Description of Notes -- Optional
Redemption."
REPURCHASE AT OPTION
OF HOLDERS UPON
A CHANGE OF CONTROL...... In the event of a Change of Control (as defined
herein), each holder of Notes may require the
Company to repurchase its Notes, in whole or in
part, for cash or, at the Company's option, Common
Stock (valued at 95% of the average closing prices
for the five trading days immediately preceding and
including the third trading day prior to the
repurchase date) at a repurchase price of 100% of
the principal amount of Notes to be repurchased,
plus accrued interest to the repurchase date. See
"Description of Notes -- Repurchase at Option of
Holders Upon a Change of Control."
4
<PAGE> 6
USE OF PROCEEDS............ The Company plans to use the net proceeds for
general corporate purposes, including research and
development and any potential acquisitions. See
"Use of Proceeds."
LISTING.................... The Notes will not be listed on any securities
exchange or quoted on the Nasdaq Stock Market. The
Underwriter has advised the Company that it intends
to make a market in the Notes. The Underwriter is
not obligated, however, to make a market in the
Notes, and any such market making may be
discontinued at any time at the sole discretion of
the Underwriter without notice.
COMMON STOCK............... The Common Stock is quoted on the Nasdaq National
Market under the symbol "VNTX."
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1992 1993(1) 1994 1995 1996
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<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $ 9,479 $ 25,116 $ 105,616 $ 126,922 $ 54,942
Income (loss) from operations.............................. (8,446) (36,427) 7,388 6,733 (62,728)
Net income (loss).......................................... (7,041) (33,316) 8,979 9,008 (59,981)
Net income (loss) per share................................ $ (0.48) $ (1.85) $ 0.44 $ 0.43 $ (2.89)
Shares used in per share calculations...................... 14,606 17,992 20,611 20,853 20,752
Ratio of earnings to fixed charges(2)...................... NM NM 11.1x 13.5x NM
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................................................... $ 30,486 $ 78,524
Total assets....................................................................... 73,461 123,461
Convertible subordinated notes..................................................... -- 50,000
Stockholders' equity............................................................... 53,960 53,960
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................... $ 28,983 $36,556 $ 42,061 $19,322 $ 14,225 $ 10,635 $ 12,801 $ 17,281
Income (loss) from
operations................. 2,210 5,400 6,099 (6,976 ) (17,224 ) (20,124) (14,208 ) (11,172)
Net income (loss)............ $ 2,515 $ 5,493 $ 6,304 $(5,304 ) $(16,232 ) $ (19,303) $(13,639 ) $(10,807)
Net income (loss) per
share...................... $ 0.12 $ 0.26 $ 0.30 $ (0.26 ) $ (0.79 ) $ (0.93) $ (0.66 ) $ (0.52)
Shares used in per share
calculations............... 20,784 20,974 20,940 20,639 20,671 20,719 20,767 20,850
</TABLE>
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(1) Year ended June 30, 1993 includes a charge of approximately $18.6 million
relating to intellectual property settlements.
(2) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred,
including capitalized leases and the portion of rental expense under leases
deemed by the Company to be representative of the interest factor. For the
years ended June 30, 1992, 1993 and 1996, earnings were insufficient to
cover fixed charges by $7.0 million, $33.3 million and $60.0 million,
respectively.
(3) Adjusted to reflect the issuance and sale of the $50.0 million principal
amount of Convertible Subordinated Notes offered hereby.
5
<PAGE> 7
RISK FACTORS
In evaluating an investment in the Notes, prospective investors should
carefully consider the following risk factors in addition to the other
information appearing in this Prospectus.
FLUCTUATIONS IN OPERATING RESULTS; PROFITABILITY UNCERTAIN
The Company incurred net losses from its inception in January 1985 through
the year ended June 30, 1993, incurred net losses from the fourth quarter of
fiscal 1995 through fiscal 1996, expects to incur a net loss for the first
quarter of fiscal 1997 and may incur a net loss for the first half of fiscal
1997. If regulatory approval to market the Contour in the United States is not
obtained by the end of the third quarter of fiscal 1997, the Company's results
of operations will be adversely affected. Results of operations have varied and
may continue to fluctuate significantly from quarter to quarter and will depend
upon numerous factors including timing of regulatory approvals, market
acceptance of the Company's products, introductions of new products with
advanced features by the Company or its competitors, technological advances in
the treatment of arrhythmias, the outcome of intellectual property litigation
and competition. Sales have fluctuated significantly in the past, especially in
fiscal 1995 and fiscal 1996, as competitors introduced products with advanced
features. In particular, the Company's net sales declined from $126.9 million in
fiscal 1995, to $54.9 million in fiscal 1996, primarily as a result of
competitors' introductions of smaller defibrillators with advanced features. The
Company's gross margins will be dependent on production volumes, manufacturing
efficiencies, royalties under patent license agreements, warranty expense,
component price fluctuations, competitive pricing, varying product sales mix and
other factors. There can be no assurance that gross margins will improve in the
future. In addition, a significant portion of the Company's operating expenses
are relatively fixed in nature and planned expenditures are based, in part, on
anticipated orders. Any inability to adjust spending quickly enough to
compensate for revenue shortfalls may magnify the adverse impact of such revenue
shortfall on the Company's results of operations. Furthermore, there can be no
assurance that the Company will achieve profitability in the future or that
profitability, if achieved, will be sustained. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
UNCERTAINTY RELATING TO NEW PRODUCT DEVELOPMENT
The Company's strategy involves the design and development of new products
for the treatment of ventricular tachycardia and ventricular fibrillation. The
product development process is time-consuming and there can be no assurance that
product development will be successfully completed, that necessary regulatory
clearances or approvals will be granted by the FDA on a timely basis, or at all,
or that the potential products will achieve market acceptance. The Company
expects defibrillators with advanced new features, such as dual chamber and
rate-responsive pacing capabilities, will be developed by its competitors.
Failure by the Company to develop, obtain necessary regulatory clearances or
approvals for, or successfully market potential new products with these and
other features could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products" and
"-- Research and Development."
SIGNIFICANT COMPETITION
Competition in the market for implantable defibrillator systems is intense.
Although patients susceptible to ventricular tachycardia and ventricular
fibrillation may be treated with antiarrhythmic drugs or cardiac ablation
therapies, the Company believes that manufacturers of implantable defibrillators
are its primary competitors. The Company's principal competitors are Cardiac
Pacemakers, Inc. ("CPI"), a subsidiary of Guidant Corporation, and Medtronic,
Inc. ("Medtronic"). Both CPI and Medtronic are large, diversified cardiology and
medical device companies and each has invested substantial amounts in
implantable defibrillator research and development. Other competitors in the
implantable defibrillator market include Telectronics Pacing Systems, Inc., a
subsidiary of Pacific Dunlop Limited ("Telectronics"), Intermedics, Inc., a
subsidiary of Sulzer Brothers Ltd. ("Intermedics") and Angeion Corporation.
6
<PAGE> 8
In March 1995, the FDA approved the commercial release of new
defibrillators manufactured by CPI and Medtronic which are small enough to allow
pectoral implantation, rather than abdominal implantation, in suitable patients.
Until receipt of regulatory approval relating to the Cadet in May 1996, the
Company could not offer an implantable defibrillator labeled for pectoral
implantation in patients in the United States. Commercial release of pectorally
implantable defibrillators significantly increased competition in the
implantable defibrillator market and resulted in a significant decline in the
Company's market share and sales of the Company's products. The Company now has
products which it believes are competitive; however, there can be no assurance
that the Company's products will compete successfully with products currently
manufactured by others or future products under development by competitors which
have new features, such as dual chamber and rate-responsive pacing capabilities.
Medtronic and CPI have regulatory approval of and are commercially
marketing single lead transvenous lead systems. The Company currently is
marketing the TVL transvenous lead system, a dual lead system. Some physicians
prefer a single lead system due to the perceived ease of implanting such a
system as compared to a dual lead system. The Company is engaged in clinical
trials of single lead transvenous defibrillation lead systems and must receive
regulatory approval prior to commercialization. There can be no assurance as to
when or whether the Company will receive regulatory approval for these systems.
To date, a large percentage of the Company's sales of defibrillators have been
at the direction of physicians who used the Company's defibrillators in
combination with commercially available transvenous lead systems supplied by the
Company's competitors. Therefore, there can be no assurance that physicians will
purchase transvenous lead systems for which the Company obtains regulatory
approval. In particular, physicians preferring single lead systems may choose to
continue to combine competitors' transvenous leads with the Company's
defibrillators, at least until such time as the Company obtains PMA approval for
its single lead systems. Furthermore, there can be no assurance that
manufacturers of competing transvenous lead systems will not attempt to
discourage or prevent use of their leads with the Company's defibrillators
through product labeling, availability, pricing or other means. In general,
unless the FDA-approved labeling includes use with any transvenous lead system
sold by its competitors, the FDA or other government agencies may take further
actions, including restrictions on reimbursement, to restrict the combination of
the Company's defibrillators with such transvenous lead systems. Such actions
could make the Company's defibrillators, including both the Cadet and the
Contour, less attractive to physicians and could therefore have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Transvenous Lead Systems."
Many of the Company's competitors, including both CPI and Medtronic, have
substantially greater financial, manufacturing, marketing and technical
resources than those of the Company. The financial resources of certain of the
Company's competitors may enable them to use pricing pressures as a means of
competition. In addition, competitors have in the past and may in the future
employ litigation to gain a competitive advantage. There can be no assurance
that the Company's competitors will not develop or obtain regulatory approval
for implantable defibrillation systems, or for pharmaceuticals or surgical
alternatives, that may be more effective in treating ventricular tachycardia and
ventricular fibrillation than the Company's current or future products, or that
the Company's technologies and products would not be rendered less competitive
or obsolete by such developments. See "Business -- Competition."
TECHNOLOGICAL CHANGE RESULTING IN PRODUCT OBSOLESCENCE
Market acceptance and sales of the Company's products have historically
been and could in the future be adversely affected by technological changes.
Many companies with substantially greater resources than the Company are engaged
in the development of products and approaches for the treatment of ventricular
tachycardia and ventricular fibrillation. These include implantable devices as
well as pharmaceuticals and cardiac ablation therapies. Future innovations in
the treatment of ventricular tachycardia and ventricular fibrillation could
render existing technologies, and the Company's products, less competitive or
obsolete. See "Business -- Competition."
7
<PAGE> 9
UNCERTAINTY OF MARKET ACCEPTANCE
Market acceptance of the Company's implantable defibrillator systems will
depend in part on the therapeutic capabilities and operating features of such
systems as compared to other implantable defibrillators, physicians' willingness
to use the Company's defibrillators with competitors' transvenous defibrillation
leads, and the Company's ability to convince the medical community of the
clinical efficacy of its systems. If regulatory approval to market the Contour
in the United States is not obtained on a timely basis or at all, the Company's
results of operations will be adversely affected. Failure of the Company's
products, including the Contour, to gain market acceptance or limited growth in
the market for implantable defibrillators would have a material adverse effect
on the Company's business, financial condition and results of operations.
PATENTS, PROPRIETARY RIGHTS AND RELATED LITIGATION
The segment of the medical device market that includes implantable
defibrillators has been characterized by extensive litigation regarding patents
and other intellectual property rights. In 1990, two of the Company's
competitors, Telectronics and Intermedics, instituted patent infringement
litigation against the Company. Medtronic and CPI also notified the Company that
they believed the Company infringed patents held by them. The Telectronics suit
and the claims of Medtronic and CPI have been resolved through cross-license
arrangements. See "Business -- Patents and Proprietary Rights."
The pending litigation with Intermedics has resulted and will continue to
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
the pending proceeding could subject the Company to significant liabilities and
could prevent the Company from manufacturing or selling its products, which
would have a material adverse effect upon the Company's business, financial
condition and results of operations and could adversely affect the Company's
ability to continue as a viable entity. Previous litigation against the Company
involving allegations of trade secret misappropriation was resolved in the
Company's favor. See "Business -- Legal Proceedings."
Although the Company believes that it has entered into license agreements
with all of the major participants in the implantable defibrillator market other
than Intermedics, there can be no assurance that other parties will not
institute litigation against the Company. In addition, the license agreements
with Medtronic, Telectronics and CPI do not include patents issued under
applications filed after certain specified dates and thus future patent disputes
with Medtronic, Telectronics and CPI are possible. Any future litigation, as
well as any future interference proceedings that may be declared by the United
States Patent and Trademark Office to determine the priority of inventions,
could result in substantial expense to the Company and significant diversion of
effort by the Company's technical and management personnel. Additional
litigation may be necessary to enforce patents issued to or held by the Company,
to protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. An
adverse determination in litigation or interference proceedings to which the
Company is or may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties. There can, however, be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations and could
adversely affect the Company's ability to continue as a viable entity. See
"Business -- Patents and Proprietary Rights."
The Company files patent applications to protect technology and inventions
that are significant to the development of its business. There can be no
assurance that any of the claims in the Company's pending patent applications
will be allowed, or that any issued patents will be upheld, or not circumvented
by competitors, or that any patents or licenses will provide competitive
advantages for the Company's products. The Company also relies on trade secrets
and proprietary know-how which it seeks
8
<PAGE> 10
to protect, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by competitors.
DEPENDENCE ON SOLE SOURCES OF SUPPLY
The Company relies on outside suppliers to manufacture certain major
components of its defibrillator systems. The Company currently has sole source
supply arrangements with its suppliers of hybrid circuits, high voltage
capacitors, integrated circuits, defibrillation lead components, batteries and
certain other components used in its products. For certain components, there are
relatively few potential sources of supply and establishment of additional or
replacement suppliers for these components cannot be accomplished quickly. The
Company has experienced shortages of certain critical components due to
manufacturing yield problems at its suppliers. The Company believes that
alternative sources of supply are available for most components and
subcontracted manufacturing services, and plans to qualify additional suppliers
as production volumes increase. However, there can be no assurance that future
production problems will not be encountered in producing the Cadet, expanding
production of the Contour and the TVL or establishing production of other new
products. In addition, because of the long lead times for some components that
are currently available from only a single source, a vendor's inability to
supply acceptable components in the quantity required could impair the Company's
ability to manufacture new or existing products on a timely and cost effective
basis, could result in substantial unanticipated expenses and delays in the
commercial availability of such products and could have a material adverse
effect on the Company's business, financial condition, and results of
operations. See "Business -- Manufacturing."
RISK OF PRODUCT RECALL
The Company's implantable defibrillator systems include a complex
electronic device and leads designed to be implanted in the human body for long
periods of time. Component failures, manufacturing errors or design defects
could result in an unsafe condition, injury or death to the patient. The
occurrence of such a problem could result in a recall of the Company's products,
explanting implanted defibrillators or leads and the implanting of new
defibrillators or leads.
Previously, the Company experienced certain component failures with the
Cadence defibrillators and with lead systems. For example, during clinical
trials, a small number of Cadence V-100 defibrillators experienced premature
battery depletion due to defective capacitors supplied by an outside vendor. In
all these instances, the devices were explanted and replaced with new
defibrillators. The Company has experienced what it believes, in light of
industry experience, to be a typical level of returns of defibrillator units
from the field for various reasons, none of which the Company believes are
systemic or would otherwise give rise to a product recall. There can, however,
be no assurance that the Company's products will not experience additional
performance difficulties. Future product problems resulting in a recall could
have a material adverse effect on the Company's business, financial condition,
and results of operations. See "Business -- Manufacturing" and "-- Product
Warranty."
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The manufacture and sale of the Company's products entail the risk of
product liability claims. Although the Company maintains product liability
insurance with coverage limits of $25.0 million per occurrence and $25.0 million
in the aggregate per year, there can be no assurance that the coverage limits of
the Company's insurance policies will be adequate. Product liability insurance
is expensive and may not be available in the future on acceptable terms or at
all. In addition, the Company has indemnified certain of its component suppliers
for certain potential product liability. To date, the Company has not
experienced any material product liability claims. A successful claim brought
against the Company in excess of its insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations and could adversely affect the Company's ability to continue as a
viable entity. Also, as a result of the June 1996 United States Supreme Court
decision in Medtronic,
9
<PAGE> 11
Inc. v. Lohr, which rejected federal pre-emption of certain state law causes of
action in relation to medical devices, the Company expects that product
liability claims relating to medical devices may be pursued more aggressively in
the future. See "Business -- Product Warranty."
GOVERNMENT REGULATION
The Company's products and manufacturing activities are subject to
extensive and rigorous government regulation. In the United States, all
Ventritex products are classified as class III devices, which are subject to the
most stringent FDA review. These devices require submission and approval of a
PMA application or PMA supplement from the FDA before commencement of commercial
marketing, sales and distribution in the United States. If a PMA is granted,
significant modifications to the device, manufacturing process or labeling will
require a supplemental PMA or require the submission of a new PMA application,
which could require substantial additional efficacy and safety data and FDA
review. The Company is pursuing approval of PMA supplements, including a
supplement relating to the Contour. These supplements may not be accepted by the
FDA. The FDA may require clinical data in order to approve these supplements.
The Company would then be required to conduct an additional clinical trial under
an investigational device exemption ("IDE") and submit data for such trial in
order to commercialize the product. This could result in significant delays in
approval for such products, which delays could have a material adverse effect on
the Company's business, financial condition and results of operations.
Commercial distribution in certain foreign countries is also subject to
extensive government regulation.
The process of obtaining FDA and other required regulatory approvals is
lengthy, expensive and uncertain. Moreover, regulatory approvals, if granted,
may include significant limitations on the indicated uses for which a product
may be marketed. In addition, the FDA may require testing and surveillance
programs to monitor the effect of approved products which have been
commercialized and it has the power to prevent or limit further marketing of a
product based on the results of these post-marketing programs. The FDA actively
enforces regulations prohibiting marketing of products for non-indicated uses.
In addition to FDA inspections conducted prior to the approval of a PMA
application, the FDA also conducts periodic inspections to determine compliance
with current Good Manufacturing Practice ("GMP") and Medical Device Reporting
("MDR") regulations. Failure to comply with applicable regulatory requirements
can result in, among other things, fines, suspensions or delays of approvals,
seizures or recalls of products, operating restrictions and criminal
prosecutions. Furthermore, changes in existing regulations or adoption of new
regulations could prevent the Company from obtaining, or affect the timing of,
future regulatory approvals. There can be no assurance that the Company will be
able to obtain necessary regulatory approvals on a timely basis or at all.
Delays in receipt of or failure to receive such approvals or loss of previously
received approvals could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Government Regulation."
LIMITATIONS ON THIRD PARTY REIMBURSEMENT
Implantable defibrillators are generally purchased by hospitals upon
recommendations of electrophysiologists. Typically, these hospitals then bill
various third party payors for the health care services provided to their
patients. These payors include Medicare, Medicaid and private insurers.
Government agencies reimburse hospitals for medical procedures at rates based
upon Diagnostic-Related Groups ("DRGs").
Third party payors are increasingly challenging the prices charged for
medical products and services, and current levels of reimbursement may be a
disincentive to some hospitals to perform defibrillator implants. Currently, the
sales prices of implantable defibrillators range from approximately $12,000 to
$20,000, excluding leads. According to an industry study published in January
1995, a defibrillator implant procedure, excluding electrophysiology testing,
typically costs between $30,000 and $60,000, depending on the length of hospital
stay and other variables. The same source indicated that the average Medicare
reimbursement for an initial defibrillator implant procedure is approximately
$35,000 to $40,000 and that the average Medicare reimbursement for defibrillator
replacement proce-
10
<PAGE> 12
dures is approximately $20,000. Consequently, despite the Company's receipt of
regulatory approvals for its systems, third party payors may deny full
reimbursement. There can be no assurance that the Company's implantable
defibrillator systems will be considered cost effective by third party payors,
that reimbursement will be available, or if reimbursement is available, that
third party payors' reimbursement policies will not adversely affect the
Company's ability to sell its products on a profitable basis. The failure by
hospitals and other users of the Company's products to obtain reimbursement from
third party payors could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, legislative initiatives relating to health care reform have
been introduced in Congress and certain state legislatures. These initiatives
have been focused, in large part, on health care cost containment. Such
initiatives, if enacted, could adversely affect the availability of third party
reimbursement for the Company's products and the price levels at which the
Company is able to sell its products. The Company's business, financial
condition and results of operations could be adversely affected by changes in
government and private payors' reimbursement policies relating to procedures
using the Company's products.
Medicare and Medicaid policies currently permit reimbursement for
investigational medical devices if such devices represent evolutionary
modifications to commercially available products. Under this policy, for
example, next generation implantable defibrillators in clinical trials would be
eligible for reimbursement because these devices are derived from an existing,
approved class of products. Because the Company anticipates that it will be
required to conduct clinical trials in connection with future products, changes
in this reimbursement policy could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third Party Reimbursement."
SIGNIFICANT RESTRICTIONS ON CHANGE OF CONTROL AND CERTAIN MINORITY INVESTMENTS
The Company has adopted a number of anti-takeover measures. The Company has
adopted a Preferred Shares Rights Agreement, sometimes referred to as a poison
pill, designed to prevent hostile takeovers not approved by the Board of
Directors. In addition, the Company is authorized to issue 5,000,000 shares of
undesignated Preferred Stock. Such shares of Preferred Stock may be issued by
the Company without stockholder approval upon such terms as the Company's board
of directors may determine. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of and the
voting and other rights of, the holders of Common Stock. At present, the Company
has no plans to issue any of the Preferred Stock.
In addition, the Company's cross-licenses with Medtronic, Telectronics and
CPI, entered into in connection with the settlement of several intellectual
property litigation matters and disputes, contain significant restrictions that
may have the effect of preventing or substantially impeding an acquisition of,
change in control of, or certain minority investments in, the Company. Such
restrictions include the termination of various licenses and the requirement
that the Company make a substantial payment to one of the licensors upon such
event. See "Risk Factors -- Limitations on Repurchase of Notes" and "Description
of Capital Stock -- Preferred Shares Rights Agreement."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon a limited number of key management and
technical personnel. In addition, the Company's future success will depend in
part upon its ability to attract and retain highly qualified personnel. The
Company competes for such personnel with other companies, academic institutions,
government entities and other organizations. There can be no assurance that the
Company will be successful in hiring or retaining qualified personnel. Loss of
key personnel or the inability to hire or retain qualified personnel could have
a material adverse effect on the Company's business, financial condition and
results of operations.
11
<PAGE> 13
FUTURE CAPITAL REQUIREMENTS
Although the Company anticipates that the net proceeds of this offering
will be sufficient to meet the Company's foreseeable capital requirements, there
can be no assurance that the Company will not require additional financing. The
Company's liquidity and capital requirements will depend upon numerous factors,
including timing of regulatory approvals, market acceptance of the Company's
products, introductions of new products with advanced features by the Company or
its competitors, technological advances in the treatment of arrhythmias, outcome
of intellectual property litigation and competition. Future financings may
result in the issuance of senior securities or in dilution to holders of the
Company's Common Stock. Any such financing, if required, may not be available on
satisfactory terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
RISKS ASSOCIATED WITH POSSIBLE BUSINESS COMBINATION TRANSACTIONS
Although the Company has no pending agreements or commitments in this
regard, the Company has from time to time evaluated and considered the
acquisition of complementary businesses, products and technologies as well as
other possible business combination transactions. Accordingly, the Company may
undertake acquisitions of complementary businesses, products or technologies or
become involved in other business combination transactions in the future.
Acquisitions and other business combinations entail numerous risks, including
the potential inability to successfully integrate the respective companies'
businesses or to realize anticipated synergies, economies of scale or other
value, diversion of management's attention, and loss of key employees. Should
there be any such transaction, there can be no assurance that the Company or its
stockholders would realize value from any such acquisition or business
combination which equals or exceeds the consideration paid to the other parties,
or will not suffer other adverse results from any such transaction. In addition,
future acquisitions by the Company may result in issuances of additional equity
securities, the incurrence of additional debt, large one-time write-offs and the
creation of goodwill or other intangible assets that could result in ongoing
amortization expense. These factors could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and "Business."
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been and is likely to
continue to be highly volatile. In addition, the stock market and the medical
technology sector in particular have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in the Company's operating
results, shortfalls in revenue or earnings from levels expected by securities
analysts, new product introductions by the Company or its competitors,
announcements of technological innovations or new products by the Company or its
competitors, governmental regulation, developments with respect to patents or
proprietary rights and litigation relating thereto, public concern as to the
safety of products developed by the Company or others and general market
conditions may have a significant adverse effect on the market price of the
Common Stock.
Substantially all of the shares of Common Stock held by current
stockholders of the Company are eligible for immediate sale in the public
market, subject in some cases to the public information, manner of sale, volume
limitation and notice of sale provisions of federal securities laws. Future
sales of such shares could lead to a decline in the market price of the Common
Stock. See "Price Range of Common Stock."
SUBORDINATION
The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness of the Company. As a result of such
subordination, in the event of the Company's liquidation or insolvency, payment
default with respect to Senior Indebtedness, a covenant default with respect to
Senior Indebtedness, or upon acceleration of the Notes due to an event of
default, the assets
12
<PAGE> 14
of the Company will be available to pay obligations on the Notes only after all
Senior Indebtedness has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then outstanding.
The Company may from time to time incur indebtedness constituting Senior
Indebtedness. The Notes are structurally subordinated to the liabilities,
including trade payables, of the Company's subsidiaries. The Indenture does not
prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by the Company or its subsidiaries. The
incurrence of additional indebtedness and other liabilities by the Company or
its subsidiaries could adversely affect the Company's ability to pay its
obligations on the Notes. In addition, the cash flow and ability of the Company
to service debt, including the Notes, may in the future become dependent in part
upon the earnings from the business conducted by the Company through
subsidiaries and distribution of those earnings, or upon loans or other payments
of funds by those subsidiaries to the Company. As of June 30, 1996, the Company
had no outstanding indebtedness that would have constituted Senior Indebtedness.
As of the same date, the Company's subsidiaries had no outstanding indebtedness
for money borrowed. See "Description of Notes -- Subordination."
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Change of Control, each holder of Notes will have the right, at the
holder's option, to require the Company to repurchase all or a portion of such
holder's Notes. If a Change of Control were to occur, there can be no assurance
that the Company would have sufficient funds to pay the repurchase price for all
Notes tendered by the holders thereof. (The Company may also elect to make such
payment using shares of Common Stock.) In addition, the Company's repurchase of
Notes as a result of the occurrence of a Change of Control may be prohibited or
limited by, or create an event of default under, the terms of agreements related
to borrowings which the Company may enter into from time to time, including
agreements relating to Senior Indebtedness. See "Risk Factors -- Significant
Restrictions on Change of Control and Certain Minority Investments" and
"Description of Notes -- Repurchase at Option of Holders Upon a Change of
Control."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will be a new issue of securities with no established trading
market. The Underwriter has advised the Company that it intends to make a market
in the Notes. The Underwriter is not obligated, however, to make a market in the
Notes, and any such market making may be discontinued at any time at the sole
discretion of the Underwriter without notice. There can be no assurance that an
active market for the Notes will develop and continue upon completion of the
offering or that the market price of the Notes will not decline. Various factors
such as changes in prevailing interest rates or changes in perceptions of the
Company's creditworthiness could cause the market price of the Notes to
fluctuate significantly. The trading price of the Notes could also be
significantly affected by the market price of the Common Stock, which could be
subject to wide fluctuations in response to a variety of factors, including
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, developments in
patents or other intellectual property rights, general conditions in the
industry and general economic and market conditions. The Notes will not be
listed on any securities exchange or quoted on the Nasdaq Stock Market and will
only be traded on the over-the-counter market.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes
offered hereby, after deducting underwriting discount and other expenses of the
offering, are estimated to be $48.0 million ($55.3 million if the Underwriter's
over-allotment option is exercised in full).
The Company plans to use the proceeds from the sale of the Notes for
general corporate purposes, including research and development and any potential
acquisitions. Pending such uses, the Company intends to invest such proceeds in
short-term investment grade, interest-bearing instruments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to give effect to the issuance and sale by the Company
of $50,000,000 in aggregate principal amount of Notes offered hereby:
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Convertible subordinated notes................................... $ -- $ 50,000
-------- --------
Stockholders' equity:
Preferred Stock, par value $.001, 5,000,000 shares authorized;
no shares issued and outstanding............................ -- --
Common Stock, par value $.001, 35,000,000 shares authorized;
20,878,095 shares issued and outstanding(1)................. 21 21
Additional paid-in capital..................................... 158,900 158,900
Accumulated deficit............................................ (104,961) (104,961)
-------- --------
Total stockholders' equity.................................. 53,960 53,960
-------- --------
Total capitalization...................................... $ 53,960 $ 103,960
======== ========
</TABLE>
- ---------------
(1) Outstanding Common Stock does not include (i) the approximately
shares of Common Stock issuable upon conversion of the Notes offered
hereby; (ii) 3,326,311 shares of Common Stock reserved for issuance under
the Company's stock option plans, under which options to purchase 2,711,604
shares were outstanding as of June 30, 1996, at a weighted average exercise
price of $19.99 per share, and (iii) 118,268 shares reserved for issuance
under the Company's 1991 Employee Stock Purchase Plan.
14
<PAGE> 16
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "VNTX." The following table shows for the periods indicated the high
and low closing prices for the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995
First quarter.......................................................... $26 1/2 $16 1/2
Second quarter......................................................... 29 3/4 18 1/4
Third quarter.......................................................... 31 3/4 17 1/4
Fourth quarter......................................................... 19 3/4 13
FISCAL YEAR ENDED JUNE 30, 1996
First quarter.......................................................... $24 1/2 $15 1/2
Second quarter......................................................... 24 3/8 16 7/8
Third quarter.......................................................... 20 1/8 12 7/8
Fourth quarter......................................................... 20 3/4 14 7/8
FISCAL YEAR ENDING JUNE 30, 1997
First quarter (through August 1, 1996)................................. $ 19 $12 3/8
</TABLE>
On August 1, 1996, the last bid price of the Common Stock as reported by
the Nasdaq National Market was $13 3/4 per share. As of July 25, 1996, there
were approximately 460 holders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock to date.
The Company currently anticipates that it will retain all future earnings, if
any, to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data below for the years ended
June 30, 1994, 1995 and 1996 and the consolidated balance sheet data as of June
30, 1995 and 1996, are derived from the consolidated financial statements of the
Company audited by Ernst & Young LLP, independent auditors, that are included
elsewhere herein, and are qualified by reference to such financial statements.
The consolidated statement of operations data for the years ended June 30, 1992
and 1993, and the consolidated balance sheet data as of June 30, 1992, 1993 and
1994, are derived from audited consolidated financial statements of the Company
that are not included herein. Operating results for the fiscal year ended June
30, 1996 are not necessarily indicative of results that may be expected for
future periods. The data should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein or incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 9,479 $ 25,116 $ 105,616 $ 126,922 $ 54,942
Cost of sales............................................ 5,039 17,029 45,947 55,960 48,774
------- ------- -------- -------- --------
Gross profit (loss).................................... 4,440 8,087 59,669 70,962 6,168
Operating expenses:
Research and development............................... 8,399 12,940 23,334 27,716 30,796
Selling, general and administrative.................... 4,487 12,974 28,947 36,513 38,100
Intellectual property settlements...................... -- 18,600 -- -- --
------- ------- -------- -------- --------
Income (loss) from operations........................ (8,446) (36,427) 7,388 6,733 (62,728)
Other income, net........................................ 1,405 3,111 1,591 3,275 2,747
------- ------- -------- -------- --------
Income before provision for income taxes................. (7,041) (33,316) 8,979 10,008 (59,981)
Provision for income taxes............................... -- -- -- 1,000 --
------- ------- -------- -------- --------
Net income (loss).................................... $ (7,041) $ (33,316) $ 8,979 $ 9,008 $ (59,981)
======= ======= ======== ======== ========
Net income (loss) per share.............................. $ (0.48) $ (1.85) $ 0.44 $ 0.43 (2.89)
======= ======= ======== ======== ========
Shares used in per share calculations.................... 14,606 17,992 20,611 20,853 20,752
======= ======= ======== ======== ========
Ratio of earnings to fixed charges(1).................... NM NM 11.1x 13.5x NM
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $ 74,355 $33,321 $80,268 $86,207 $30,486
Total assets............................................. 84,825 75,415 116,764 130,339 73,461
Capital lease obligations................................ 221 71 -- -- --
Stockholders' equity..................................... 80,242 47,601 101,373 112,344 53,960
</TABLE>
- ---------------
(1) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred,
including capitalized leases, and the portion of rental expense under leases
deemed by the Company to be representative of the interest factor. For the
years ended June 30, 1992, 1993 and 1996, earnings were insufficient to
cover fixed charges by $7.0 million, $33.3 million and $60.0 million,
respectively.
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<PAGE> 18
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the unaudited financial results for the
eight fiscal quarters ended June 30, 1996. In the opinion of management, this
information includes all adjustments, consisting only of normally recurring
accruals, necessary for a fair statement thereof. Past quarterly operating
results are not necessarily indicative of the results that may be expected for
future periods. The data should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein or incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net sales........... $ 28,983 $36,556 $ 42,061 $19,322 $ 14,225 $ 10,635 $ 12,801 $ 17,281
Cost of sales....... 12,075 14,980 19,271 9,634 15,365 13,688 9,523 10,198
------- ------- ------- ------- -------- -------- --------
Gross profit
(loss)........ 16,908 21,576 22,790 9,688 (1,140 ) (3,053) 3,278 7,083
Operating expenses:
Research and
development..... 6,650 7,214 6,736 7,116 7,094 8,013 7,394 8,295
Selling, general
and
administrative... 8,048 8,962 9,955 9,548 8,990 9,058 10,092 9,960
------- ------- ------- ------- -------- -------- --------
Income (loss)
from
operations.... 2,210 5,400 6,099 (6,976 ) (17,224 ) (20,124) (14,208 ) (11,172)
Other income, net... 585 705 903 1,082 992 821 569 365
------- ------- ------- ------- -------- -------- --------
Income (loss) before
provision for
income taxes...... 2,795 6,105 7,002 (5,894 ) (16,232 ) (19,303) (13,639 ) (10,807)
Provision for
(benefit from)
income taxes...... 280 612 698 (590 ) -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net income
(loss)........ $ 2,515 $ 5,493 $ 6,304 $(5,304 ) $(16,232 ) $ (19,303) $(13,639 ) $(10,807)
======= ======= ======= ======= ======== ======== ========
Net income (loss)
per share......... $ 0.12 $ 0.26 $ 0.30 $ (0.26 ) $ (0.79 ) $ (0.93) $ (0.66 ) $ (0.52)
======= ======= ======= ======= ======== ======== ========
Shares used in per
share
calculations...... 20,784 20,974 20,940 20,639 20,671 20,719 20,767 20,850
======= ======= ======= ======= ======== ======== ========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto included elsewhere in this
Prospectus and contains forward-looking statements that involve risks and
uncertainties. The Company's actual results of operations could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
Since its inception, the Company and its subsidiaries have engaged in the
design, development, manufacture and sale of implantable defibrillators and
related products. In April 1993, the FDA approved the Company's PMA for
commercial release of the Cadence V-100 system. In July 1994, the FDA approved
the Company's PMA supplements for the Cadence V-110 system, a smaller, lighter
version of the Cadence V-100. In December 1995, the FDA approved the PMA
supplements for the Cadet V-115 defibrillator system for abdominal implantation
only. In May 1996, the FDA approved the PMA supplement to label the Cadet V-115
for pectoral implantation. Also in May 1996, the FDA approved the PMA for the
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<PAGE> 19
TVL transvenous lead system. The Cadet V-115 is smaller and lighter than the
Cadence V-100 and V-110 implantable defibrillators but has the same or improved
functional and performance characteristics. During June 1996, the Company
submitted a PMA supplement for the Contour V-145 defibrillator system. The
Contour V-145 is designed to be smaller and lighter than the Cadet V-115
implantable defibrillator and have the same functional and performance
characteristics.
In March 1995, the FDA approved the commercial release of new
defibrillators manufactured by CPI and Medtronic which are small enough to allow
pectoral implantation, rather than abdominal implantation, in suitable patients.
Until receipt of regulatory approval relating to the Cadet in May 1996, the
Company could not offer an implantable defibrillator labeled for pectoral
implantation in patients in the United States. Commercial release of pectorally
implantable defibrillators significantly increased competition in the
implantable defibrillator market and resulted in a significant decline in the
Company's market share and sales of the Company's products. The Company now has
products, the Cadet and Contour, which it believes are competitive; however,
there can be no assurance that the Company's products will compete successfully
with products currently manufactured by others or future products under
development by competitors which have new features, such as dual chamber and
rate-responsive pacing capabilities. In addition, while the Contour has been
commercialized in Europe, it has not yet been approved by the FDA for commercial
release in the United States.
The Company incurred net losses from its inception in January 1985 through
the year ended June 30, 1993, incurred net losses from the fourth quarter of
fiscal 1995 through fiscal 1996, currently expects to incur a net loss for the
first quarter of fiscal 1997 and may incur a net loss for the first half of
fiscal 1997. If regulatory approval to market the Contour in the United States
is not obtained on a timely basis or at all, the Company's results of operations
will be adversely affected. Results of operations have varied and may continue
to fluctuate significantly from quarter to quarter and will depend upon numerous
factors including timing of regulatory approvals, market acceptance of the
Company's products, introductions of new products with advanced features by the
Company or its competitors, technological advances in the treatment of
arrhythmias, the outcome of intellectual property litigation and competition.
Sales have fluctuated significantly in the past, especially in fiscal 1995 and
fiscal 1996, as competitors introduced products with advanced features. In
particular, the Company's net sales declined from $126.9 million in fiscal 1995,
to $54.9 million in fiscal 1996, primarily as a result of competitors'
introductions of smaller defibrillators with advanced features.
RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Net Sales
Net sales for fiscal 1996 were $54.9 million, compared to $126.9 million
during fiscal 1995 and $105.6 million in fiscal 1994. The fiscal 1996 decrease
of $72.0 million, or 57%, reflects lower unit shipments and average unit pricing
as compared to fiscal 1995 due primarily to the introduction by the Company's
principal competitors of defibrillators capable of being implanted pectorally.
Fiscal 1996 unit shipments decreased approximately 55% from fiscal 1995 levels
and average unit prices decreased approximately 3%. As compared to the third
quarter of fiscal 1996, unit shipments in the fourth quarter increased
approximately 30% and average unit prices increased approximately 4% due to
regulatory approval for pectoral implantation of the Cadet. Sales in fiscal 1995
increased compared to fiscal 1994 as a result of increased unit shipments. Sales
of defibrillators provided substantially all of the Company's revenues in these
periods. A majority of the Company's sales in each period were to hospitals at
the request of physicians who used Ventritex defibrillators in combination with
a competitor's transvenous defibrillation lead systems. Sales invoiced in
foreign currencies are less than 5% of total net sales. The Company currently
does not hedge the risk of currency exchange rate fluctuations.
18
<PAGE> 20
Gross Profit
Gross profit was $6.2 million in fiscal 1996 compared to $71.0 million in
fiscal 1995 and $59.7 million in fiscal 1994. Gross margin (gross profit as a
percent of net sales) was approximately 11% for fiscal 1996, as compared to
approximately 56% in both fiscal 1995 and 1994. However, the gross margin was
41% for the fourth quarter of fiscal 1996, reflecting the somewhat stronger
sales in the fourth quarter. The decrease in gross profit from fiscal 1995 to
fiscal 1996 reflects substantial reductions in unit shipments, increased
provisions for excess and obsolete inventory, decreased production levels and
lower average unit pricing in fiscal 1996. Fiscal 1996 includes a provision of
$17.1 million for potentially excess inventory and cancellation of purchase
commitments for components. These provisions resulted from the rapid adoption of
competitors' defibrillators that allow pectoral, rather than abdominal,
implantation in suitable patients and the approval of additional competitive
defibrillator systems labeled for pectoral implantation. The increase in gross
profit from fiscal 1994 to fiscal 1995 was primarily due to increases in sales
volume and lower per-unit component costs, partially offset by increases in
royalty expenses, increased spending to establish leads manufacturing capability
and increased provisions for product obsolescence.
During the first half of fiscal 1996, in anticipation of regulatory
approval, the Company began production of its Cadet V-115 defibrillator system
and TVL transvenous lead system, and initially experienced shortages of certain
critical components due to manufacturing yield problems at its suppliers. As a
result, supplies of the Cadet V-115 defibrillator system were limited. There can
be no assurance that future production problems will not be encountered in
producing the Cadet, expanding production of the Contour and the TVL or
establishing production of other new products currently under development.
Failure to manufacture new or existing products on a timely and cost effective
basis could result in substantial unanticipated expenses, delays in the
commercial availability of such products, and could have a material adverse
effect on the Company's business, financial condition and results of operations.
Gross margins have fluctuated historically due to variations in production
volume, manufacturing efficiencies, product obsolescence, new product
introductions by the Company or its competitors, royalty rates, warranty
expense, component price fluctuations, competitive pricing, and other factors.
Gross profits may fluctuate in the future in both dollar amount and as a
percentage of net sales due to these and other factors, including component part
availability, regulatory actions and changes in reimbursement policies by either
government or private insurance companies.
Operating Expenses
Operating expenses were $68.9 million in fiscal 1996 compared to $64.2
million in fiscal 1995 and $52.3 million in fiscal 1994.
Research and development expenditures increased approximately 11% to $30.8
million in fiscal 1996, compared to $27.7 million in fiscal 1995 and $23.3
million in fiscal 1994. The increase in spending during fiscal 1996 was
primarily due to costs associated with early production stages of the Cadet
defibrillator system in addition to design costs for Contour, transvenous lead
systems and future products. The Company's research and development expenses
relate to various research, product and process development, clinical trial and
quality assurance activities. Ventritex plans to continue to invest in research
and development and expects such expenses to continue to increase in dollar
amount in the future.
Selling, general and administrative expenses increased to $38.1 million in
fiscal 1996 from $36.5 million in fiscal 1995 and $28.9 in fiscal 1994. The
increase for fiscal 1996 reflects increases in amortization costs of external
equipment to support defibrillators (which are supplied to customers on
long-term loan, typically at no charge, in accordance with industry practice)
and the expenses of a direct operating subsidiary in Germany formed in fiscal
1996 partially offset by decreases in compensation expense, commission expenses
as a result of decreased revenues as discussed above, insurance expense,
software system implementation costs and the impact of provisions for potential
doubtful accounts. Management incentive bonuses were not accrued, and provisions
for potential doubtful
19
<PAGE> 21
accounts were not booked in fiscal 1996, while such accruals and provisions were
booked in fiscal 1995. Legal expenses decreased approximately $0.3 million from
fiscal 1995 to fiscal 1996, but are expected to increase significantly in future
periods as the Intermedics litigation moves beyond jurisdictional matters.
Fiscal 1995 expenses were greater than those of fiscal 1994 due to increased
staffing and associated expenses, amortization costs of external equipment,
costs associated with implementation of a new software system, research grants
and donations, insurance expense and costs related to unit sales volume
increase.
Other Income
Other income, consisting primarily of interest income, was $2.7 million in
fiscal 1996 compared to $3.3 million and $1.6 million in fiscal 1995 and fiscal
1994, respectively. Fluctuations in interest income reflect changes in invested
cash balances and interest rates.
Income Taxes
The Company has established a valuation allowance for deferred tax assets
resulting from operating losses incurred in fiscal 1996 and fiscal 1994;
accordingly no tax benefits were recorded in such years. For fiscal 1995, the
provision for income taxes was 10% of pre-tax income, reflecting the benefit
from the utilization of tax net operating loss carryforwards.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's results of operations have varied, may continue to fluctuate
significantly from quarter to quarter, and will depend upon numerous factors
including: timing of regulatory approvals, market acceptance of the Company's
products, introductions of new products with advanced features by the Company or
its competitors, technological advances in the treatment of arrhythmias, outcome
of intellectual property litigation, competition and component part
availability. The Company's gross margins will be dependent on production
volume, manufacturing efficiencies, product obsolescence, competitive pricing,
royalties under patent license agreements, component price fluctuations, varying
product sales mix, warranty expense and other factors. The Company's future
operating results may fluctuate as a result of these and other factors,
including seasonality and health care reimbursement policies.
The Company typically manufactures to its internal sales forecast, fills
orders as received, and has no significant backlog of orders for its products.
In addition, major components of the Company's defibrillator systems require
firm purchase commitments (which may not be cancelable) well in advance of the
anticipated delivery of such components. As a result, failure to accurately
anticipate future demand may result in substantial excess inventory, significant
cancellation costs for purchase commitments, or inability to meet demand for the
Company's products and could have a material adverse effect on the Company's
business, financial condition and results of operations.
A significant portion of the Company's operating expenses are relatively
fixed, and planned expenditures are based primarily on sales forecasts and
product development programs. If sales do not meet the Company's expectations in
any given period, the adverse impact on operating results may be magnified by
the Company's inability to adjust operating expenditures quickly enough to
compensate for such a shortfall. The Company's net sales decreased significantly
in the fourth quarter of fiscal 1995 due to the commercial availability of
competitive defibrillator systems, decreased further in the first two quarters
of fiscal 1996 and did not increase significantly in the third quarter of fiscal
1996. Net sales in the fourth quarter of fiscal 1996 increased as compared to
such third quarter, but remained below the level of the fourth quarter of fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents and short-term investments totaled $22.6 million at
June 30, 1996, compared to $73.9 million at June 30, 1995. The decrease of $51.3
million reflects cash used in operations of
20
<PAGE> 22
$43.1 million, and investments in capital equipment and leasehold improvements
of $9.1 million partially offset by proceeds from exercise of stock options and
an employee stock purchase plan of $1.6 million.
In view of current and anticipated capacity requirements, the Company
anticipates capital expenditures of approximately $6.0 million in fiscal 1997,
as compared with $13.4 million in fiscal 1995 and approximately $9.1 million in
fiscal 1996. Fiscal 1997 capital expenditures are expected to be made
principally in connection with the purchase of new equipment.
The Company believes that the proceeds of this offering, together with
current cash balances, will be sufficient to meet the Company's foreseeable
capital requirements. However, Ventritex may use debt or other means of
financing when deemed necessary and/or financially advantageous. The Company's
liquidity and capital requirements will depend upon numerous factors, including
the extent to which the Company's future products gain market acceptance, the
duration and magnitude of operating losses, FDA regulatory actions, changes in
health care reimbursement policies, and intellectual property litigation to
which the Company is or may become a party.
BUSINESS
THE COMPANY
Ventritex designs, develops, manufactures and sells implantable
defibrillators and related products for the treatment of ventricular tachycardia
and ventricular fibrillation. Ventricular tachycardia and ventricular
fibrillation are the most serious and life-threatening forms of abnormal heart
rhythms ("arrhythmias"). The Company's principal product, the Cadet V-115
implantable defibrillator, is an electronic device that is implanted in the
patient's pectoral (chest) or abdominal region and is connected to the patient's
heart with defibrillation leads, which are typically implanted transvenously.
The Cadet V-115 is the successor to the Company's Cadence V-100 and V-110
implantable defibrillators, which are considerably larger than the Cadet V-115
and are implanted in the patient's abdominal region. The Cadet has the same
functional and performance characteristics as larger Ventritex defibrillators
and offers features, including high defibrillation energy output and extended
electrogram ("EGM") storage, superior to competing defibrillators that can be
implanted pectorally. As of June 30, 1996, approximately 1,000 Cadet and 17,250
Cadence implants had been performed at over 550 sites. The Company's
defibrillators monitor the heartbeat and deliver electrical pulses or shocks to
the heart to terminate ventricular tachycardia and ventricular fibrillation in
patients. In ventricular tachycardia, the heart's ventricles contract at an
abnormally rapid rate and typically deliver less blood to the body's tissues and
organs. Episodes of ventricular tachycardia occur unpredictably and can progress
to ventricular fibrillation. In ventricular fibrillation, the heart's normal
electrical impulses become disorganized and erratic and the heart ceases to pump
blood. If ventricular fibrillation is not terminated quickly, the individual
will experience a sudden cardiac death ("SCD") episode during which the
individual will become unconscious and, without prompt medical intervention,
typically will die.
BACKGROUND
The heart is divided into four chambers, two upper chambers called atria
and two lower chambers called ventricles. The heart's function is to pump blood
through the body's circulatory system. Each normal heartbeat is the result of
electrical signals generated at a precise area in the right atrium, called the
sino-atrial node, the heart's natural pacemaker. These electrical signals cause
a physical contraction of the atria, which pump blood into the ventricles. The
electrical impulses then continue to the ventricles, causing them to contract
and distribute blood throughout the body.
Arrhythmias, abnormal rhythms of the heart muscle, arise from numerous
causes, including tissue damage due to previous heart attacks, congenital
defects and certain diseases. Arrhythmias originate in either the atria, where
they are generally not life-threatening, or the ventricles, where they can
significantly interfere with the pumping of oxygenated blood and can therefore
be life-threatening. During an arrhythmia, the heart beats either too slowly or
too rapidly. An abnormally slow heart rate, generally
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<PAGE> 23
defined as a heart rate below 50 beats per minute, is known as bradycardia.
Ventricular tachycardia, a more serious arrhythmia, occurs when abnormal
electrical signals occur in the ventricles, causing the ventricles to beat at an
abnormally rapid rate. When the ventricles beat at an abnormally rapid rate,
they do not have sufficient time to fill with blood prior to each contraction
and therefore less blood is pumped out of the heart. As a result, less oxygen is
carried to the tissues and organs of the body. This lack of oxygen can cause
dizziness, unconsciousness, cardiac arrest and, ultimately, death.
Patients experiencing heart problems are usually treated initially by
cardiologists. Cardiologists may refer patients with ventricular
tachyarrhythmias to specialists in electrophysiology, a cardiology subspecialty
requiring extensive, advanced training in the diagnosis and treatment of
arrhythmias. Typically, an electrophysiologist will conduct extensive testing to
determine the appropriate therapy, including testing various drugs to determine
their potential for preventing future spontaneous tachyarrhythmias.
Electrophysiology testing is a costly procedure and often requires
hospitalization. If an antiarrhythmic drug is successful in these tests, the
drug will usually be prescribed for the patient. If an appropriate drug cannot
be identified, or if the patient's ventricular tachyarrhythmia is judged to be
too critical to be treated by drugs alone, the electrophysiologist will
typically elect to implant a defibrillator.
MARKET
UNITED STATES
Since the first defibrillator implant in 1981, the Company estimates that
through 1995 over 90,000 defibrillators have been implanted in the United
States, including approximately 22,000 in 1995. Implantable defibrillators are
generally purchased by hospitals upon the recommendation of
electrophysiologists. Currently, approximately 1,200 electrophysiologists
practice at medical centers in the United States where defibrillator implants
are performed. Approximately 400,000 people experience SCD in the United States
every year, accounting for about half of all cardiac mortality. The Company
believes that referrals of individuals who are at risk of SCD to
electrophysiologists have been increasing annually as physicians have become
more aware of the benefits of electrophysiology testing. Recent studies suggest
that individuals at high risk of SCD who do not receive an implantable
defibrillator but receive drug therapy alone have a significantly higher
mortality rate from SCD.
Recently, a clinical study sponsored by a competing manufacturer of
implantable defibrillators demonstrated the clinical utility of implanting
defibrillators in additional classes of patients that are at high risk of an SCD
episode. In particular, this study demonstrated the utility of implanting
defibrillators in patients who have suffered a heart attack and are at high risk
of an SCD episode but who do not exhibit other symptoms, such as sustained
ventricular tachycardia. As a result of this study, the sponsoring manufacturer
has been permitted by the FDA to expand the labeling of its device to include
this class of patients. The Company is seeking FDA approval of a PMA supplement
to similarly expand the labeling of its implantable defibrillators. Although
there can be no assurance as to the action the FDA will take in this regard, a
broadening of the classes of patients that can receive defibrillator implants
could result in an increased market for defibrillators.
INTERNATIONAL
To date, the United States market has represented approximately 80% of the
world market for implantable defibrillators. The international market for
implantable defibrillators has been constrained by the lack of effective
emergency medical services in many developed countries. However, certain
international markets, including particularly Germany and Italy, represent
attractive markets for implantable defibrillators, and, to the extent that
emergency medical services in other countries improve, the market for
implantable defibrillators in these countries could correspondingly grow.
IMPLANTABLE DEFIBRILLATORS
An implantable defibrillator is an electronic device that is implanted in
the patient and is designed to monitor the patient's heartbeat and deliver
electric pulses or shocks to the heart to terminate ventricular
tachyarrhythmias. The limitations of first and second generation implantable
defibrillators led to the
22
<PAGE> 24
development of third-generation defibrillators capable of providing tiered
therapy. Tiered therapy defibrillators are designed to provide three types of
therapy: (i) low voltage electrical pacing pulses to terminate ventricular
tachycardia, (ii) one or more cardioversion shocks to convert, to a normal
rhythm, ventricular tachycardia that cannot be controlled through
antitachycardia pacing, and (iii) high-energy defibrillation shocks to terminate
ventricular fibrillation. Third-generation implantable defibrillators also
provide greater programmability to increase the physician's ability to customize
therapy to a patient's condition during and after implant. The Company's Cadence
V-100 defibrillator and a competitor's third-generation, tiered therapy
implantable defibrillator received PMA approval in 1993. The Cadence V-100 was
the first third-generation, tiered therapy implantable defibrillator
incorporating both electrogram ("EGM") storage and a biphasic defibrillation
waveform to receive regulatory approval. The Company's Cadence V-110 implantable
defibrillator, a smaller version of the V-100 with similar performance
characteristics, and a competitor's third-generation defibrillator received
regulatory approval in 1994.
Competition in the market for tiered therapy implantable defibrillators
increased significantly in March 1995 with FDA approval of a PMA application for
implantable defibrillators manufactured by two of the Company's competitors, CPI
and Medtronic, which allowed implantation in the pectoral area, rather than the
abdominal area, in suitable patients. The ability to implant the defibrillator
pectorally enables the implant procedure to be performed by an
electrophysiologist alone, rather than in conjunction with a surgeon. In May
1996, the Company received FDA approval for pectoral implantation labeling of
the Cadet V-115 implantable defibrillator. The Cadet V-115 is comparable in size
to the new defibrillators introduced by CPI and Medtronic.
TRANSVENOUS LEAD SYSTEMS
Since the United States commercial introduction of transvenous
defibrillation leads in 1994, transvenous lead systems, in which the
defibrillation leads are implanted through a vein to connect the defibrillator
with the heart, have become the preferred type of lead system.
Defibrillation lead systems require two electrodes to deliver electrical
energy to the heart. Defibrillation lead systems can be configured with two
leads, in which case a single electrode will be placed on each lead. In
addition, two single lead configurations are possible. In one such
configuration, two electrodes are placed on a single lead. Alternatively, in a
configuration known as a "high voltage can," one or two electrodes are placed on
the lead and the housing of the defibrillator unit serves as the second or third
electrode. Certain physicians may have a preference for single lead systems
because of their belief that a single lead system is easier to implant. However,
the Company estimates that, as compared to a single lead system, a dual lead
system requires approximately five additional minutes to implant and offers
additional flexibility in electrode configuration.
In May 1996, the Company received FDA approval of a PMA application for its
TVL transvenous defibrillation lead system. The TVL is configured as a dual lead
system. The Company is currently engaged in clinical trials of two single lead
systems, one in which both electrodes are on a single lead and a second with a
single electrode on the lead and another on a high voltage can version of the
Cadet V-115 defibrillator. There can be no assurance as to when or whether the
Company will receive PMA approval for such single lead systems.
To date, a large percentage of the Company's sales of defibrillators have
been at the direction of physicians who used the Company's defibrillators in
combination with commercially available transvenous lead systems supplied by the
Company's competitors. Therefore, there can be no assurance that physicians will
purchase transvenous lead systems for which the Company obtains regulatory
approval. In particular, physicians preferring single lead systems may choose to
continue to combine competitors' transvenous leads with the Company's
defibrillators, at least until such time as the Company obtains PMA approval for
its single lead systems. Furthermore, there can be no assurance that
manufacturers of competing transvenous lead systems will not attempt to
discourage or prevent use of their leads with the Company's defibrillators
through product labeling, availability, pricing or other means. In general,
unless the FDA-approved labeling includes use with any transvenous lead system
sold by its competitors, the FDA or other government agencies may take further
actions, including restrictions on reimbursement, to
23
<PAGE> 25
restrict the combination of the Company's defibrillators with such transvenous
lead systems. Such actions could make the Company's defibrillators, including
both the Cadet and the Contour, less attractive to physicians and could
therefore have a material adverse effect on the Company's business, financial
condition and results of operations.
PRODUCTS
The Cadet implantable defibrillator system consists of a Cadet
microprocessor-based implantable defibrillator; sensing/pacing and
defibrillation leads that connect the Cadet defibrillator to the patient's
heart; the Programmer, a customized personal computer that the
electrophysiologist uses to program the defibrillator's operating parameters
during and after the implant and to retrieve information from the device after
implant; and the High Voltage Stimulator ("HVS-02") that the electrophysiologist
may use during the implant procedure to ensure proper placement of the leads, to
determine the level of energy needed to defibrillate the patient, and to perform
testing before implanting the Cadet defibrillator.
CADET V-115 DEFIBRILLATOR
The Company's principal product, the Cadet V-115 implantable defibrillator,
is a third-generation, tiered therapy implantable defibrillator that uses a
sophisticated sensing system to continuously monitor the patient's heart rate
and employs a complex set of algorithms to distinguish various types of
ventricular arrhythmias. The tiered therapy Cadet system may be programmed to
initially deliver low voltage antitachycardia pacing designed to control
ventricular tachycardias that can be terminated by such pacing. The Cadet can
also be programmed to deliver cardioversion shocks in an attempt to convert
ventricular tachycardia to a normal rhythm, or deliver one or more high energy
electric shocks to the heart to terminate ventricular fibrillation. Cadet
defibrillators are programmed by the physician upon implant and periodically
thereafter to respond to a patient's changing needs.
A Cadet defibrillator, configured for use with a Ventritex lead system, is
73 cubic centimeters in size and has been designed to be small enough to be
implanted in the pectoral region while delivering the same functional and
performance characteristics as larger tiered therapy implantable defibrillators
that must be implanted in the abdomen. Key features of the Cadet include the
following:
- High Defibrillation Energy Output. The Cadet delivers energy output up
to approximately 38 joules, which is more than other pectorally
implantable defibrillators that are commercially available or, to the
Company's knowledge, in clinical trials in the United States. Since
certain patients require a high level of energy output to terminate
ventricular fibrillation, the Cadet's high power output can expand the
range of patients who can be effectively treated as well as providing an
additional safety margin.
- Programmability. Cadet defibrillators are configured to provide the
electrophysiologist with the ability to vary the operating parameters of
implanted units using the Programmer. This programmability allows the
physician to customize therapy to the patient's condition during and
after implant. The Programmer is menu-driven and features a touch screen
interface to simplify device programming and information retrieval.
- Biphasic Defibrillation Waveform. Cadet defibrillators can deliver
electrical shocks to the patient in a monophasic or biphasic waveform.
Clinical studies suggest that biphasic waveforms achieve improved
defibrillation efficacy compared to monophasic waveforms.
- Electrogram Storage. Cadet defibrillators continuously collect data to
record information on the patient's arrhythmic events in EGM form. This
feature provides valuable information that enables the
electrophysiologist to analyze spontaneous arrhythmic events that the
patient has experienced, to evaluate the effectiveness of therapies that
were delivered in response to arrhythmic events and, if appropriate, to
adjust operating parameters of the device. The Cadet provides up to 8
minutes of EGM storage. The continuous EGM storage provided by the Cadet,
as compared
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to the segmented EGM data provided by certain competing defibrillators,
improves the quality of EGM data available to the electrophysiologist for
arrhythmia diagnosis.
- Continuous Sensing and Non-Committed Therapy. Cadet defibrillators
continuously sense the heart's activity while the defibrillator is
charging its high voltage capacitors to the level required for the
indicated therapy, and can abort the charging process if the patient's
heart function spontaneously returns to normal. This feature is
significant because the Cadet defibrillator does not subject the patient
to unnecessary and painful electric shocks if the patient's heart
function spontaneously returns to normal.
- Backup Bradycardia Pacing. Cadet defibrillators can provide pacing to
correct an abnormally slow heartbeat. This pacing is sometimes necessary
to restart a patient's heart following a defibrillation shock. This
feature reduces the need to implant a second device for those patients
who would otherwise require a bradycardia pacemaker.
Cadet defibrillators are constructed as one-piece, hermetically sealed
units which contain hybrid circuits, high voltage capacitors and batteries.
Hybrid circuits include custom VLSI circuits, a semi-custom microprocessor and
memory chips. The hybrid circuits process and store data and control the
operation of the Cadet units. The capacitors accumulate an electric charge and
deliver high voltage shocks. The Cadet implantable defibrillator is
battery-powered and is designed to have a life of three to five years, although
battery life varies depending on the frequency and duration of pacing and the
number of times the capacitors are charged to high voltage. The list price for
the Cadet V-115, without leads, is approximately $20,000.
CONTOUR V-145 DEFIBRILLATOR
To date, a limited number of Contour V-145 implantable defibrillators have
been implanted in patients in the United States and Europe. At 57 cubic
centimeters, the Contour is one of the smallest third-generation implantable
defibrillators. The Contour offers the same high, approximately 38 joule energy
output provided by the Cadet and provides 16 minutes of stored EGM data. In June
1996, the Company submitted a PMA supplement for the Contour to the FDA;
however, there can be no assurance that the FDA will accept this submission as a
PMA supplement. The FDA could instead require additional testing of the Contour
and could also require clinical data in order to approve the supplement. The
Company would then be required to conduct additional clinical trials under an
IDE and submit data from such trials. This could result in significant delays in
approval for the Contour. Delays in receiving or failure to receive PMA approval
for the Contour would have a material adverse effect on the Company's business,
financial condition and results of operations.
TVL TRANSVENOUS LEAD SYSTEM
The Company's principal lead system which is labeled for use with Cadet
defibrillators is the TVL transvenous lead system. The Company received
regulatory approval for the TVL system in May 1996. The TVL system employs a
dual lead configuration. The TVL leads are designed to offer the flexibility and
maneuverability of pacemaker leads, which have been implanted transvenously for
many years, making them easy to handle and place in the patient. TVL leads
provide sensing and pacing and are used to monitor heart function and to deliver
antitachycardia or bradycardia pacing, as needed. The current list price of the
TVL system is approximately $5,500.
NEW SINGLE LEAD SYSTEMS
The Company has developed and is conducting clinical trials of two single
lead systems to provide additional flexibility for electrophysiologists in
selecting a lead system and to accommodate the preferences of many
electrophysiologists for a single lead system. The Company's SPL system is a
single lead with two defibrillation electrodes. The Company is also conducting
clinical trials of a "high voltage can" version of the Cadet V-115. In this
system, one electrode is on the lead and the housing of the Cadet, which is made
of titanium, serves as the other electrode. The Company intends to submit PMA
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supplements for the SPL system and the high voltage can version of the Cadet to
the FDA. There can, however, be no assurance that the FDA will accept these
submissions as PMA supplements. The FDA could instead require additional testing
of or modification to the SPL or the Company's high voltage can defibrillator
and could also require clinical trials under an IDE and completion of the entire
PMA approval process, as opposed to the typically shorter PMA supplement
process. Delays in receiving or failure to receive PMA approval for the SPL or
the high voltage can defibrillator could have a material adverse effect on the
Company's business, financial condition and results of operations.
PROGRAMMER
Ventritex Programmers are customized personal computers that provide
communication with the Company's defibrillators using a specialized
communication wand. This feature allows the physician to alter the operating
parameters of Cadet defibrillators, to receive and display diagnostic data and
to non-invasively induce ventricular tachycardia or fibrillation in the patient
to periodically evaluate the patient's defibrillation threshold and
defibrillator performance. The Programmer is menu driven and uses a color touch
screen to highlight programming steps and changes, which simplifies the setup
and monitoring of defibrillator operating parameters. The Company typically
provides Programmers without charge for each domestic site implanting the
Company's defibrillators. As a result, the Company anticipates expensing
approximately $6 million during fiscal 1997 for Programmers and HVS-02 high
voltage stimulators provided to hospitals and other sites where the Company's
defibrillators are implanted.
HIGH VOLTAGE STIMULATOR
The HVS-02 high voltage stimulator is an external device that may be used
by the electrophysiologist during the implant procedure to facilitate proper
placement of the leads and to induce and terminate ventricular tachycardia or
fibrillation to determine the energy required to defibrillate the patient. It
provides an external defibrillator to determine defibrillation thresholds, a
pacing system analyzer to properly position the sensing/pacing leads, and a
programmable stimulator to induce either ventricular tachycardia or
fibrillation. Typically, one HVS-02 is used at each institution implanting the
Company's defibrillators and HVS-02 devices are typically provided by the
Company without charge. However, it is also possible to have the defibrillator
itself perform the functions of the HVS-02 during the implant procedure, and an
increasing number of implants are currently being performed without use of the
HVS-02.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts include various research,
product and process development, clinical trial and quality assurance
activities. These activities are performed by the Company's staff and are
supplemented by work conducted on the Company's behalf by outside sources. The
Company is engaged in research and development projects for future defibrillator
systems, transvenous defibrillation lead systems and external equipment. Delays
in development of new products by Ventritex or developments involving
competitors, including commencement of clinical trials or commercialization of
new implantable devices, pharmaceuticals, cardiac ablation or surgical
alternatives for the treatment of ventricular tachycardia or ventricular
fibrillation, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Research and development expense was $30.8 million, $27.7 million and $23.3
million for fiscal years 1996, 1995 and 1994, respectively. The Company expects
research and development expense to continue to increase in dollar amount in the
future.
Market acceptance and sales of the Company's products could be adversely
affected by technological changes. Many companies with substantially greater
resources than the Company are engaged in the development of products and
approaches for the treatment of ventricular tachycardia and ventricular
fibrillation. These include implantable devices as well as pharmaceuticals and
cardiac ablation therapies. Future innovations in the treatment of ventricular
tachycardia and ventricular fibrillation could render existing technologies,
including the Company's systems, less competitive or obsolete.
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CLINICAL ENGINEERING, MARKETING AND SALES
The Company's skilled sales, marketing, clinical engineering and support
staff consult with electrophysiologists on the features and applications of the
Company's products. In addition, sales and field clinical engineering personnel
conduct ongoing training sessions and provide clinical support by attending
defibrillator implants and patient follow-up sessions.
The Company's field sales and field clinical engineering organizations
currently include approximately 60 individuals. The field organization enables
the Company to focus its marketing program on electrophysiology centers in the
United States. In addition, the Company is addressing international markets,
typically through specialty cardiovascular product distributors. During fiscal
1996, the Company established a direct sales and field clinical engineering
organization in Germany.
The Company sells primarily to hospitals. In the fiscal year ended June 30,
1996, one customer accounted for 10% of net sales. In the fiscal years ended
June 30, 1995 and 1994, no customer accounted for more than 10% of sales.
MANUFACTURING
The Company's manufacturing facility based in Sunnyvale, California
contains assembly areas where its products are assembled and tested. The
manufacturing area includes controlled environment rooms in which certain lead
systems are manufactured, and the completed defibrillators and lead systems are
packaged before being sent to an outside sterilization facility. The Company's
quality assurance group performs tests at various steps in the manufacturing
cycle to ensure compliance with the Company's specifications.
The Company relies on outside suppliers to manufacture certain major
components of its defibrillator systems. The Company currently has sole source
supply arrangements with its suppliers of hybrid circuits, high voltage
capacitors, integrated circuits, defibrillation lead components, batteries and
certain other components used in its products. For certain components, there are
relatively few potential sources of supply and establishment of additional or
replacement suppliers for these components cannot be accomplished quickly. The
Company believes that alternative sources of supply are available for most
components and subcontracted manufacturing services, and plans to qualify
additional suppliers as production volumes increase. Because of the long lead
times for some components that are currently available from only a single
source, a vendor's inability to supply acceptable components in the quantity
required could have a material adverse effect on the Company's business,
financial condition and results of operations.
During the first half of fiscal 1996, in anticipation of regulatory
approval, the Company began production of its Cadet V-115 defibrillator system
and TVL transvenous lead system, and initially experienced shortages of certain
critical components due to manufacturing yield problems at its suppliers. There
can be no assurance that future production problems will not be encountered in
production of the Company's current or future products. Failure to manufacture
new or existing products on a timely and cost effective basis could result in
substantial unanticipated expenses, delays in the commercial availability of
such products, and could have a material adverse affect on the Company's
business, financial condition and results of operations.
PRODUCT WARRANTY
The Company's implantable defibrillator systems include a complex
electronic device and leads designed to be implanted in the human body for long
periods of time. Component failures, manufacturing errors or design defects
could result in an unsafe condition, injury or death to the patient. The
occurrence of such a problem could result in a recall of the Company's products,
explanting implanted defibrillators or leads and the implanting of new
defibrillators or leads.
The Company's defibrillators are warranted for the earlier of three years
or 100 high voltage capacitor charges, assuming nominal pacing during the time
the unit is implanted. Previously, the Company experienced certain component
failures with the Cadence defibrillator and with lead systems. For example,
during clinical trials, a number of Cadence V-100 defibrillators experienced
premature battery
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depletion due to defective capacitors supplied by an outside vendor. In all
these instances, the devices were explanted and replaced with new
defibrillators. The Company has experienced what it believes, in light of
industry experience, to be a typical level of returns of defibrillator units
from the field for various reasons, none of which the Company believes are
systemic or would otherwise give rise to a product recall. There can, however,
be no assurance that the Company's products will not experience additional
performance difficulties. Future product problems resulting in a recall could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The manufacture and sale of the Company's products entails the risk of
product liability claims. Although the Company maintains product liability
insurance with coverage limits of $25.0 million per occurrence and $25.0 million
in the aggregate per year, there can be no assurance that the coverage limits of
the Company's insurance policies will be adequate. Product liability insurance
is expensive and may not be available in the future on acceptable terms or at
all. In addition, the Company has indemnified certain of its component suppliers
for certain potential product liability. To date, the Company has not
experienced any material product liability claims. A successful claim brought
against the Company in excess of its insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations and could adversely affect the Company's ability to continue as a
viable entity. Also, as a result of the June 1996 United States Supreme Court
decision in Medtronic, Inc. v. Lohr, which rejected federal pre-emption of
certain state law causes of action in relation to medical devices, the Company
expects that product liability claims relating to medical devices may be pursued
more aggressively in the future.
COMPETITION
Competition in the market for implantable defibrillator systems is intense.
Although patients susceptible to ventricular tachycardia and ventricular
fibrillation may be treated with antiarrhythmic drugs or cardiac ablation
therapies, the Company believes that manufacturers of implantable defibrillators
are its primary competitors. The Company's principal competitors are CPI and
Medtronic. Both CPI and Medtronic are large, diversified cardiology and medical
device companies and each has invested substantial amounts in implantable
defibrillator research and development. Other competitors in the implantable
defibrillator market include Telectronics, Intermedics and Angeion Corporation.
In March 1995, the FDA approved the commercial release of new
defibrillators manufactured by CPI and Medtronic which are small enough to allow
pectoral implantation, rather than abdominal implantation, in suitable patients.
Until receipt of regulatory approval relating to the Cadet in May 1996, the
Company could not offer an implantable defibrillator labeled for pectoral
implantation in patients in the United States. Commercial release of pectorally
implantable defibrillators significantly increased competition in the
implantable defibrillator market and resulted in a significant decline in the
Company's market share and sales of the Company's products. The Company now has
products which it believes are competitive; however, there can be no assurance
that the Company's products will compete successfully with products currently
manufactured by others or future products under development by competitors which
have new features, such as dual chamber and rate-responsive pacing capabilities.
Medtronic and CPI have regulatory approval of and are commercially
marketing single lead transvenous lead systems. The Company currently is
marketing the TVL transvenous lead system, a dual lead system. Some physicians
prefer a single lead system due to the perceived ease of implanting such a
system as compared to a dual lead system. The Company is engaged in clinical
trials of single lead transvenous defibrillation lead systems and must receive
PMA approval prior to commercialization. There can be no assurance as to when or
whether the Company will receive PMA approval for these systems.
Many of the Company's competitors, including both CPI and Medtronic, have
substantially greater financial, manufacturing, marketing and technical
resources than those of the Company. The financial resources of certain of the
Company's competitors may enable them to use pricing pressures as a means of
competition. In addition, competitors have in the past and may in the future
employ litigation to gain a competitive advantage. There can be no assurance
that the Company's competitors will not develop or
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obtain regulatory approval for implantable defibrillation systems, or for
pharmaceuticals or surgical alternatives, that may be more effective in treating
ventricular tachycardia and ventricular fibrillation than the Company's current
or future products, or that the Company's technologies and products would not be
rendered less competitive or obsolete by such developments. Failure of the
Company's products to gain market acceptance or limited growth in the market for
implantable defibrillators would have a material adverse effect on the Company's
business, financial condition and results of operations.
Any product developed by the Company that gains regulatory approval will
have to compete for market acceptance and market share. An important factor in
such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, complete clinical testing and regulatory approval processes and supply
commercial quantities of the product to the market is expected to be a critical
competitive factor. The Company expects that competition will also be based,
among other things, on the ability to safely and effectively treat ventricular
tachycardia and ventricular fibrillation, the availability of defibrillation
systems that can be implanted through less invasive surgical procedures, ease of
programmability, ability to provide improved diagnostic capability, size and
weight of the device, product reliability, physician familiarity with the
device, patent position, sales and marketing capability, third-party
reimbursement policies, reputation and price.
In addition, the Company is aware that competitors are developing and, in
some instances, are conducting clinical trials of implantable defibrillators
that have features not included in the Company's defibrillators. Moreover, these
competitors may obtain expedited regulatory approval from the FDA for these new
devices. Commercial release of competitors' products with features not available
in the Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations.
THIRD PARTY REIMBURSEMENT
Implantable defibrillators are generally purchased by hospitals upon
recommendations of electrophysiologists. Typically, these hospitals then bill
various third party payors for the health care services provided to their
patients. These payors include Medicare, Medicaid and private insurers.
Government agencies reimburse hospitals for medical procedures at rates based
upon Diagnostic-Related Groups ("DRGs").
Third party payors are increasingly challenging the prices charged for
medical products and services, and current levels of reimbursement may be a
disincentive to some hospitals to perform defibrillator implants. Currently, the
sales prices of implantable defibrillators range from approximately $12,000 to
$20,000, excluding leads. According to an industry study published in January
1995, a defibrillator implant procedure, excluding electrophysiology testing,
typically costs between $30,000 and $60,000, depending on the length of hospital
stay and other variables. The same source indicated that the average Medicare
reimbursement for an initial defibrillator implant procedure is approximately
$35,000 to $40,000 and that the average Medicare reimbursement for defibrillator
replacement procedures is approximately $20,000. Consequently, despite the
Company's receipt of regulatory approvals for its systems, third party payors
may deny full reimbursement. There can be no assurance that the Company's
implantable defibrillator systems will be considered cost effective by third
party payors, that reimbursement will be available, or if reimbursement is
available, that third party payors' reimbursement policies will not adversely
affect the Company's ability to sell its products on a profitable basis. The
failure by hospitals and other users of the Company's products to obtain
reimbursement from third party payors could have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, legislative initiatives relating to health care reform have
been introduced in Congress and certain state legislatures. These initiatives
have been focused, in large part, on health care cost containment. Such
initiatives, if enacted, could adversely affect the availability of third party
reimbursement for the Company's products and the price levels at which the
Company is able to sell its products.
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The Company's business, financial condition and results of operations could be
adversely affected by changes in government and private payors' reimbursement
policies relating to procedures using the Company's products.
Medicare and Medicaid policies currently permit reimbursement for
investigational medical devices if such devices represent evolutionary
modifications to commercially available products. Under this policy, for
example, next generation implantable defibrillators in clinical trials would be
eligible for reimbursement because these devices are derived from an existing,
approved class of products. Because the Company anticipates that it will be
required to conduct clinical trials in connection with future products, changes
in this reimbursement policy could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third Party Reimbursement."
PATENTS AND PROPRIETARY RIGHTS
The Company files patent applications to protect technology and inventions
that are significant to the development of its business. As of June 30, 1996,
the Company held 71 issued United States patents and 11 issued foreign patents
and had pending 51 United States and 28 corresponding foreign patent
applications that cover various aspects of its technology. The Company's issued
United States patents expire on dates ranging from 2006 through 2014. There can
be no assurance that any of the claims in the pending patent applications will
be allowed, or that any issued patents will be upheld, or not circumvented by
competitors, or that any patents or licenses will provide competitive advantages
for the Company's products. The Company also relies on trade secrets and
proprietary know-how which it seeks to protect, in part, through confidentiality
agreements with employees, consultants and other parties. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors.
The segment of the medical device market that includes implantable
defibrillators has been characterized by extensive litigation regarding patents
and other intellectual property rights. The Company has resolved intellectual
property disputes to date through licensing arrangements, when appropriate and
on terms it believes to be commercially reasonable. Under certain agreements,
the Company pays royalties based on commercial sales of implantable
defibrillator systems. The Company anticipates that such royalties will continue
for future implantable defibrillator systems developed by the Company.
Additionally, the agreements do not include all patents that may be issued to
the licensors, thus future patent disputes with these companies are possible.
Intermedics has filed claims against the Company for patent infringement which
are still pending, and there can be no assurance that other parties will not
institute additional litigation against the Company.
In 1990, two of the Company's competitors, Telectronics and Intermedics,
instituted patent infringement litigation against the Company. Medtronic and CPI
also notified the Company that they believed the Company infringed patents held
by them. In May 1992, the Company and Medtronic agreed to cross-license their
respective patent portfolios relating to devices for the treatment of
tachyarrhythmias. Under the license agreement, Ventritex pays Medtronic
royalties based on a percentage of net sales of Ventritex's products covered by
Medtronic's patents. In July 1993, Ventritex entered into license agreements
with Telectronics and CPI. Under the agreement with CPI, Ventritex and CPI
cross-licensed their respective patent portfolios relating to devices for the
treatment of tachyarrhythmias. Ventritex made a one-time payment to CPI in
settlement of claims relating to past activities and pays CPI royalties based on
a percentage of net sales of Ventritex's products covered by CPI's patents.
Under the agreement with Telectronics, Ventritex and Telectronics cross-licensed
their respective patent portfolios relating to devices for the treatment of
tachyarrhythmias. Ventritex also made a one-time payment to Telectronics in
settlement of ongoing patent infringement litigation between Telectronics and
Ventritex. The Company does not have ongoing royalty obligations to
Telectronics. In connection with the license agreements with CPI and
Telectronics, Ventritex recognized a charge of $18.6 million in fiscal 1993.
This charge included the one-time payments and certain other related settlement
expenses.
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The Company's licenses with Medtronic, CPI and Telectronics contain
significant restrictions that may have the effect of preventing or substantially
impeding an acquisition of, change in control of, or certain minority
investments in, the Company. Such restrictions include the possible termination
of various licenses to the Company and the requirement that the Company make a
substantial payment to one of the licensors upon such event.
As a result of the above license agreements, the Company's only pending
legal dispute in the intellectual property area consists of various claims
asserted by and against Intermedics. For more information about the Intermedics
litigation, see "-- Legal Proceedings."
Although the Company believes that it has entered into license agreements
with all of the major participants in the implantable defibrillator market other
than Intermedics, there can be no assurance that other parties will not
institute litigation against the Company. In addition, the license agreements
with Medtronic, Telectronics and CPI do not include patents that are issued
under applications filed after certain specified dates and thus future patent
disputes with Medtronic, Telectronics and CPI are possible. Any future
litigation, as well as any future interference proceedings that may be declared
by the United States Patent and Trademark Office to determine the priority of
inventions, could result in substantial expense to the Company and significant
diversion of effort by the Company's technical and management personnel.
Additional litigation may be necessary to enforce patents issued to or held by
the Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. An adverse determination in litigation or interference proceedings to
which the Company is or may become a party could subject the Company to
significant liabilities to third parties or require the Company to seek licenses
from third parties. There can, however, be no assurance that necessary licenses
would be available to the Company on satisfactory terms or at all. Accordingly,
an adverse determination in a judicial or administrative proceeding or failure
to obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations and could
adversely affect the Company's ability to continue as a viable entity.
GOVERNMENT REGULATION
Clinical testing, manufacture and sale of the Company's products are
regulated by the FDA as medical devices. Under the Federal Food, Drug, and
Cosmetic Act, as amended, all medical devices are classified into three classes,
class I, II or III. Class III devices, such as implantable defibrillators, are
subject to the most stringent FDA review and require submission and approval of
a PMA application or a PMA supplement from the FDA before commencement of
marketing, sales and distribution in the United States.
In order to receive approval of a PMA application, a device must undergo
clinical evaluation under an Investigational Device Exemption ("IDE") that is
granted by the FDA to permit testing of the device in controlled human trials.
In addition to obtaining an IDE from the FDA, the sponsor of the investigational
research must also obtain approval for the research from a hospital
institutional review board or committee established for this purpose. Once an
IDE has been granted, the FDA may allow expansion of the IDE's scope to
additional patient implants or additional clinical sites, or both. The FDA or
the sponsor may suspend clinical trials at any point if either concludes that
clinical subjects are being exposed to an unacceptable health risk or for other
reasons.
Results of clinical trials are presented to the FDA in a PMA application.
In addition to the results of clinical investigation(s), the PMA applicant must
submit other information relevant to the safety and effectiveness of the device
including: the results of non-clinical tests; a full description of the device
and its components; a full description of the methods, facilities and controls
used for manufacturing; and proposed labeling. The FDA staff then reviews the
submitted application and determines whether or not to accept the application
for filing. If accepted for filing, the application is further reviewed by the
FDA and may be subsequently reviewed by an FDA scientific advisory panel
comprised of physicians and others with expertise in the relevant field. The
advisory panel holds a public meeting during which the PMA
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application is reviewed and discussed. The scientific advisory panel then issues
an approvable or not approvable recommendation to the FDA or recommends approval
with conditions. Although the FDA is not bound by the opinion of the advisory
panel, the FDA tends to give considerable weight to panel recommendations. The
FDA also typically conducts an inspection to determine whether the Company
conforms with the current Good Manufacturing Practice ("GMP") regulations. If
the FDA's evaluation is favorable, the FDA will subsequently publish an order
approving the PMA for the device. Interested parties can file comments on the
order and seek further FDA review. Although the PMA review process is to be
completed within 180 days from the date the PMA is accepted for filing, this
time frame is frequently exceeded.
The process of obtaining FDA and other required regulatory approvals is
lengthy, expensive and uncertain. Moreover, regulatory approvals, if granted,
may include significant limitations on the indicated uses for which a product
may be marketed. In addition, the FDA may require testing and surveillance
programs to monitor the effect of approved products which have been
commercialized and it has the power to prevent or limit further marketing of a
product based on the results of these post-marketing programs. The FDA actively
enforces regulations prohibiting marketing of products for non-indicated uses.
In addition to FDA inspections conducted prior to the approval of a PMA
application, the FDA also conducts periodic inspections to determine compliance
with GMP and Medical Device Reporting ("MDR") regulations. Failure to comply
with applicable regulatory requirements can result in, among, other things,
fines, suspensions or delays of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could prevent the Company
from obtaining, or affect the timing of, future regulatory approvals. There can
be no assurance that the Company will be able to obtain necessary regulatory
approvals on a timely basis or at all. Delays in receipt of or failure to
receive such approvals or loss of previously received approvals could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, if a PMA is granted, significant
modifications to the device, manufacturing process or labeling will require a
supplemental PMA or require the submission of a new PMA application, which could
require substantial additional efficacy and safety data and FDA review.
The Company has recently filed a PMA supplement for the Contour
defibrillator and anticipates filing PMA supplements for its single lead
transvenous defibrillation lead systems. The Company is likely to be required to
file additional PMA applications or PMA supplements for new products it
develops. Supplements to a PMA require submission of the same type of
information as a PMA except that the supplement is limited to that information
needed to support the change. There can be no assurance that the FDA will accept
a PMA supplement. The FDA could instead require additional testing of the device
that is the subject of the supplement or could require clinical trials under an
IDE and completion of the entire PMA approval process. Failure to obtain FDA
approval for commercial release through a PMA supplement on a timely basis, or
at all, could have a material adverse effect on the Company's business,
financial condition and results of operations. Further, the MDR regulations
require that the Company provide information to the FDA on deaths or serious
injuries alleged to have been associated with the use of its devices, as well as
product malfunctions that would likely cause or contribute to death or serious
injury if the malfunction were to recur.
The Company is required to register as a medical device manufacturer with
the FDA and state agencies, such as the Food and Drug Branch of the California
Department of Health Services. The Company is subject to inspection on a routine
basis by the State of California and by the FDA for compliance with the FDA's
current GMP and MDR regulations. Those regulations impose certain procedural and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities and product reporting activities.
Additionally, the Company must comply with various FDA requirements for
design, safety, advertising, labeling and record keeping. Under FDA regulations,
the Company is required to establish a method of device tracking so that the
Company will be able to trace its implantable products from the place of
manufacture to the patient in whom such products are implanted in the United
States. The purpose of this tracking requirement is to facilitate notification
to the patient or recall of the device if such actions
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become necessary. The cost of establishing and maintaining a tracking system
that complies with the FDA's regulations may be significant. Failure to
establish and maintain the required tracking system would subject the Company to
FDA regulatory sanctions and the possibility of losing current product approval.
International sales of medical devices are subject to foreign government
regulation, the requirements of which vary substantially from country to
country. The Company has obtained certain foreign governmental approvals and has
applied for additional approvals. The European Community has promulgated rules
that require that medical products receive by mid-1998 the CE mark, an
international symbol of quality and compliance with applicable European medical
device directives. Failure to receive CE mark certification will prohibit the
Company from selling its products in the European Union. International Standards
Organization ("ISO") 9001 certification is one of the CE mark certification
requirements. The Company has established the process and relationships required
to obtain the necessary approvals for the CE mark and has been granted
authorization to affix that mark to all products currently requiring the mark.
The FDA is studying the long-term effects of materials implanted in the
human body and may require manufacturers of implantable devices to conduct
biological testing of such materials. If required, such testing would be
expensive and time consuming and could disrupt the manufacture and sale or
result in recalls of the Company's products or denials of FDA approval for
future products. Any adverse regulatory actions could have a material adverse
effect on the Company's business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1996, the Company had 548 full-time employees, including 164
in product development and process engineering, 240 in manufacturing and quality
assurance, 107 in sales, marketing and clinical engineering, and 37 in
administration. None of the Company's employees is subject to a collective
bargaining agreement. The Company believes that its relationship with its
employees is good. The Company is dependent upon a limited number of key
management and technical personnel. In addition, the Company's future success
will depend in part upon its ability to attract and retain highly qualified
personnel. The Company competes for such personnel with other companies,
academic institutions and government entities. There can be no assurance that
the Company will be successful in hiring or retaining such qualified personnel.
Loss of key personnel or inability to hire or retain qualified personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
FACILITIES
Ventritex leases an approximately 150,000 square foot facility in
Sunnyvale, California. This facility contains approximately 60,000 square feet
of manufacturing space and approximately 90,000 square feet devoted to research
and administrative offices. The facility is leased through December 2000.
Although the Company believes that this facility is adequate to meet its
requirements at least through fiscal 1997, the Company anticipates the need to
lease additional space. The Company believes that additional space in the
Sunnyvale, California area will be available on commercially reasonable terms.
The Company also leases space in South Carolina for manufacturing activities and
in Europe for sales, clinical engineering and other activities.
LEGAL PROCEEDINGS
The Company is currently in litigation with one of its competitors,
Intermedics. In response to threats from Intermedics, the Company filed a
declaratory judgment action in the United States District Court in the Northern
District of California in January 1993, asking the court to declare that certain
patents which Intermedics had asserted were being infringed by the Company were,
in fact, invalid, unenforceable or not infringed. Intermedics then filed several
actions in the United States District Court in the Southern
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<PAGE> 35
District of Texas alleging infringement by the Company of nine Intermedics
patents. Initially, this litigation was focused on procedural issues relating to
whether the dispute would be tried in California or Texas. On October 12, 1994,
the United States District Court for the Northern District of California denied
Intermedics motion to transfer Ventritex's pending suits to Texas and granted
Ventritex's motion to enjoin Intermedics from further prosecution of its
aforementioned suits in Texas. The United States District Court for the Southern
District of Texas thereafter issued an order transferring to California all of
the Texas cases which Intermedics had served upon Ventritex. The Court has
indicated that the trial in connection with the above described actions will
begin May 5, 1997.
The Company filed a further action in the Northern District of California
in July 1993 seeking a declaratory judgment that the patents that Intermedics
has asserted against the Company are not infringed by Ventritex, are invalid and
are unenforceable. This action, which was filed against Intermedics, its parent
and affiliate companies, SulzerMedica and Sulzer, Inc., seeks damages based upon
claims for antitrust law violations, malicious prosecution, conspiracy and
breach of contract. Intermedics, SulzerMedica and Sulzer, Inc. have moved to
stay or dismiss the Company's damage claims, and the Court ordered that certain
of these claims be dismissed without prejudice and that others be stayed pending
determination of other issues in the parties' various lawsuits.
In the above actions, Intermedics seeks judgments against Ventritex for
damages, attorneys fees and injunctive relief. It is expected that Intermedics
will, during the course of the litigation, seek to obtain various types of
pretrial relief which include, but are not limited to, summary judgments,
dismissals of Ventritex's claims and preliminary injunctions. In January 1995,
Intermedics filed a motion for partial summary judgment and for issuance of a
preliminary injunction based on alleged infringement of one of its patents.
Ventritex vigorously contested these motions and requested the United States
Patent and Trademark Office to conduct a reexamination of claim 28 of
Intermedics U.S. Patent No. 4,880,005 upon which these motions are based. The
Court denied Intermedics' partial summary judgment motion, and, as a result,
Intermedics' preliminary injunction request was withdrawn. The Patent Office, on
May 28, 1996, issued a second final rejection of claim 28 of the 4,880,005
patent. Intermedics subsequently requested reconsideration of the final
rejection. The United States Patent and Trademark Office has indicated that,
upon reconsideration, the rejection appears to have been overcome. The Company
believes that Intermedics will make renewed efforts to obtain partial summary
judgment and a preliminary injunction. On June 6, 1996, Intermedics filed with
the United States Patent and Trademark Office a request for reexamination of
U.S. Patent No. 4,830,006 and on June 7, 1996, Intermedics filed a request for
reexamination of U.S. Patent No. 4,913,145. Both patents are being asserted by
Intermedics against the Company. The requests are based on references identified
by Ventritex as being pertinent to the patents in response to discovery requests
by Intermedics.
Since the Company brought a declaratory relief action against Intermedics
in January 1993, Intermedics has filed suits against the Company's two principal
competitors, Medtronic and CPI, alleging infringement of several of the same
patents which it has asserted against the Company. None of these actions has yet
been set for trial.
In addition to its patent infringement claims, Intermedics had previously
alleged trade secret misappropriation and related acts by the Company and two of
its officers, who were formerly employees of Intermedics. In this lawsuit, the
Company filed counterclaims against Intermedics for infringement of two of
Ventritex's patents. These counterclaims are still pending. Certain of the trade
secret misappropriation and related claims were tried in 1992 before a United
States District Court jury in San Francisco. The jury returned a unanimous
verdict in favor of the Company and its officers and found that Intermedics had
acted in bad faith in continuing to pursue the trade secret misappropriation
claims. The Court set aside the bad faith portion of the verdict based on
Intermedics claim of an erroneous jury instruction. A new trial on the bad faith
issue has been ordered, but no trial date has been set. The judgment dismissed
all of Intermedics trade secret claims against the Company and its officers and
was affirmed on appeal.
In addition to the above-mentioned litigation, the Company is also involved
in other litigation in the normal course of business. Although an adverse
determination in the Intermedics proceedings or in other
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<PAGE> 36
litigation or administrative proceedings could have a material adverse effect on
the Company, based upon the nature of the claims made and the investigation
completed to date, the Company believes the outcome of the described actions
will not have a material adverse effect on the financial position or results of
operations of the Company.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as of
June 30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Frank M. Fischer..................... 54 President, Chief Executive Officer, Acting
Chief Financial Officer and Director
John B. Allison...................... 39 Vice President of Quality Assurance and
Regulatory Compliance
Eric S. Fain, M.D.................... 35 Vice President of Systems Development
Robert D. Gaffney.................... 36 Vice President of Manufacturing
Kevin T. Larkin...................... 47 Vice President of Marketing and Sales
Stephen C. Masson.................... 37 Vice President of Defibrillator Development
Mark J. Meltzer...................... 46 Vice President, Patent Counsel
Sandra L. Miller..................... 54 Vice President of Leads Operations
Benjamin D. Pless.................... 37 Vice President of Research and Technology
Development
Michael B. Sweeney................... 45 Vice President of Clinical Engineering &
Regulatory Affairs
Richard L. Karrenbrock(1)(2)......... 69 Director
C. Raymond Larkin, Jr.(2)............ 48 Director
Walter J. McNerney................... 71 Director
Robert R. Momsen(1)(2)............... 49 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
There are no family relationships between any of the directors or executive
officers of the Company.
Frank M. Fischer became President, Chief Executive Officer and a director
of the Company in July 1987. From May 1977 until joining the Company, Mr.
Fischer held various positions with Cordis Corporation ("Cordis"), a
manufacturer of medical products, including cardiac pacemakers, serving most
recently as President of the Implantable Products Division. Mr. Fischer is a
director of Heartstream, Inc. and Heartport, Inc. Mr. Fischer holds an M.S.
degree from Rensselaer Polytechnic Institute.
John B. Allison joined the Company in April 1996 as Vice President of
Quality Assurance and Regulatory Compliance. From 1992 until joining the
Company, he was Corporate Senior Director of Quality Assurance of Nellcor
Puritan Bennett Incorporated. From 1989 to 1992, he was managing consultant at
Coopers & Lybrand. Mr. Allison holds a B.S. degree from Purdue University.
Eric S. Fain, M.D., joined the Company in June 1987 as Manager of Clinical
Research and was appointed Vice President of Systems Development in July 1996.
Dr. Fain holds an M.D. degree from Stanford University.
Robert D. Gaffney joined the Company in October 1987 as Manager of
Manufacturing and was appointed Vice President of Manufacturing in October 1991.
From June 1983 until joining the Company,
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<PAGE> 37
he was employed by Cordis, serving most recently as Associate Manager of
Mechanical Design and Engineering. Mr. Gaffney holds a B.S. degree from the
Georgia Institute of Technology.
Kevin T. Larkin joined the Company in February 1992 as Vice President of
Marketing and Sales. Prior to joining the Company, he was Marketing Director of
SciMed Life Systems, Inc., a manufacturer of balloon and guiding catheters for
the treatment of cardiovascular disease. From October 1986 until December 1991,
Mr. Larkin was with Medtronic, Inc. in both the pacing and interventional
catheter sales and marketing groups, most recently as Director, Global Marketing
for Medtronic Interventional. Before that, he was Director of Marketing and
Sales of Cordis.
Stephen C. Masson joined the Company in March 1987 as Project Engineer.
From 1989 until April 1995, when he was appointed Vice President of
Defibrillator Development, he held various engineering management positions.
From January 1979 until joining the Company, Mr. Masson was an engineer in the
Cardiac Pacemakers Instrument Design Division of Cordis. Mr. Masson holds a B.S.
degree from the University of Miami.
Mark J. Meltzer joined the Company in May 1992 as Vice President, Patent
Counsel. From 1989 until joining the Company, he was Vice President, Patent
Counsel of O'Neill, Inc., a manufacturer of products for aquatic sports. From
1983 to 1989 he was employed by Hughes Aircraft Company, a manufacturer of
aerospace electronics products, where he served as Patent Counsel. Mr. Meltzer
holds a J.D. degree from Hastings College of Law and a B.S.E.E. degree from the
University of California at Berkeley.
Sandra L. Miller joined the Company in April 1994 as Vice President of
Leads Operations. From December 1992 until joining the Company, she was Product
Development Manager for angioplasty products at Boston Scientific Corp. From
1987 through 1992, she was Manager of Manufacturing for Teletronics Pacing
Systems, a manufacturer of medical products including cardiac pacemakers and
defibrillators. Ms. Miller holds an M.S. degree from Purdue University.
Benjamin D. Pless joined the Company in July 1985 as Director of
Engineering and was appointed Vice President of Engineering in February 1986,
and Vice President of Research and Technology Development in April 1995. From
1980 to 1984 he was employed by Intermedics, where he served as a Design
Engineer and as Project Engineer for implantable antiarrhythmic devices. Mr.
Pless holds a B.S.E.E. degree from the Massachusetts Institute of Technology.
Michael B. Sweeney joined the Company in July 1985 as Vice President of
Clinical Engineering. From 1979 to 1985, he was Director of Electrophysiologic
Studies at Intermedics. From 1975 to 1979 he was employed by Rush Presbyterian
St. Luke's Medical Center in Chicago, where he served as assistant director of
the Pacemaker Surveillance Program. Mr. Sweeney holds a B.A. degree from Drake
University.
Richard L. Karrenbrock became a director of the Company in April 1985.
Since 1981, he has been an investment banker and private investor. He was
formerly a director of several medical device companies, including Advanced
Cardiovascular Systems, Inc. Mr. Karrenbrock holds an M.B.A. from Harvard
University.
C. Raymond Larkin, Jr. became a director of the Company in February 1993.
Since 1983, he has held various executive positions with Nellcor Incorporated, a
medical products company, for which he served as President from 1989 until
August 1995 when he became President of Nellcor Puritan Bennett Incorporated
upon the merger of Nellcor Incorporated with Puritan Bennett. Mr. Larkin is also
a director of Nellcor Puritan Bennett Incorporated, as well as ArthroCare
Corporation and Neuromedical Systems, Inc. He holds a B.S. degree from LaSalle
University.
Walter J. McNerney became a director of the Company in February 1993. Since
1982, he has been a Professor at the J.L. Kellogg Graduate School of Management
at Northwestern University. Mr. McNerney is also a director of American Health
Properties, Hanger Orthopedics, Inc., Medicus, Nellcor Puritan Bennett
Incorporated, Osteo Tech, Stanley Works and Value Health, Inc. He holds an
M.H.A. from the University of Minnesota.
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<PAGE> 38
Robert R. Momsen became a director of the Company in August 1986. Since
1982, he has been a general partner of the InterWest Partners group of venture
capital funds. Mr. Momsen is also a director of COR Therapeutics, Inc.,
ArthroCare Corporation, Integ, Inc., Innovative Devices, Inc. and Urologix, Inc.
He holds an M.B.A. from Stanford University.
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of
, 1996 (the "Indenture"), between the Company and State Street Bank
and Trust Company, as Trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement. Wherever particular defined terms of the
Indenture (including the Notes) are referred to, such defined terms are
incorporated herein by reference (the Notes and various terms relating to the
Notes being referred to in the Indenture as "Securities"). References in this
section to the "Company" are solely to Ventritex, Inc. and not to its
subsidiaries. The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the detailed provisions of the Notes and the
Indenture, including the definitions therein of certain terms. Section
references below are references to Sections of the Indenture.
GENERAL
The Notes will be unsecured subordinated obligations of the Company, will
be limited to $57,500,000 aggregate principal amount, and will mature on
, 2001. The Notes will bear interest at the rate per annum shown on
the front cover of this Prospectus from , 1996, payable semiannually
on and of each year, commencing on , 1997.
Interest payable per $1,000 principal amount of Notes for the period from
, 1996 to , 1997 will be $ . (sec.sec. 301 and
307)
The Notes will be convertible into Common Stock initially at the conversion
rate stated on the cover page hereof, subject to adjustment upon the occurrence
of certain events described under "-- Conversion Rights," at any time prior to
the close of business on the maturity date, unless previously redeemed or
repurchased. (sec. 1301)
The Notes are redeemable under the circumstances and at the redemption
prices set forth below under "-- Optional Redemption," plus accrued interest to
the redemption date. (sec. 203)
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. (sec. 302) No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (sec. 305)
CONVERSION RIGHTS
The Holder of any Note will have the right, at the Holder's option, to
convert any portion of the principal amount of a Note that is an integral
multiple of $1,000 into shares of Common Stock at any time prior to the close of
business on the maturity date, unless previously redeemed or repurchased, at a
conversion rate of shares of Common Stock per U.S. $1,000 principal
amount of Notes (the "Conversion Rate") (equivalent to a conversion price of
approximately $ per share of Common Stock) (subject to adjustment as
described below). The right to convert a Note called for redemption will
terminate at the close of business on the Business Day prior to the Redemption
Date for such Note, while the right to convert a Note tendered for repurchase
will terminate at the close of business on the Repurchase Date for such Note.
(sec. 1301)
The right of conversion attaching to any Note may be exercised by the
Holder by delivering the Note at the specified office of the Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of which
may be obtained from the Trustee. The conversion date will be the date on which
the Note and the duly signed and completed notice of conversion are so
delivered. As promptly as
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<PAGE> 39
practicable on or after the conversion date, the Company will issue and deliver
to the Trustee a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion, together with payment in lieu of any
fraction of a share; such certificate will be sent by the Trustee to the
Conversion Agent (if other than the Trustee) for delivery to the Holder. Such
shares of Common Stock issuable upon conversion of the Notes, in accordance with
the provisions of the Indenture, will be fully paid and nonassessable and will
rank pari passu with the other shares of Common Stock of the Company outstanding
from time to time. Any Note surrendered for conversion during the period from
the close of business on any Regular Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date (except
Notes (or portions thereof) called for redemption on a Redemption Date or which
are repurchasable on a Repurchase Date occurring, in either case, within such
period (including any Notes (or portions thereof) called for redemption on a
Redemption Date that is a Record Date or Interest Payment Date, as the case may
be)) must be accompanied by payment of an amount equal to the interest payable
on such Interest Payment Date on the principal amount of Notes being surrendered
for conversion. The interest so payable on such Interest Payment Date with
respect to any Note (or portion thereof, if applicable) which has been called
for redemption on a Redemption Date, or which may be repurchased on a Repurchase
Date, occurring, in either case, during the period from the close of business on
any Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date (including any Notes (or portions
thereof) called for redemption on a Redemption Date that is a Record Date or
Interest Payment Date, as the case may be), which Note (or portion thereof, if
applicable) is surrendered for conversion during such period (or on the last
Business Day prior to the Record Date or Interest Payment Date in the case of a
Note (or portions thereof) called for redemption on a Record Date or Interest
Payment Date, as the case may be), shall be paid to the Holder of such Note
being converted in an amount equal to the interest that would have been payable
on such Note if such Note had been converted as of the close of business on such
Interest Payment Date. The interest so payable on such Interest Payment Date in
respect of any Note (or portion thereof, as the case may be) which has not been
called for redemption on a Redemption Date, or is not eligible for repurchase on
a Repurchase Date, occurring, in either case, during the period from the close
of business on any Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date, which Note (or portion
thereof, as the case may be) is surrendered for conversion during such period,
shall be paid to the Holder of such Note as of such Regular Record Date.
Interest payable in respect of any Note surrendered for conversion or repurchase
on or after an Interest Payment Date shall be paid to the Holder of such Note as
of the next preceding Regular Record Date, notwithstanding the exercise of the
right of conversion. As a result of the foregoing provisions, except as provided
above, Holders that surrender Notes for conversion on a date that is not an
Interest Payment Date will not receive any interest for the period from the
Interest Payment Date next preceding the date of conversion to the date of
conversion or for any later period, even if the Notes are surrendered after a
notice of redemption (except for the payment of interest on Notes called for
redemption on a Redemption Date or to be repurchased on a Repurchase Date
between a Regular Record Date and the Interest Payment Date to which it relates
(including any Notes (or portions thereof) called for redemption on a Redemption
Date that is a Record Date or Interest Payment Date, as the case may be), as
provided above). No other payment or adjustment for interest, or for any
dividends in respect of Common Stock, will be made upon conversion. Holders of
Common Stock issued upon conversion will not be entitled to receive any
dividends payable to holders of Common Stock as of any record time or date
before the close of business on the conversion date. No fractional shares will
be issued upon conversion but, in lieu thereof, the Company will pay an
appropriate amount in cash based on the market price of Common Stock at the
close of business on the day of conversion. (sec.sec. 101, 203, 307, 1302 and
1303)
A Holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless all taxes and
duties, if any, payable by the Holder have been paid. (sec.sec. 1302 and 1308)
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The Conversion Rate is subject to adjustment in certain events, including,
without duplication: (a) dividends (and other distributions) payable in Common
Stock on shares of capital stock, (b) the issuance to all holders of Common
Stock of rights, options or warrants entitling them to subscribe for or purchase
Common Stock at less than the then Current Market Price of such Common Stock
(determined as provided in the Indenture) as of the record date for shareholders
entitled to receive such rights, options or warrants, (c) subdivisions,
combinations and reclassifications of Common Stock, (d) distributions to all
holders of Common Stock of evidences of indebtedness of the Company, shares of
capital stock, cash or assets (including securities, but excluding those
dividends, rights, options, warrants and distributions referred to above,
dividends and distributions paid exclusively in cash and in mergers and
consolidations to which the next succeeding paragraph applies), (e)
distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above) to all holders of Common Stock in an
aggregate amount that, combined together with (i) other such all-cash
distributions made within the preceding 12 months in respect of which no
adjustment has been made and (ii) any cash and the fair market value of other
consideration payable in respect of any tender offer by the Company or any of
its subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then Current Market Price per
share of the Common Stock and the number of shares of Common Stock then
outstanding) on the record date for such distribution, and (f) the successful
completion of a tender offer made by the Company or any of its subsidiaries for
Common Stock which involves an aggregate consideration that, together with (i)
any cash and other consideration payable in a tender offer by the Company or any
of its subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender offer in respect of which no adjustment has been made
and (ii) the aggregate amount of any such all-cash distributions referred to in
(e) above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer. With respect to Rights (as defined below) issued pursuant to
the Rights Agreement (as defined below), if Holders of the Notes exercising the
right of conversion attaching thereto after the Distribution Date (as defined in
the Rights Agreement) are not entitled to receive the Rights that would
otherwise be attributable (but for the date of conversion) to the shares of
Common Stock received upon such conversion, the Conversion Rate will be adjusted
as though the Rights were being distributed to holders of the Common Stock on
the Distribution Date. If such an adjustment is made and the Rights are later
redeemed, invalidated or terminated, then a corresponding reversing adjustment
will be made to the Conversion Rate on an equitable basis. The Company reserves
the right to make such increases in the Conversion Rate in addition to those
required in the foregoing provisions as it considers to be advisable in order
that any event treated for federal income tax purposes as a dividend or
distribution of stock or issuance of rights or warrants to purchase or subscribe
for stock will not be taxable to the recipients. No adjustment of the Conversion
Rate will be required to be made until the cumulative adjustments amount to 1.0%
or more of the Conversion Rate. (sec. 1304) The Company shall compute any
adjustments to the Conversion Rate pursuant to this paragraph and will give
notice to the Holders of the Notes of any adjustments. (sec. 1305)
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Note then outstanding will,
without the consent of the Holder of any Note, become convertible only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Note was convertible immediately prior thereto
(assuming such holder of Common Stock failed to exercise any rights of election
and that such Note was then convertible). (sec. 1311)
The Company from time to time may 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 increase, if the Board of Directors has made a
determination that such increase would be in the best interests of the
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Company, which determination shall be conclusive. No such increase shall be
taken into account for purposes of determining whether the closing price of the
Common Stock exceeds the Conversion Price by 105% in connection with an event
which otherwise would be a Change of Control. (sec. 1304)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends on
Common Stock or rights to subscribe for Common Stock) and, pursuant to the
anti-dilution provisions of the Indenture, the number of shares into which Notes
are convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to Holders of Notes. See
"Certain Federal Income Tax Considerations."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on
(including any amounts payable upon the redemption or repurchase of the Notes
permitted by the Indenture), the Notes will be subordinated in right of payment,
to the extent set forth in the Indenture, to the prior payment in full of the
principal of, premium, if any, interest and other amounts in respect of all
Senior Indebtedness of the Company. As of June 30, 1996, the Company had no
outstanding indebtedness that would have constituted Senior Indebtedness. Senior
Indebtedness is defined in the Indenture to mean the principal of (and premium,
if any) and interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) on, and
all fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date of the Indenture or thereafter created, incurred or assumed: (a)
indebtedness of the Company to banks, insurance companies and other financial
institutions evidenced by credit or loan agreements, notes or other written
obligations, (b) all other indebtedness of the Company (including indebtedness
of others guaranteed by the Company) other than the Notes, whether outstanding
on the date of the Indenture or thereafter created, incurred or assumed, which
is (i) for money borrowed or (ii) evidenced by a note, security, debenture, bond
or similar instrument, (c) obligations of the Company as lessee under leases
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles or in respect of any lease or related document
(including a purchase agreement) which provides that the Company is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby effectively guarantees a minimum residual value of
the leased property to the landlord and the obligations of the Company under
such lease or related document to purchase or cause a third party to purchase
such leased property, (d) obligations of the Company under interest rate and
currency swaps, caps, floors, collars or similar agreements or arrangements, and
(e) renewals, extensions, modifications, restatements and refundings of, and any
amendments, modifications or supplements to, or any indebtedness or obligation
issued in exchange for, any such indebtedness or obligation described in clauses
(a) through (d) of this paragraph; provided, however, that Senior Indebtedness
shall not include any such indebtedness or obligation if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which, it is issued) expressly provide that such indebtedness or
obligation shall not be senior in right of payment to the Notes, or expressly
provide that such indebtedness or obligation is "pari passu" with or "junior" to
the Notes. "Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness). (sec.sec. 101, 1201 and 1202)
Upon any acceleration of the principal due on the Notes or payment or
distribution of assets of the Company to creditors upon any dissolution, winding
up, liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other similar proceedings of the
Company, all
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principal, premium, if any, and interest or other amounts due on all Senior
Indebtedness must be paid in full before the Holders of the Notes are entitled
to receive any payment. (sec. 1202) The Indenture will further require that the
Company promptly notify holders of Senior Indebtedness if payment of the Notes
is accelerated because of an Event of Default. The Company also may not make any
payment upon or in respect of the Notes if (i) a default in the payment of the
principal of, premium, if any, interest, rent or other obligations in respect of
Senior Indebtedness occurs and is continuing beyond any applicable period of
grace or (ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate the maturity thereof
and the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or other person permitted to give such notice under the
Indenture. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced unless and until (i) 365 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
By reason of the foregoing subordination, in the event of insolvency,
creditors of the Company who are holders of Senior Indebtedness are likely to
recover more, ratably, than the Holders of the Notes, and such subordination may
result in a reduction or elimination of payments to the Holders of the Notes.
The Notes are obligations exclusively of the Company. To the extent the
Company were to commence conducting certain operations or increase the level of
existing operations through subsidiaries, the cash flow and the consequent
ability to service debt, including the Notes, of the Company would be partially
dependent upon the earnings of any such subsidiaries and the distribution of
those earnings to the Company. Any such subsidiaries would be separate and
distinct legal entities, and would have no obligations, contingent or otherwise,
to pay any amounts due under the Notes or to make any funds available therefor,
whether by dividends, distributions, loans or otherwise. In addition, the
payment of dividends or distributions and the making of loans and advances to
the Company by any such subsidiaries could be subject to statutory or
contractual restrictions, and could be contingent upon the earnings of those
subsidiaries and subject to various business considerations. Any right of the
Company to receive assets of subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in these assets) would be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in which
case the claims of the Company would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. As of June 30, 1996, the
Company's subsidiaries had no indebtedness outstanding for money borrowed.
The Indenture does not limit the Company's ability to incur Senior
Indebtedness or any other indebtedness.
OPTIONAL REDEMPTION
The Notes may not be redeemed prior to , 1999. Thereafter, the
Notes may be redeemed, in whole or in part, at the option of the Company, upon
not less than 20 nor more than 60 days' prior notice as provided under " --
Notices" below, at the redemption prices set forth below.
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The redemption prices (expressed as a percentage of principal amount) are
as follows for the 12-month period beginning on of the following
years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------- ----------
<S> <C>
1999 %
2000
</TABLE>
and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date of redemption. (sec. 203,
Article Eleven)
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control (as defined) occurs, each Holder of Notes shall have
the right, at the Holder's option, to require the Company to repurchase all of
such Holder's Notes, or any portion of the principal amount thereof that is
equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the date
(the "Repurchase Date") that is 45 days after the date of the Company Notice (as
defined), at a price equal to 100% of the principal amount of the Notes to be
repurchased, together with interest accrued to the Repurchase Date (the
"Repurchase Price"). (sec. 1401)
The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the closing prices of the Common Stock for the five consecutive Trading Days
ending on and including the third Trading Day preceding the Repurchase Date;
provided that payment may not be made in Common Stock unless the Company
satisfies certain conditions with respect to such payment as provided in the
Indenture. (sec.sec. 1401 and 1402)
Within 30 days after the occurrence of a Change of Control, the Company is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change of Control
and of the repurchase right arising as a result thereof, or, at the request of
the Company on or before the 15th day after such occurrence, the Trustee shall
give the Company Notice. The Company must also deliver a copy of the Company
Notice to the Trustee and to the office of each Paying Agent. To exercise the
repurchase right, a Holder of Notes must deliver on or before the 30th day after
the date of the Company Notice irrevocable written notice to the Trustee or
Paying Agent of the Holder's exercise of such right, together with the Notes
with respect to which the right is being exercised. (sec. 1403)
A Change of Control shall be deemed to have occurred at such time after the
original issuance of the Notes as there shall occur:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors, other than any such
acquisition by the Company, any subsidiary of the Company or any employee
benefit plan of the Company; or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or
any sale or transfer of all or substantially all of the assets (other than
to a wholly-owned Subsidiary of the Company) of the Company to any other
Person (other than (a) any such transaction pursuant to which the holders
of 50% or more of the total voting power of all shares of capital stock of
the Company entitled to vote generally in elections of directors
immediately prior to such transaction have, directly or indirectly, at
least 50% or more of the total voting power of all shares of capital stock
of the continuing or surviving corporation entitled
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to vote generally in elections of directors of the continuing or surviving
corporation immediately after such transaction and (b) a merger (x) which
does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of capital stock of the Company or (y)
which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock into solely shares of common stock);
provided, however, that a Change of Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any five
Trading Days within the period of 10 consecutive Trading Days ending immediately
after the later of the Change of Control or the public announcement of the
Change of Control (in the case of a Change of Control under clause (i) above) or
ending immediately before the Change of Control (in the case of a Change of
Control under clause (ii) above) shall equal or exceed 105% of the Conversion
Price of the Notes in effect on each such Trading Day or (b) all of the
consideration (excluding cash payments for fractional shares and cash payments
made pursuant to dissenters' appraisal rights) in a merger or consolidation
otherwise constituting the Change of Control described in clause (i) and/or
clause (ii) above consists of shares of common stock traded on a national
securities exchange or quoted on the Nasdaq National Market and as a result of
such transaction or transactions the Notes become convertible solely into such
common stock. The "Conversion Price" is equal to $1,000 dividend by the
Conversion Rate. "Beneficial owner" shall be determined in accordance with Rule
13d-3 promulgated by the Commission under the Exchange Act, as in effect on the
date of original execution of the Indenture. (sec. 1404)
The Company's ability to repurchase Notes upon the occurrence of a Change
of Control is subject to limitations. There can be no assurance that the Company
would have the financial resources, or would be able to arrange financing, to
pay the Repurchase Price for all the Notes that might be delivered by Holders of
Notes seeking to exercise the purchase right. In addition, the Company's ability
to purchase Notes may be limited or prohibited by the terms of its Senior
Indebtedness. In addition, the Company's ability to purchase Notes with cash may
also be limited by the terms of its subsidiaries' then-existing borrowing
arrangements due to dividend restrictions. Any failure by the Company to
repurchase the Notes when required following a Change of Control could result in
an Event of Default under the Indenture whether or not such repurchase is
permitted by the subordination provisions of the Indenture. Any such default
may, in turn, cause a default under Senior Indebtedness of the Company.
Moreover, the occurrence of a Change of Control may cause an event of default
under Senior Indebtedness of the Company. As a result, in any such case, any
repurchase of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Indebtedness is paid
in full. See "-- Subordination" and "Risk Factors -- Subordination."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect Holders.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person or
convey, transfer, or lease its properties and assets substantially as an
entirety to any Person (other than a conveyance, transfer or lease to
wholly-owned subsidiary), and the Company may not permit any Person (other than
a wholly-owned subsidiary) to merge into the Company or convey, transfer, or
lease its properties and assets substantially as an entirety to the Company,
unless (a) the Person formed by such consolidation or into which the Company is
merged or the Person to which the properties and assets of the Company are so
transferred or leased is a corporation, limited liability company, partnership
or trust organized and existing under the laws of the United States, any State
thereof or the District of Columbia and has expressly
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<PAGE> 45
United States, any State thereof or the District of Columbia and has expressly
assumed the due and punctual payment of the principal of, premium, if any, and
interest on the Notes and the performance of the other covenants of the Company
under the Indenture, (b) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing, and (c)
the Company has provided to the Trustee an Officer's Certificate and Opinion of
Counsel if required by the Indenture. (sec. 801)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal or Redemption Price of any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (c) default in the Company's obligation to provide a Company Notice
of a Change in Control; (d) failure to perform any other covenant of the Company
in the Indenture, continuing for 60 days after written notice as provided in the
Indenture; (e) any indebtedness for money borrowed by the Company in an
aggregate principal amount in excess of $10,000,000 is not paid at final
maturity or upon acceleration thereof and such default in payment or
acceleration is not cured or rescinded within 30 days after written notice as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization. (sec. 501) Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (sec. 603) Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (sec. 512)
If an Event of Default (other than an Event of Default specified in
subsection (f) above) occurs and is continuing, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Notes, by notice in writing to the Company, declare the principal of all the
Notes to be due and payable immediately, and upon any such declaration such
principal and any accrued interest thereon will become immediately due and
payable. If an Event of Default specified in subsection (f) occurs and is
continuing, the principal and any accrued interest on all of the then
Outstanding Notes shall ipso facto become due and payable immediately without
any declaration or other Act on the part of the Trustee or any Holder. (sec.
502)
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of Outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the nonpayment
of accelerated principal and interest have been cured or waived as provided in
the Indenture. (sec. 502)
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (sec. 507) However, such limitations do not apply to a suit instituted by
a Holder of a Note for the enforcement of payment of the principal of, premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Note or of the right to convert such Note in accordance with the
Indenture. (sec. 508)
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<PAGE> 46
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (sec. 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, either with the written consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time Outstanding. However, no such modification or amendment may, without
the consent of the Holder of each outstanding Note affected thereby, (a) change
the Stated Maturity of the principal of, or any installment of interest on, any
Note, (b) reduce the principal amount of, or the premium, if any, or rate of
interest on, any Note, (c) reduce the amount payable upon redemption or
mandatory repurchase, (d) modify the provisions with respect to the repurchase
right of the Holders in a manner adverse to the Holders, (e) change the place or
currency of payment of principal of, premium, if any, or interest on, any Note,
(f) impair the right to institute suit for the enforcement of any payment on or
with respect to any Note (including any payment of the Repurchase Price in
respect of such Note), (g) modify the obligation of the Company to maintain an
office or agency in New York City, (h) except as otherwise permitted by the
Indenture or contemplated by provisions concerning consolidation, merger,
conveyance, transfer, sale or lease of all or substantially all of the property
and assets of the Company, adversely affect the right of Holders to convert any
of the Notes or to require the Company to repurchase any Note other than as
provided in the Indenture, (i) modify the subordination provisions in a manner
adverse to the Holders of the Notes, (j) reduce the above-stated percentage of
Outstanding Notes necessary to modify or amend the Indenture, or (k) reduce the
percentage of aggregate principal amount of Outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults. (sec.sec. 902 and 513)
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (sec. 1009) The Holders of a majority in aggregate principal
amount of the Outstanding Notes also may waive any past default under the
Indenture, except a default in the payment of principal, premium, if any, or
interest. (sec. 513)
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as security registrar and
transfer agent, acting through its Corporate Trust Office. The Company reserves
the right to vary or terminate the appointment of the security registrar or of
any transfer agent or to appoint additional or other transfer agents or to
approve any change in the office through which any security registrar or any
transfer agent acts. (sec.sec. 305 and 1002)
PURCHASE AND CANCELLATION
The Company or any subsidiary may at any time and from time to time
purchase Notes at any price in the open market or otherwise.
All Notes surrendered for payment, redemption, repurchase, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Notes so delivered to the
Trustee shall be cancelled promptly by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
the Indenture. Unless otherwise requested by the Company and confirmed in
writing, the Trustee shall, from time to time but not less than once annually,
destroy all cancelled Notes and deliver to the Company a certificate of
destruction, which certificate shall specify the number, principal amount and,
in the case of Notes the form of each cancelled Note so destroyed. (sec. 309)
TITLE
The Company and the Trustee may treat the registered owner (as reflected in
the Security Register) of any Note as the absolute owner thereof (whether or not
such Note shall be overdue) for the purpose of making payment and for all other
purposes.
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NOTICES
Notice to Holders of the Notes will be given by mail to the addresses of
such Holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of the first such publication or on the
date of such mailing, as the case may be. (sec.sec. 101 and 106)
Notice of a redemption of Notes will be given at least once not less than
20 nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the Holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note indemnity satisfactory to the Trustee and the Company may be
required at the expense of the Holder of such Note before a replacement Note
will be issued. (sec. 306)
SATISFACTION AND DISCHARGE
The Company may discharge its payment obligations under the Indenture while
Notes remain outstanding if (a) all outstanding Notes have become due and
payable or will become due and payable at their scheduled maturity within one
year, (b) all outstanding Notes are scheduled for redemption within one year or
(c) all outstanding Notes are delivered to the Trustee for conversion in
accordance with the Indenture and in the case of (a) or (b) above, the Company
has deposited with the Trustee an amount sufficient to pay and discharge the
entire indebtedness on all outstanding Notes on the date of their scheduled
maturity or the scheduled date of redemption (sec. 401).
GOVERNING LAW
The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York. (sec. 112)
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity. (sec.sec. 601 and 603)
BOOK-ENTRY
The Notes will be issued in the form of a global note (the "Global Note")
deposited with, or on behalf of, DTC and registered in the name of Cede & Co. as
DTC's nominee. Owners of beneficial interests in the Notes represented by the
Global Note will hold such interests pursuant to the procedures and practices of
DTC and must exercise any rights in respect of their interests (including any
right to convert or require repurchase of their interests) in accordance with
those procedures and practices. Such beneficial owners will not be Holders, and
will not be entitled to any rights under the Global Note or the Indenture, with
respect to the Global Note, and the Company and the Trustee, and any of their
respective agents, may treat DTC as the sole Holder and owner of the Global
Note.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers (including Goldman,
Sachs & Co.), banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its direct participants and by the
New York
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<PAGE> 48
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the Securities and Exchange Commission.
Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form as set forth below, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC
to DTC or another nominee of DTC.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if DTC is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, the Company will issue individual Notes in
definitive form in exchange for the Global Note. In addition, the Company may at
any time and in its sole discretion determine not to have a Global Note, and, in
such event, will issue individual Notes in definitive form in exchange for the
Global Note previously representing all such Notes. In either instance, an owner
of a beneficial interest in a Global Note will be entitled to physical delivery
of Notes in definitive form equal in principal amount to such beneficial
interest and to have such Notes registered in its name. Individual Notes so
issued in definitive form will be issued in denominations of $1,000 and any
larger amount that is an integral multiple of $1,000 and will be issued in
registered form only, without coupons.
Payments of principal of and interest on the Notes will be made by the
Company through the Trustee to DTC or its nominee, as the case may be, as the
registered owner of the Global Note. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that DTC, upon receipt of
any payment of principal or interest in respect of the Global Note, will credit
the accounts of the related participants with payment in amounts proportionate
to their respective holdings in principal amount of beneficial interest in the
Global Note as shown on the records of DTC. The Company also expects that
payments by participants to owners of beneficial interests in the Global Note
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
participants.
So long as the Notes are represented by a Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
Holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by participants or by owners of beneficial interests in a
Global Note held through such participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to participants. In order to
ensure that DTC's nominee will timely exercise a right to repayment, or the
right of conversion, with respect to a particular Note, the beneficial owner of
such Notes must instruct the broker or other participant through which it holds
an interest in such Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to DTC.
The Company will not be liable for any delay in delivery of such notice to DTC.
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<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Ventritex, Inc. (the "Company") consists of
35,000,000 shares of Common Stock, $.001 par value per share, and 5,000,000
shares of Preferred Stock, $.001 par value per share. As of June 30, 1996,
20,878,095 shares of Common Stock were outstanding, held of record by
approximately 460 stockholders. No shares of Preferred Stock were outstanding as
of June 30, 1996, although 35,000 shares of the Preferred Stock had been
designated Series A Participating Preferred Stock, $.001 par value. In addition,
each outstanding share of Common Stock represented the Preferred Share Purchase
Right related thereto.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders, except stockholders
may cumulate their votes in the election of directors. Subject to preferences
that may be applicable to any outstanding Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Company's Board of Directors out of funds legally
available for that purpose. In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Common Stock.
PREFERRED SHARES RIGHTS AGREEMENT
Pursuant to the Preferred Shares Rights Agreement (the "Rights Agreement")
dated as of August 16, 1994, as amended, between the Company and Chemical Trust
Company of California, as Rights Agent (the "Rights Agent"), the Company's Board
of Directors declared a dividend of one right (a "Right") to purchase one
one-thousandth share of the Company's Series A Participating Preferred Stock
("Series A Preferred") for each outstanding share of Common Stock ("Common
Shares") of the Company. The dividend was payable on August 31, 1994 (the
"Record Date") to stockholders of record as of the close of business on that
date. Each Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Preferred at an exercise price of $100.00
(the "Purchase Price"), subject to adjustment.
The following summary of the principal terms of the Rights Agreement is a
general description only and is subject to the detailed terms and conditions of
the Rights Agreement. A copy of the Rights Agreement is filed as an Exhibit to
the Registration Statement of which this Prospectus is a part.
Rights Evidenced by Common Share Certificates. The Rights will not be
exercisable until the Distribution Date (defined below). Certificates for the
Rights ("Rights Certificates") will not be sent to stockholders and the Rights
will attach to and trade only together with the Common Shares. Accordingly,
Common Share certificates outstanding on the Record Date will evidence the
Rights related thereto, and Common Share certificates issued after the Record
Date will contain a notation incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the surrender or transfer of any certificates for Common Shares, outstanding as
of the Record Date, even without notation or a copy of the Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate.
Distribution Date. The Rights will separate from the Common Shares, Rights
Certificates will be issued and the Rights will become exercisable upon the
earlier of: (i) 10 days (or such later date as may be determined by a majority
of the Board of Directors, excluding directors affiliated with the Acquiring
Person, as defined below (the "Continuing Directors")) following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding Common Shares, or (ii) 10 business
days (or such later date as may be determined by a majority of the Continuing
Directors) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the
48
<PAGE> 50
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding Common Shares. The earlier of such dates
is referred to as the "Distribution Date."
Issuance of Rights Certificates; Expiration of Rights. As soon as
practicable following the Distribution Date, separate Rights Certificates will
be mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date and such separate Rights Certificates alone will
evidence the Rights from and after the Distribution Date. All Common Shares
issued prior to the Distribution Date will be issued with Rights. Common Shares
issued after the Distribution Date may be issued with Rights if such shares are
issued (i) upon the conversion of outstanding convertible debentures or any
other convertible securities issued after adoption of the Rights Agreement or
(ii) pursuant to the exercise of stock options or under employee benefit plans
or arrangements unless such issuance would result in (or create a risk that)
such options, plans or arrangements would not qualify for otherwise available
special tax treatment. Except as otherwise determined by the Board of Directors,
no other Common Shares issued after the Distribution Date will be issued with
Rights. The Rights will expire on the earliest of (i) August 16, 2004 (the
"Final Expiration Date"), (ii) redemption or exchange of the Rights as described
below, or (iii) consummation of an acquisition of the Company satisfying certain
conditions by a person who acquired shares pursuant to a Permitted Offer as
described below.
Initial Exercise of the Rights. Following the Distribution Date, and until
one of the further events described below, holders of the Rights will be
entitled to receive, upon exercise and the payment of $100.00 per Right, one
one-thousandth share of the Series A Preferred. In the event that the Company
does not have sufficient Series A Preferred available for all Rights to be
exercised, or the Board decides that such action is necessary and not contrary
to the interests of Rights holders, the Company may instead substitute cash,
assets or other securities for the Series A Preferred for which the Rights would
have been exercisable under this provision or as described below.
Right to Buy Company Common Shares. Unless the Rights are earlier
redeemed, in the event that an Acquiring Person becomes the beneficial owner of
15% or more of the Company's Common Shares then outstanding (other than pursuant
to a Permitted Offer), then proper provision will be made so that each holder of
a Right which has not theretofore been exercised (other than Rights beneficially
owned by the Acquiring Person, which will thereafter be void) will thereafter
have the right to receive, upon exercise, Common Shares having a value equal to
two times the Purchase Price. Rights are not exercisable following the
occurrence of an event as described above until such time as the Rights are no
longer redeemable by the Company as set forth below.
Right to Buy Acquiring Company Stock. Similarly, unless the Rights are
earlier redeemed, in the event that, after the Shares Acquisition Date (as
defined below), (i) the Company is acquired in a merger or other business
combination transaction, or (ii) 50% or more of the Company's consolidated
assets or earning power are sold (other than in transactions in the ordinary
course of business), proper provision must be made so that each holder of a
Right which has not theretofore been exercised (other than Rights beneficially
owned by the Acquiring Person, which will thereafter be void) will thereafter
have the right to receive, upon exercise, shares of common stock of the
acquiring company having a value equal to two times the Purchase Price (unless
the transaction satisfies certain conditions and is consummated with a person
who acquired shares pursuant to a Permitted Offer, in which case the Rights will
expire).
Permitted Offer. A Permitted Offer means a tender offer for all
outstanding Common Shares that has been determined by a majority of the
Continuing Directors to be adequate and otherwise in the best interests of the
Company and its stockholders. Where the Board of Directors has determined that a
tender offer constitutes a Permitted Offer, the Rights will not become
exercisable to purchase Common Shares or shares of the acquiring company (as the
case may be) at the discounted price described above.
Exchange Provision. At any time after the acquisition by an Acquiring
Person of 15% or more of the Company's outstanding Common Shares and prior to
the acquisition by such Acquiring Person of 50% or more of the Company's
outstanding Common Shares, the Board of Directors of the Company may
49
<PAGE> 51
exchange the Rights (other than Rights owned by the Acquiring Person), in whole
or in part, at an exchange ratio of one Common Share per Right.
Redemption. At any time on or prior to the close of business on the
earlier of (i) the 10th day following the acquisition by an Acquiring Person
(the "Share Acquisition Date") or such later date as may be determined by a
majority of the Continuing Directors and publicly announced by the Company, or
(ii) the Final Expiration Date of the Rights, the Company may redeem the Rights
in whole, but not in part, at a price of $.01 per Right.
Adjustments to Prevent Dilution. The Purchase Price payable, the number of
Rights, and the number of Series A Preferred or Common Shares or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time in connection with the dilutive issuances by the
Company as set forth in the Rights Agreement. With certain exceptions, no
adjustment in the Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such Purchase Price.
Cash Paid Instead of Issuing Fractional Shares. No fractional portion less
than integral multiples of one Common Share will be issued upon exercise of a
Right and in lieu thereof, an adjustment in cash will be made based on the
market price of the Common Shares on the last trading date prior to the date of
exercise.
No Stockholders' Rights Prior to Exercise. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of the Company
(other than any rights resulting from such holder's ownership of Common Shares),
including, without limitation, the right to vote or to receive dividends.
Amendment of Rights Agreement. The provisions of the Rights Agreement may
be supplemented or amended by the Board of Directors in any manner prior to the
close of business on the Distribution Date without the approval of Rights
holders. After the Distribution Date, the provisions of the Rights Agreement may
be amended by the Board in order to cure any ambiguity, defect or inconsistency,
to make changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or to shorten or lengthen any
time period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.
Rights and Preferences of the Series A Preferred. Series A Preferred
purchasable upon exercise of the Rights will not be redeemable. Each share of
Series A Preferred will be entitled to an aggregate dividend of 1,000 times the
dividend declared per Common Share. In the event of liquidation, the holders of
the Series A Preferred will be entitled to a minimum preferential liquidation
payment equal to the greater of (i) $1,000 per share or (ii) 1,000 times the per
share amount to be distributed to the holders of the Common Shares. Each share
of Series A Preferred will have 1,000 votes, voting together with the Common
Shares. In the event of any merger, consolidation or other transaction in which
the Common Shares are changed or exchanged, each share of Series A Preferred
will be entitled to receive 1,000 times the amount received per Common Share.
These rights are protected by customary anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of the
shares of Series A Preferred, the value of the one one-thousandth interest in a
share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.
Certain Anti-Takeover Effects. The Rights approved by the Board are
designed to protect and maximize the value of the outstanding equity interests
in the Company in the event of an unsolicited attempt by an acquiror to take
over the Company, in a manner or on terms not approved by the Board of
Directors. Takeover attempts frequently include coercive tactics to deprive the
Company's Board of Directors and its stockholders of any real opportunity to
determine the destiny of the Company or to evaluate and protect the long-term
value of the Company. The Rights are not intended to prevent a takeover of the
Company. The Rights may be redeemed by the Company at $.01 per Right within ten
days (or such later date as may be determined by a majority of the Board of
Directors, excluding
50
<PAGE> 52
directors affiliated with an Acquiring Person) after the accumulation of 15% or
more of the Company's shares by a single acquiror or group. Accordingly, the
Rights should not interfere with any merger or business combination approved by
the Board of Directors.
Issuance of the Rights does not in any way weaken the financial strength of
the Company or interfere with its business plans. The issuance of the Rights
themselves has no dilutive effect, will not affect reported earnings per share,
should not be taxable to the Company or to its stockholders, and will not change
the way in which the Company's shares are presently traded. The Company's Board
of Directors believes that the Rights represent a sound and reasonable means of
addressing the complex issues of corporate policy created by the current
takeover environment.
However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire the Company on terms or in a manner not approved by the
Company's Board of Directors, except pursuant to an offer conditioned upon the
negation, purchase or redemption of the Rights.
CHARTER AND OTHER PROVISIONS RELATING TO A CHANGE OF CONTROL
Certain provisions of the Certificate of Incorporation and Bylaws of the
Company may be considered to have antitakeover implications. Such provisions
could discourage certain attempts to obtain control of the Company, even though
such attempts might be beneficial to the Company and its stockholders.
Nominations of Director Candidates and Introduction of Business at
Stockholder Meetings. The Bylaws of the Company contain an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors (the "Nomination
Procedure") and with regard to certain matters to be brought before any meeting
of stockholders (the "Business Procedure"). The Nomination Procedure provides
that only persons nominated by or at the direction of the Board of Directors or
by a stockholder who has given timely written notice in proper form to the
Secretary of the Company prior to the meeting, will be eligible for election as
directors. The Business Procedure provides that at a meeting of stockholders
only such business may be conducted as has been brought before the meeting by or
at the direction of the Board of Directors or by a stockholder who has given
timely written notice in proper form to the Secretary of the Company prior to
the meeting of such stockholder's intention to bring business before the
meeting.
Authorized Stock. The Certificate of Incorporation of the Company
authorizes 5,000,000 shares of Preferred Stock, with a par value of $.001 per
share. The Certificate of Incorporation authorizes the Board of Directors to fix
without further vote or action by the stockholders the designation, powers,
preferences, and rights of the shares of each series of Preferred Stock and the
qualifications, limitations or restrictions thereof including, but not limited
to, dividend rights, conversion privileges, voting rights, terms of redemption
and liquidation preferences.
Monetary Liability of Directors. The Certificate of Incorporation of the
Company provides that to the fullest extent permitted by Delaware law, no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Certificate of Incorporation also incorporates any future amendments to
Delaware law with respect to the elimination of such liability.
Section 203 of the Delaware Corporation Law. The Company is subject to
Section 203 of the Delaware General Corporation Law (the "DGCL") which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in a
business combination (as defined therein) with an "interested stockholder"
(defined generally as any person who beneficially owns 15% or more of the
outstanding voting stock of the Company or any person affiliated with such
person) for a period of three years following the time that such stockholder
became an interested stockholder, unless (i) prior to such time the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the
51
<PAGE> 53
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned (x) by directors
who are also officers of the corporation and (y) by employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) at or subsequent to such time the business combination is
approved by the Board of Directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
Other Restrictions. The Company's cross-licenses with Medtronic,
Teletronics and CPI also contain restrictions that may have the effect of
preventing or substantially impeding an acquisition or change of control of, or
certain minority investments in, the Company. See "Risk Factors -- Significant
Restrictions on Change of Control and Certain Minority Investments."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and of Common Stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating thereto.
This summary is based on laws, regulations, rulings and decisions now in effect,
all of which are subject to change. This summary deals only with holders that
will hold Notes and Common Stock into which Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, or persons that will hold Notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes. This
summary discusses the tax considerations applicable to the initial purchasers of
the Notes who purchase the Notes at their "issue price" as defined in Section
1273 of the Code and does not discuss the tax considerations applicable to
subsequent purchasers of the Notes. The Company has not sought any ruling from
the Internal Revenue Service with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance that
the Internal Revenue Service will agree with such statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND
ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR
UNDER ANY APPLICABLE TAX TREATY.
PAYMENT OF INTEREST
Interest on a Note generally will be includable in the income of a Holder
as ordinary income at the time such interest is received or accrued, in
accordance with such Holder's method of accounting for United States federal
income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a Note, a Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest income not previously included in income which is taxable as
ordinary income) and (ii) such Holder's adjusted tax basis in the Note. A
Holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such Holder. Such capital gain or loss will be long-term capital gain or loss
if the Holder's holding period in the Note is more than one year at the time of
sale, exchange or redemption.
52
<PAGE> 54
CONVERSION OF THE NOTES
A Holder generally will not recognize any income, gain or loss upon
conversion of a Note into Common Stock except with respect to cash received in
lieu of a fractional Share of Common Stock. A Holder's tax basis in the Common
Stock received on conversion of a Note will be the same as such Holder's
adjusted tax basis in the Note at the time of conversion (reduced by any basis
allocable to a fractional share interest), and the holding period for the Common
Stock received on conversion will generally include the holding period of the
Note converted.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the Holder's adjusted tax
basis in the fractional share).
DIVIDENDS
Dividends paid on the Common Stock generally will be includable in the
income of a Holder as ordinary income to the extent of the Company's current or
accumulated earnings and profits.
If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the antidilution provisions of the Indenture, the
conversion rate of the Notes is increased, or (ii), the conversion rate of the
Notes is increased at the discretion of the Company, such increase in conversion
rate may be deemed to be the payment of a taxable dividend to Holders of Notes
(pursuant to Section 305 of the Code). Holders of Notes could therefore have
taxable income as a result of an event pursuant to which they received no cash
or property.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) such Holder's adjusted tax basis in the Common Stock. Such
capital gain or loss will be long-term if the Holder's holding period in Common
Stock is more than one year at the time of the sale or exchange. A Holder's
basis and holding period in Common Stock received upon conversion of a Note are
determined as discussed above under "-- Conversion of the Notes."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock to certain noncorporate Holders, and a 31%
backup withholding tax may apply to such payments if the Holder (i) fails to
furnish or certify his correct taxpayer identification number to the payor in
the manner required, (ii) is notified by the Internal Revenue Service (the
"IRS") that he has failed to report payments of interest and dividends properly,
or (iii) under certain circumstances, fails to certify that he has not been
notified by the IRS that he is subject to backup withholding for failure to
report interest and dividend payments. Any amounts withheld under the backup
withholding rules from a payment to a Holder will be allowed as a credit against
such Holder's United States federal income tax and may entitle the Holder to a
refund, provided that the required information is furnished to the IRS.
53
<PAGE> 55
LEGAL MATTERS
The validity of the Notes and the Common Stock issuable on conversion
thereof will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California and for the Underwriter by
Sullivan & Cromwell, Los Angeles, California.
EXPERTS
The consolidated financial statements of Ventritex, Inc. at June 30, 1995
and 1996, and for each of the three years in the period ended June 30, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at Room 024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials can be obtained upon written request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Company's Common Stock is traded on the Nasdaq
National Market. Reports and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-19713)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1995, December 31, 1995 and March 31, 1996; and
3. All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of
this offering.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Company, 701
East Evelyn Avenue, Sunnyvale, California 94086, Attention: Secretary,
telephone: (408) 738-4883.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute part of this Prospectus.
54
<PAGE> 56
VENTRITEX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report Of Ernst & Young LLP, Independent Auditors.................................... F-2
Consolidated Statements of Operations For The Years Ended June 30, 1996, 1995 and
1994............................................................................... F-3
Consolidated Balance Sheets At June 30, 1996 and 1995................................ F-4
Consolidated Statements Of Stockholders' Equity For The Years Ended June 30, 1994,
1995 and 1996...................................................................... F-5
Consolidated Statements Of Cash Flows For The Years Ended June 30, 1996, 1995
and 1994........................................................................... F-6
Notes To Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE> 57
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ventritex, Inc.
We have audited the accompanying consolidated balance sheets of Ventritex,
Inc. as of June 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ventritex, Inc. at June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
July 25, 1996
F-2
<PAGE> 58
VENTRITEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................... $ 54,942 $ 126,922 $ 105,616
Cost of sales........................................... 48,774 55,960 45,947
-------- -------- --------
Gross profit.......................................... 6,168 70,962 59,669
Operating expenses:
Research and development.............................. 30,796 27,716 23,334
Selling, general and administrative................... 38,100 36,513 28,947
-------- -------- --------
Total operating expenses........................... 68,896 64,229 52,281
-------- -------- --------
Income (loss) from operations.................... (62,728) 6,733 7,388
Other income (expense):
Interest income....................................... 2,804 3,366 1,548
Interest expense...................................... -- (8) (42)
Other income (expense)................................ (57) (83) 85
-------- -------- --------
Other income, net................................ 2,747 3,275 1,591
-------- -------- --------
Income (loss) before provision for income taxes......... (59,981) 10,008 8,979
Provision for income taxes.............................. -- 1,000 --
-------- -------- --------
Net income (loss)....................................... $ (59,981) $ 9,008 $ 8,979
======== ======== ========
Net income (loss) per share............................. $ (2.89) $ 0.43 $ 0.44
======== ======== ========
Shares used in per share calculation.................... 20,752 20,853 20,611
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 59
VENTRITEX, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1996 1995
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 9,299 $ 34,942
Short-term investments.......................................... 13,254 39,006
Accounts receivable, net of allowance for doubtful accounts of
$484......................................................... 10,658 11,376
Inventories..................................................... 15,427 17,103
Prepaid expenses................................................ 1,030 1,242
Other current assets............................................ 319 533
--------- --------
Total current assets......................................... 49,987 104,202
Equipment and leasehold improvements, net......................... 22,655 26,119
Other assets...................................................... 819 18
--------- --------
Total assets................................................. $ 73,461 $130,339
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 8,027 $ 3,541
Accrued employee compensation................................... 2,548 4,879
Accrued royalties............................................... 1,869 2,200
Accrued warranty................................................ 1,721 1,647
Other accrued expenses.......................................... 4,409 4,801
Deferred other income........................................... 927 927
--------- --------
Total current liabilities.................................... 19,501 17,995
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.001, 5,000 shares authorized, none
issued and outstanding....................................... -- --
Common stock, par value $.001, 35,000 shares authorized, 20,878
shares and 20,643 shares issued and outstanding in 1996 and
1995, respectively........................................... 21 21
Additional paid-in capital...................................... 158,900 157,303
Accumulated deficit............................................. (104,961) (44,980)
--------- --------
Total stockholders' equity................................... 53,960 112,344
--------- --------
Total liabilities and stockholders' equity................... $ 73,461 $130,339
========= ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 60
VENTRITEX, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- PAID IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT TOTAL
------- --------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993... 18,144 $ 110,580 $ -- $ (12) $ (62,967) $ 47,601
Sales of common stock...... 494 1,966 -- 12 -- 1,978
Sale of common stock in
follow-on public
offering, net of
underwriting discounts
and issuance costs of
$2,844................... 1,450 42,815 -- -- -- 42,815
Net income................. -- -- -- -- 8,979 8,979
------ -------- -------- ---- -------- --------
Balance at June 30, 1994... 20,088 155,361 -- -- (53,988) 101,373
Sales of common stock...... 555 1,963 -- -- -- 1,963
Reincorporation in
Delaware................. -- (157,303) 157,303 -- -- --
Net income................. -- -- -- -- 9,008 9,008
------ -------- -------- ---- -------- --------
Balance at June 30, 1995... 20,643 21 157,303 -- (44,980) 112,344
Sales of common stock...... 235 -- 1,597 -- -- 1,597
Net loss................... -- -- -- -- (59,981) (59,981)
------ -------- -------- ---- -------- --------
Balance at June 30, 1996... 20,878 $ 21 $ 158,900 $ -- $(104,961) $ 53,960
====== ======== ======== ==== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 61
VENTRITEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income (loss).................................................. $ (59,981) $ 9,008 $ 8,979
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization................................... 12,487 8,204 3,964
Loss from disposal of equipment................................. 48 168 --
Changes in operating assets and liabilities:
Accounts receivable........................................... 718 6,146 (10,020)
Inventories................................................... 1,676 6,043 (2,913)
Prepaid expenses and other current assets..................... 426 217 (1,188)
Accounts payable, accrued warranty, and other accrued
expenses..................................................... 4,168 3,269 1,196
Accrued employee compensation................................. (2,331) 736 2,364
Accrued royalties............................................. (331) (1,331) 2,741
Accrued intellectual property settlements..................... -- -- (18,600)
-------- -------- --------
Net cash provided by (used in) operating activities........ (43,120) 32,460 (13,477)
Investing activities:
Purchase of short-term investments.............................. (37,623) (83,293) (35,551)
Proceeds from maturities of short-term investments.............. 63,375 67,472 12,366
Acquisition of equipment and leasehold improvements............. (9,071) (13,415) (10,713)
Change in other assets.......................................... (801) 11 (5)
-------- -------- --------
Net cash provided by (used in) investing activities........ 15,880 (29,225) (33,903)
Financing activities:
Proceeds from follow-on common stock offering, net.............. -- -- 42,815
Proceeds from sales of common stock............................. 1,597 1,963 1,978
Principal payments under capital lease obligations.............. -- (70) (124)
-------- -------- --------
Net cash provided by financing activities.................. 1,597 1,893 44,669
-------- -------- --------
Increase (decrease) in cash and cash equivalents..................... (25,643) 5,128 (2,711)
Cash and cash equivalents at beginning of year....................... 34,942 29,814 32,525
-------- -------- --------
Cash and cash equivalents at end of year............................. $ 9,299 $ 34,942 $ 29,814
======== ======== ========
Supplemental cash flow information
Cash paid for:
Interest........................................................... $ -- $ 8 $ 42
Income taxes....................................................... $ 65 $ 689 $ --
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 62
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization -- Ventritex, Inc., a Delaware corporation, and
its wholly-owned subsidiaries (the Company) designs, develops, manufactures and
sells implantable defibrillators and related products for the treatment of
ventricular tachycardia and ventricular fibrillation. Implantable defibrillators
are generally purchased by hospitals upon the recommendation of
electrophysiologists. The principal markets for the Company's products are the
United States and Europe.
The implantable defibrillator market is characterized by rapid
technological change and intense competition. As a result of the commercial
release by competitors of pectorally implantable defibrillators in 1995, the
Company experienced a significant decline in market share and revenues during
fiscal 1996, resulting in a net loss of $60 million. The Company believes that
its recently approved products, and products currently awaiting regulatory
approval will lead to increased revenues and improved cash flows from
operations.
The Company believes that its existing cash, cash equivalents and
short-term investment balances, combined with cash forecasted to be generated
from operations, will be sufficient to meet capital requirements through at
least fiscal 1997. In addition, the Company intends to issue convertible debt
during the first quarter of 1997, which offering, if successfully completed,
will provide sufficient capital for the foreseeable future. Should 1997 results
of operations fall significantly short of forecasted levels and should the
convertible debt offering not be completed as anticipated, the Company would be
required to restructure its operations in order to preserve liquidity. Such
restructuring could include delaying product development efforts, reducing or
delaying capital expenditures, reducing personnel related costs, and other
similar actions. In addition, the Company may use other means of financing,
including the issuance of equity securities or debt, if necessary or financially
advantageous.
The Company has entered into licensing arrangements which require the
payment of royalties on sales of defibrillators. Certain of these licenses
contain significant restrictions that may have the effect of preventing or
substantially impeding an acquisition of, change-of-control of, or minority
investment in, the Company.
The Company's products include components that must meet strict quality
standards. The Company currently has sole source supply arrangements for a
number of critical components. Although management believes that alternative
sources of supply are available for most components and subcontracted
manufacturing services, the time required to locate and qualify other suppliers
could cause a delay in manufacturing that may be financially disruptive to the
Company.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. The market for implantable defibrillators is subject to rapid
technological change and obsolescence of inventory. Any product developed by the
Company that gains approval from the United States Food and Drug Administration
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Management has developed a sales forecast based upon the expected
timing of regulatory approval and market acceptance of its products and those of
competitors. At June 30, 1996, the Company has provided a reserve for
potentially excess or obsolete inventory and believes that no loss will be
incurred upon its disposition. There can be no assurance, however, that the
actual sales will not differ materially from the sales forecast in the near
term.
Basis of Presentation -- The accompanying consolidated financial statements
include the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been
F-7
<PAGE> 63
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
eliminated. The functional currency for the Company's foreign subsidiaries is
the U.S. dollar. The Company currently does not hedge the risk of currency
exchange rate fluctuations. Foreign currency losses were $46,000, $14,000, and
$8,000 for the fiscal years ended June 30, 1996, 1995 and 1994, respectively
Cash Equivalents -- The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Investments -- The Company invests in short-term debt securities consisting
of commercial paper with maturities of less than twelve months and overnight
deposits (including repurchase agreements for which, due to their short term
nature, the Company normally does not take possession of the underlying
securities). Due to the short duration to maturity, the cost basis of these
securities materially approximates their fair market value. By policy, all
investments have a minimum short-term investment rating of A-1 or P-1. As of
June 30, 1996, one investment represented 24% of total investments; this
investment matured in July 1996. No other issuer represented greater than 12% of
total investments.
The Company classifies all investments as "available-for-sale".
Available-for-sale securities are carried at fair value based upon quoted market
prices, with the unrealized gains and losses (if significant) reported in a
separate component of stockholders' equity.
Inventories -- Inventories are valued at the lower of cost (first-in,
first-out method) or market.
Equipment and Leasehold Improvements -- Equipment, including capital
equipment leases, and leasehold improvements are carried at cost less
accumulated depreciation and amortization. Equipment is depreciated by the
straight-line method over estimated useful lives of three to seven years.
Leasehold improvements are amortized by the straight-line method over the
shorter of the life of the related asset or the term of the lease. Depreciation
expense includes amortization of capital leases and leasehold improvements. The
Company periodically reviews the useful lives of specific property and equipment
based upon changes in technology and products. As a result of such a review, in
fiscal 1996, the Company recorded additional depreciation expense of $3.0
million related to certain equipment.
Other Assets -- At June 30, 1996, other assets is comprised primarily of an
$800,000 note receivable from an officer of the Company. The note bears interest
at 5.33%, is due in April 1998 and is secured by shares of the Company's stock
held by the officer and other assets. The carrying value of the note materially
approximates its fair value based on a discounted cash flow analysis.
Warranty -- The Company warrants its implantable defibrillator for three
years or 100 high voltage capacitor charges. A provision for future warranty
costs is recorded based on management estimates.
Revenue Recognition -- Revenue from sales of the Company's products is
recognized upon receipt of a purchase order and shipment of the product.
Net Income (Loss) Per Share -- Net income (loss) per share is computed
using the weighted average number of shares of common stock outstanding and
common equivalent shares, if dilutive.
Accounting for Long-Lived Assets -- In 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which standardizes the accounting practices for the
recognition and measurement of impairment losses on certain long-lived assets.
The Company will adopt Statement No. 121 in the first quarter of fiscal 1997
and, based on current circumstances, does not believe the effect of adoption
will be material.
Stock-Based Compensation -- The Company accounts for stock options under
Accounting Principles Board Opinion No. 25. In 1995, the FASB issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Under this standard, the Company will provide expanded
F-8
<PAGE> 64
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosures reflecting the amount of compensation expense related to stock-based
compensation, including pro forma net income and earnings per share, beginning
in fiscal 1997.
NOTE 2: SHORT-TERM INVESTMENTS
Short-term investments, at amortized cost, which approximate fair value,
are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Overnight deposits................................... $ 1,639 $ 12,155
Overnight repurchase agreements...................... 5,670 13,990
U.S. government obligations.......................... 3,521 --
Commercial paper..................................... 9,733 41,470
-------- --------
Total available-for-sale investments....... 20,563 67,615
Less cash equivalent investments........... (7,309) (28,609)
-------- --------
Short-term investments............................... $ 13,254 $ 39,006
======== ========
</TABLE>
During the years ended June 30, 1996 and 1995, there were no sales prior to
maturity and therefore no realized gains or losses.
NOTE 3: CONSOLIDATED BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials...................................... $ 7,895 $ 4,698
Work-in-process.................................... 3,091 8,121
Finished goods..................................... 4,441 4,284
-------- --------
$ 15,427 $ 17,103
======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Property, plant, and equipment:
Equipment.......................................... $ 44,347 $ 34,660
Leasehold improvements............................. 7,182 7,077
Construction in process............................ 978 2,099
-------- --------
52,507 43,836
Less: accumulated depreciation and amortization.... (29,852) (17,717)
-------- --------
$ 22,655 $ 26,119
======== ========
</TABLE>
F-9
<PAGE> 65
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: STOCKHOLDERS' EQUITY
Stock Option Plans and Stock Purchase Plan
Under the 1995 Stock Option Plan, the Company may grant incentive stock
options and non-statutory stock options to employees and consultants. Options
may be granted to purchase common stock at exercise prices that will be no less
than the fair market value of the stock at the grant date, as determined by the
Board of Directors, and with terms of five to ten years. The options generally
become exercisable over four years from the date of grant.
Under the Director Option Plan, non-employee directors of the Company
("Outside Directors") receive nondiscretionary, automatic option grants
exercisable for 15,000 shares upon their initial election to the Board of
Directors and on July 1 of each year thereafter exercisable for 5,000 shares,
provided that the first such automatic grant on July 1, 1996 will be exercisable
for 7,500 shares. Options granted to Outside Directors have a term of ten years
from the date of grant and have an exercise price equal to the closing price of
the Company's common stock on the last trading day prior to the date of the
grant. Initial options to Outside Directors become exercisable ratably over 36
months and subsequent annual grants become exercisable ratably over twelve
months.
The following is a summary of activity during fiscal 1994, 1995 and 1996
under all of the Company's plans:
<TABLE>
<CAPTION>
SHARES SHARES AGGREGATE
AVAILABLE SUBJECT TO EXERCISE PRICE EXERCISE PRICE
FOR GRANT OPTIONS PER SHARE (IN THOUSANDS)
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at June 30, 1993........ 37,388 1,933,409 $ 0.40 - $37.75 19,965
Authorized.................... 900,000 -- -- --
Granted....................... (445,609) 445,609 $17.25 - $43.87 11,857
Exercised..................... -- (450,354) $ 0.40 - $29.50 (1,126)
Canceled...................... 75,329 (75,329) $ 0.47 - $43.87 (1,184)
---------- ---------- --------------- ---------------
Balance at June 30, 1994........ 567,108 1,853,335 $ 0.40 - $43.87 $29,512
Authorized.................... 1,900,000 -- -- --
Granted....................... (829,077) 829,077 $14.06 - $28.75 18,054
Exercised..................... -- (491,836) $ 0.47 - $26.00 (854)
Canceled...................... 136,447 (136,447) $ 0.40 - $43.87 (3,348)
Plan shares expired........... (199,128) -- -- --
---------- ---------- --------------- ---------------
Balance at June 30, 1995........ 1,575,350 2,054,129 $1.00 - $43.87 $43,364
Authorized.................... -- -- -- --
Granted....................... (1,009,845) 1,009,845 $15.63 - $21.50 16,243
Exercised..................... -- (153,870) $ 1.00 - $17.25 (416)
Canceled...................... 198,500 (198,500) $ 1.00 - $43.87 (4,995)
Plan shares expired........... (149,298) -- -- --
---------- ---------- --------------- ---------------
Balance at June 30, 1996........ 614,707 2,711,604 $ 1.00 - $43.87 $54,196
========== ========= =============== ============
</TABLE>
At June 30, 1996, 1,093,616 of the options outstanding were exercisable. At
June 30, 1995, 796,540 of the options outstanding were exercisable.
The Company has a 1991 Employee Stock Purchase Plan for which a total of
325,000 shares of common stock have been authorized for issuance. Eligible
employees may invest up to 10% of compensation through payroll deductions and
purchase shares of the Company's stock at 85% of fair
F-10
<PAGE> 66
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market value at specified dates. The Company has issued 206,732 shares since
inception of the plan, including 80,808 shares during the fiscal year ended June
30, 1996.
Stockholder Rights Plan
Under the Company's Stockholder Rights Plan, one preferred share purchase
right (a "Right") is attached to each share of common stock of the Company. Each
Right will entitle stockholders to purchase 1/1000 of a share of Series A
participating preferred stock of the Company, a designated series of preferred
stock for which each 1/1000 of a share has economic attributes and voting rights
equivalent to one share of the Company's common stock, at an exercise price of
$100. The Rights only become exercisable in certain limited circumstances
involving acquisitions of or tender offers for 15% or more of the Company's
capital stock. For a limited period of time after the announcement of any such
acquisition or offer, the Rights are redeemable at a price of $.01 per Right.
After becoming exercisable, in certain more limited circumstances, each Right
entitles its holder to purchase for $100 an amount of common stock of the
Company, or in certain circumstances, securities of the acquiror, having a then
current market value equal to $200. The Rights expire on August 16, 2004.
NOTE 5: LEASE AND PURCHASE COMMITMENTS
The Company leases facilities and equipment under noncancelable lease
agreements. Future minimum lease payments at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
(IN THOUSANDS)
<S> <C>
1997........................................................ $1,451
1998........................................................ 1,516
1999........................................................ 1,505
2000........................................................ 798
------
Total minimum lease payments................................ $5,270
======
</TABLE>
The Company leases its facilities under noncancelable lease agreements that
extend through December 2000. Rental expense totaled approximately $1,377,000,
$1,351,000 and $1,033,000 for fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
At June 30, 1996, the Company had approximately $7,000,000 in noncancelable
commitments with suppliers to provide components in the normal course of
business.
NOTE 6: INCOME TAXES
The provision for income tax consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................... $ -- $ 349 $ --
State................................................. -- 651 --
--- ------ ---
$ -- $1,000 $ --
=== ====== ===
</TABLE>
F-11
<PAGE> 67
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax provision (benefit) computed at the U.S.
federal statutory rate to the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate..... $(20,394) $ 3,503 $ 3,053
State taxes net of federal benefit................. -- 423 --
Utilization of tax net operating loss
carryforwards.................................... -- (6,835) --
Valuation allowance for deferred tax assets........ 20,394 3,793 (3,053)
Other.............................................. -- 116 --
-------- ------- -------
$ -- $ 1,000 $ --
======== ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 33,960 $ 17,408
Tax credit carryforwards................................... 3,418 3,347
Accrued liabilities........................................ 2,612 2,666
Inventory reserves......................................... 8,168 6,247
Capitalized research and development costs................. 2,027 2,761
Other...................................................... 2,601 1,252
-------- --------
52,786 33,681
Valuation allowance........................................ (52,786) (33,681)
-------- --------
$ -- $ --
======== ========
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax asset as of June 30, 1996
and 1995, has been established to reflect these uncertainties.
Approximately $10,238,000 of the deferred tax assets subject to the
valuation allowance at June 30, 1996 relates to the tax benefits of stock option
deductions. These benefits, when realized, will be credited directly to
stockholders' equity and will not reduce the provision for income taxes. The
change in valuation allowance was a net increase of $19,105,000 and $1,028,000
for fiscal years 1996 and 1995, respectively.
At June 30, 1996, the Company has net operating loss and research and
development tax credit carryforwards for federal tax purposes of approximately
$99,882,000 and $2,806,000, respectively, that will expire through 2011 if not
utilized. In addition, the Company has a federal minimum tax credit carryover of
$454,000 and a California investment tax credit carryforward of $240,000.
F-12
<PAGE> 68
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7: LITIGATION
The Company is currently in litigation with one of its competitors,
Intermedics, Inc. In response to threats from Intermedics, the Company filed a
declaratory judgment action in the United States District Court in the Northern
District of California in January 1993, asking the court to declare that certain
patents which Intermedics had asserted were being infringed by the Company were,
in fact, invalid, unenforceable or not infringed. Intermedics then filed several
actions in the United States District Court in the Southern District of Texas
alleging infringement by the Company of nine Intermedics patents. Initially,
this litigation was focused on procedural issues relating to whether the dispute
would be tried in California or Texas. On October 12, 1994, the United States
District Court for the Northern District of California denied Intermedics motion
to transfer Ventritex's pending suits to Texas and granted Ventritex's motion to
enjoin Intermedics from further prosecution of its aforementioned suits in
Texas. The United States District Court for the Southern District of Texas
thereafter issued an order transferring to California all of the Texas cases
which Intermedics had served upon Ventritex. The Court has indicated that the
trial in connection with the above described actions will begin May 5, 1997.
The Company filed a further action in the Northern District of California
in July 1993 seeking a declaratory judgment that the patents that Intermedics
has asserted against the Company are not infringed by Ventritex, are invalid and
are unenforceable. This action, which was filed against Intermedics, its parent
and affiliate companies, SulzerMedica and Sulzer, Inc., seeks damages based upon
claims for antitrust law violations, malicious prosecution, conspiracy and
breach of contract. Intermedics, SulzerMedica and Sulzer, Inc. have moved to
stay or dismiss the Company's damage claims, and the Court ordered that certain
of these claims be dismissed without prejudice and that others be stayed pending
determination of other issues in the parties' various lawsuits.
In the above actions, Intermedics seeks judgments against Ventritex for
damages, attorneys fees and injunctive relief. It is expected that Intermedics
will, during the course of the litigation, seek to obtain various types of
pretrial relief which include, but are not limited to, summary judgments,
dismissals of Ventritex's claims and preliminary injunctions. In January 1995,
Intermedics filed a motion for partial summary judgment and for issuance of a
preliminary injunction based on alleged infringement of one of its patents.
Ventritex vigorously contested these motions and requested the United States
Patent and Trademark Office to conduct a reexamination of claim 28 of
Intermedics U.S. Patent No. 4,880,005 upon which these motions are based. The
Court denied Intermedics' partial summary judgment motion, and, as a result,
Intermedics' preliminary injunction request was withdrawn. The Patent Office, on
May 28, 1996, issued a second final rejection of claim 28 of the 4,880,005
patent. Intermedics subsequently requested reconsideration of the final
rejection. The United States Patent and Trademark Office has indicated that,
upon reconsideration, the rejection appears to have been overcome. The Company
believes that Intermedics will make renewed efforts to obtain partial summary
judgment and a preliminary injunction. On June 6, 1996, Intermedics filed with
the United States Patent and Trademark Office a request for reexamination of
U.S. Patent No. 4,830,006 and on June 7, 1996, Intermedics filed a request for
reexamination of U.S. Patent No, 4,913,145. Both patents are being asserted by
Intermedics against the Company. The requests are based on references identified
by Ventritex as being pertinent to the patents in response to discovery requests
by Intermedics.
Since the Company brought a declaratory relief action against Intermedics
in January 1993, Intermedics has filed suits against the Company's two principal
competitors, Medtronic and CPI, alleging infringement of several of the same
patents which it has asserted against the Company. None of these actions has yet
been set for trial.
In addition to its patent infringement claims, Intermedics had previously
alleged trade secret misappropriation and related acts by the Company and two of
its officers, who were formerly employees
F-13
<PAGE> 69
VENTRITEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Intermedics. In this lawsuit, the Company filed counterclaims against
Intermedics for infringement of two of Ventritex's patents. These counterclaims
are still pending. Certain of the trade secret misappropriation and related
claims were tried in 1992 before a United States District Court jury in San
Francisco. The jury returned a unanimous verdict in favor of the Company and its
officers and found that Intermedics had acted in bad faith in continuing to
pursue the trade secret misappropriation claims. The Court set aside the bad
faith portion of the verdict based on Intermedics claim of an erroneous jury
instruction. A new trial on the bad faith issue has been ordered, but no trial
date has been set. The judgment dismissed all of Intermedics trade secret claims
against the Company and its officers and was affirmed on appeal.
In addition to the above-mentioned litigation, the Company is also involved
in other litigation in the normal course of business. Although an adverse
determination in the Intermedics proceedings or in other litigation or
administrative proceedings could have a material adverse effect on the Company,
based upon the nature of the claims made and the investigation completed to
date, the Company believes the outcome of the described actions will not have a
material adverse effect on the financial position or results of operations of
the Company.
NOTE 8: EMPLOYEE BENEFIT PLAN
The Company sponsors an employee salary deferral plan that allows voluntary
contributions by employees after completion of six months of service. Eligible
employees may elect to contribute from 2% to 15% of their respective
compensation, and the Company at its discretion may elect to make matching
contributions. During fiscal 1995, the Company matched 50% of the first 6% of an
employee's contributions to a maximum of $1,000 per calendar year. In fiscal
1996, the Company continued to match an employee's contribution on the same
basis to a maximum of 50% of the annual limits on salary deferrals established
by tax regulations. The Company's fiscal 1995 and 1996 contributions under this
plan were approximately $419,000 and $659,000, respectively.
NOTE 9: CONCENTRATION OF CREDIT RISK
The Company sells primarily to hospitals. In the fiscal year ended June 30,
1996, one customer accounted for 10% of net sales. In the fiscal years ended
June 30, 1995 and 1994, no customer accounted for more than 10% of sales. The
Company performs ongoing credit evaluations of its customers, but does not
require collateral. The Company maintains reserves for potential credit losses,
and to date such losses have been within management's expectations.
F-14
<PAGE> 70
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to Goldman, Sachs & Co. ("Goldman
Sachs" or the "Underwriter"), and Goldman Sachs have agreed to purchase, the
entire principal amount of the Notes.
Under the terms and conditions of the Underwriting Agreement, Goldman Sachs
are committed to take and pay for all of the Notes, if any are taken.
Goldman Sachs propose to offer the Notes in part directly to the public at
the initial public offering price set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession of
% of the principal amount of the Notes. Goldman Sachs may allow, and such
dealers may reallow, a concession not to exceed % of the principal amount
of the Notes to certain brokers and dealers. After the Notes are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by Goldman Sachs.
The Company has granted the Underwriter an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of $7,500,000
additional principal amount of Notes solely to cover over-allotments, if any.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by Goldman Sachs that they intend to make a market
in the Notes but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
The Company has also agreed that it will not offer to sell, contract to
sell or otherwise dispose of any Common Stock (other than upon conversion of the
Notes), any securities substantially similar to the Notes or the Common Stock or
any security exchangeable or exercisable for or convertible into Common Stock or
substantially similar securities (any such security, a "Covered Security"),
without the prior consent of the Underwriter, for a period of 90 days after the
date of this Prospectus, except pursuant to the Company's stock option or
purchase plans existing as of the date of this Prospectus or other options
granted by the Company to employees. Certain directors and executive officers of
the Company have also agreed, subject to certain exceptions, that they will not
offer to sell, sell or otherwise dispose of shares of Common Stock beneficially
owned by them without the prior written consent of the Underwriter until the
earlier of (i) the 90th day after the date of this Prospectus and (ii) such time
as such individual ceases to be an employee and/or director or the Company.
The Underwriter has performed investment banking services for the Company
for which it has received customary compensation.
The Company has agreed to indemnify the Underwriter against certain
liabilities under the Securities Act.
U-1
<PAGE> 71
- ---------------------------------------------------------
- ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 13
Capitalization........................... 14
Price Range of Common Stock.............. 15
Dividend Policy.......................... 15
Selected Consolidated Financial Data..... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 17
Business................................. 21
Management............................... 35
Description of Notes..................... 37
Description of Capital Stock............. 48
Certain Federal Income Tax
Considerations......................... 52
Legal Matters............................ 54
Experts.................................. 54
Available Information.................... 54
Incorporation of Certain Documents by
Reference.............................. 54
Index to Consolidated Financial
Statements............................. F-1
Underwriting............................. U-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
$50,000,000
VENTRITEX, INC.
% CONVERTIBLE
SUBORDINATED NOTES
DUE , 2001
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 72
APPENDIX -- DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
PHOTO UPPER LEFT
[DESCRIPTION] Photograph of Cadet Tiered Therapy defibrillator and TVL dual lead
transvenous lead system
[CAPTION] THE CADET(R)
Tiered Therapy defibrillator and TVL(R) dual lead transvenous lead
system were approved for pectoral implantation in May 1996.
PHOTO UPPER RIGHT
[DESCRIPTION] Photograph of PR-1500 Programmer
[CAPTION] THE PR-1500 PROGRAMMER
sends instructions to and receives diagnostic information from any
implanted Ventritex defibrillator.
INSIDE BACK COVER
[DESCRIPTION] Photograph of Contour Tiered Therapy defibrillator with inset of
photograph of Contour Tiered Therapy defibrillator and SPL
transvenous lead system.
[CAPTION] THE CONTOUR(TM)
Tiered Therapy defibrillator PMA supplement was submitted in June
1996. Also shown is the SPL(TM) transvenous lead system which started
clinical trials in May 1996. The Contour(TM) Tiered Therapy
defibrillator and the SPL(TM) transvenous lead system have been
approved for commercial distribution in Europe (CE marked), but will
not become commercially available in the United States unless and
until regulatory approval is received.
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Registration fee....................................................... $ 34,483
NASD filing fee........................................................ 10,500
Nasdaq National Market listing fee..................................... 17,500
Printing and engraving expenses........................................ 125,000
Blue sky fees and expenses............................................. 17,500
Legal fees and expenses................................................ 100,000
Accounting fees and expenses........................................... 45,000
Trustee, transfer agent and registrar fees............................. 40,000
Miscellaneous.......................................................... 10,017
--------
Total................................................................ $ 400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
Registrant's Restated Certificate of Incorporation and Bylaws provide for the
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
the Registrant has entered into Indemnification Agreements with its officers and
directors.
Reference is also made to Section 8 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, which provides for indemnification of the Company and
officers, directors and certain controlling persons of the Company by the
Underwriter against certain liabilities.
II-1
<PAGE> 74
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
+3.1 Certificate of Incorporation filed October 24, 1994
+3.2 Bylaws, as amended
+3.3 Certificate of Designations of Rights, Preferences and Privileges of Series
A Participating Preferred Stock
+3.4 Preferred Shares Rights Agreement, dated as of August 16, 1994, as amended
between the Registrant and Chemical Trust Company of California, including
the Certificate of Designation, the Form of Rights Certificate and the
Summary of Rights attached thereto as Exhibits A, B and C, respectively
++4.1 Specimen Common Stock Certificate
4.2 Form of Convertible Subordinated Note (included in Exhibit 4.3)
4.3 Form of Indenture
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
12.1 Statement re Computation of Ratios (see page II-5)
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page II-6)
23.2 Consent of Counsel (included in Exhibit 5.1)
+++24.1 Power of Attorney
25.1 Statement of Eligibility of Trustee -- Form T-1
</TABLE>
- ---------------
+ Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1995.
++ Incorporated by reference to Exhibit 1 filed with the Registrant's
Registration Statement on Form 8-A filed on December 29, 1994.
+++ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
II. Valuation and qualifying accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Bylaws of the Registrant,
Indemnification Agreements, the Underwriting Agreement, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE> 75
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby further undertakes that:
(1) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to
Registration Statement 333-07651 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sunnyvale, State of California, on the
1st day of August, 1996.
VENTRITEX, INC.
DAVID R. BUNKER
By:
David R. Bunker
Controller
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ------------------------------------- ----------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER, AND
PRINCIPAL FINANCIAL OFFICER:
/s/ FRANK M. FISCHER* President, Chief Executive Officer, August 1, 1996
- ------------------------------------- Director and Acting Chief Financial
Frank M. Fischer Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ DAVID R. BUNKER Controller August 1, 1996
- -------------------------------------
David R. Bunker
/s/ RICHARD L. KARRENBROCK* Director August 1, 1996
- -------------------------------------
Richard L. Karrenbrock
/s/ C. RAYMOND LARKIN, JR.* Director August 1, 1996
- -------------------------------------
C. Raymond Larkin, Jr.
/s/ ROBERT R. MOMSEN* Director August 1, 1996
- -------------------------------------
Robert R. Momsen
Director
- -------------------------------------
Walter J. McNerny
*By: /s/ DAVID R.
BUNKER
- -------------------------------------
David R. Bunker
Attorney-in-fact
</TABLE>
II-4
<PAGE> 77
EXHIBIT 12.1
STATEMENT RE COMPUTATION OF RATIOS
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income
taxes........................... $ (7,041) $ (33,316) $ 8,979 $ 10,008 $ (59,981)
Fixed charges...................... 360 650 887 798 709
------- ------- -------- ------ -------
Total........................... $ (6,681) $ (32,666) $ 9,866 $ 10,806 $ (59,272)
======= ======= ======== ====== =======
Fixed charges:
Interest expense................... $ 88 $ 38 $ 42 $ 8 $ 0
Interest portion of rent expense... 272 612 845 790 709
------- ------- -------- ------ -------
Total........................... $ 360 $ 650 $ 887 $ 798 $ 709
======= ======= ======== ====== =======
Ratio................................ NM NM 11.1x 13.5x NM
</TABLE>
II-5
<PAGE> 78
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated July
25, 1996, in Amendment No. 1 to the Registration Statement (Form S-3 No.
333-07651) and related Prospectus of Ventritex, Inc. for the registration of
$57,500,000 of Convertible Subordinated Notes.
Our audits also included the financial statement schedule of Ventritex,
Inc. listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Palo Alto, California
August 1, 1996
II-6
<PAGE> 79
VENTRITEX, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE
AT CHARGES TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS/ END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
--------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended June 30, 1994................... $ 65 $ 141 -- $ 206
Year Ended June 30, 1995................... $ 206 $ 278 -- $ 484
Year Ended June 30, 1996................... $ 484 -- -- $ 484
Accrued warranty:
Year Ended June 30, 1994................... $ 347 $ 788 $ (79) $ 1,056
Year Ended June 30, 1995................... $ 1,056 $ 640 $ (49) $ 1,647
Year Ended June 30, 1996................... $ 1,647 $ 136 $ (62) $ 1,721
</TABLE>
S-1
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- -------------------------------------------------------------------- -----
<C> <S> <C>
1.1 Form of Underwriting Agreement......................................
+3.1 Certificate of Incorporation filed October 24, 1994.................
+3.2 Bylaws, as amended..................................................
+3.3 Certificate of Designations of Rights, Preferences and Privileges of
Series A Participating Preferred Stock
+3.4 Preferred Shares Rights Agreement, dated as of August 16, 1994, as
amended between the Registrant and Chemical Trust Company of
California, including the Certificate of Designation, the Form of
Rights Certificate and the Summary of Rights attached thereto as
Exhibits A, B and C, respectively...................................
++4.1 Specimen Common Stock Certificate...................................
4.2 Form of Convertible Subordinated Note (included in Exhibit 4.3).....
4.3 Form of Indenture...................................................
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
12.1 Statement re Computation of Ratios (see page II-5)..................
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page
II-6)...............................................................
23.2 Consent of Counsel (included in Exhibit 5.1)........................
+++24.1 Power of Attorney...................................................
25.1 Statement of Eligibility of Trustee -- Form T-1.....................
</TABLE>
- ---------------
+ Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1995.
++ Incorporated by reference to Exhibit 1 filed with the Registrant's
Registration Statement on Form 8-A filed on December 29, 1994.
+++ Previously filed.
<PAGE> 1
Ventritex, Inc.
___% Convertible Subordinated Notes due ____________ __, 2001
----------------
Underwriting Agreement
______ __, 1996
Goldman, Sachs & Co.,
85 Broad Street
New York, NY 10004
Ladies and Gentlemen:
Ventritex, Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to Goldman, Sachs
& Co. (the "Underwriter") an aggregate of $__,000,000 principal amount of the
___% Convertible Subordinated Notes due ______ __, 2001, convertible into
common stock ("Stock") of the Company, specified above (the "Firm Securities")
and, at the election of the Underwriter, up to an aggregate of $__,000,000
additional aggregate principal amount (the "Optional Securities") (the Firm
Securities and the Optional Securities which the Underwriter elects to purchase
pursuant to Section 2 hereof are herein collectively called the "Securities").
1. The Company represents and warrants to, and agrees with, the
Underwriter that:
(a) A registration statement on Form S-3 (File No. 333-07651)
(the "Initial Registration Statement") in respect of the Securities
and shares of the Stock issuable upon conversion thereof has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto but including all documents incorporated by reference
in the prospectus contained therein, have been declared effective by
the Commission in such form; other than a registration statement, if
any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as Amended (the "Act"), which became effective upon filing, no
other document with respect to the Initial Registration Statement or
document incorporated by reference therein has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of
the Initial Registration Statement, any post-effective amendment
thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule
462(b) Registration Statement, if any, including all exhibits thereto
but excluding Form T-1 (as hereinafter defined) and including (i) the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Initial Registration Statement at the time it was
declared effective or part of the Rule 462(b) Registration Statement
at the time it became effective and (ii) the documents incorporated by
reference in the prospectus
<PAGE> 2
contained in the registration statement at the time such part of the
registration statement became effective or such part of the Rule
462(b) Registration Statement, if any, became or hereinafter becomes
effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus"; and any reference herein to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the Act, as of the date of such Preliminary Prospectus
or Prospectus, as the case may be; any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after the date of
such Preliminary Prospectus or Prospectus, as the case may be, under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and incorporated by reference in such Preliminary Prospectus or
Prospectus, as the case may be; and any reference to any amendment to
the Registration Statement shall be deemed to refer to and include any
annual report of the Company filed pursuant to Section 13(a) or 15(d)
of the Exchange Act after the effective date of the Initial
Registration Statement that is incorporated by reference in the
Registration Statement;
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in
all material respects to the requirements of the Act and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
rules and regulations of the Commission thereunder, and did not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by the Underwriter expressly for use therein;
(c) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
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; and any further documents so filed
and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by the Underwriter
expressly for use therein;
(d) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration
Statement or the Prospectus will conform, in all material respects to
the requirements of the Act and the Trust Indenture Act and the rules
and regulations of the Commission thereunder and do not and will not,
as of the applicable effective date as to the Registration Statement
and any amendment thereto and as of the applicable filing date as to
the Prospectus and any amendment or supplement thereto, 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; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by the Underwriter expressly for use therein
2
<PAGE> 3
or the information contained in the Statement of Eligibility and
Qualification of the Trustee under the Trust Indenture Act filed as an
exhibit to the Registration Statement (the "Form T-1");
(e) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock, short-term debt, or long-term debt of the Company or
any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(f) The Company has good and marketable title in fee simple to
all real property and good and marketable title to all personal
property owned by it, in each case free and clear of all liens,
encumbrances and defects except such as are described in the
Prospectus (including the documents incorporated by reference therein)
or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings held
under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property
and buildings by the Company;
(g) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus,
and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole; none of the Company's subsidiaries is a "significant
subsidiary" as that term is defined in Rule 405 under the Act;
(h) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued and are
fully paid and non-assessable; the shares of Stock initially issuable
upon conversion of the Securities have been duly and validly
authorized and reserved for issuance and, when issued and delivered in
accordance with the provisions of the Securities and the Indenture
referred to below, will be duly and validly issued, fully paid and
non-assessable and will conform in all material respects to the
description of the Stock contained in the Prospectus; and all of the
issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares and except
as otherwise set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(i) The Securities have been duly authorized and, when issued
and delivered pursuant to this Agreement, will have been duly
executed, authenticated, issued and delivered and will constitute
valid and legally binding obligations of the Company entitled to the
benefits provided by the indenture to be dated as of ................,
1996 (the "Indenture") between the Company and State Street Bank
Trust Company, as Trustee (the "Trustee"), under which they are to be
issued, which will be substantially in the form filed as an exhibit to
the Registration Statement; the Indenture has been duly authorized and
duly qualified under the Trust Indenture Act and, when executed and
delivered by the Company and
3
<PAGE> 4
the Trustee, will constitute a valid and legally binding instrument,
enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles; and the Securities and the Indenture will
conform in all material respects to the descriptions thereof in the
Prospectus;
(j) The issue and sale of the Securities and the compliance by
the Company with all of the provisions of the Securities, the
Indenture and this Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other material agreement or material instrument to
which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the Securities or the consummation by the Company of
the transactions contemplated by this Agreement or the Indenture,
except the registration under the Act of the Securities and the shares
of Stock issuable upon conversion thereof, such as have been obtained
under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Underwriter;
(k) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other material agreement or material instrument to
which it is a party or by which it or any of its properties may be
bound;
(l) The statements set forth in the Prospectus under the
captions "Description of Notes" and "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, under the caption "Certain Federal Income
Tax Considerations", and under the caption "Underwriting", insofar as
they purport to describe the provisions of the laws and documents
referred to therein, are accurate, complete and fair in all material
respects;
(m) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, could reasonably
be expected, individually or in the aggregate, to have a material
adverse effect on the current or future financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole; and, to the Company's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(n) Each of the directors and officers of the Company listed
in Schedule I hereto has entered into a written agreement with the
Company in the form of Exhibit A hereto (each such agreement, a
"Lock-up Agreement"), and executed originals of each Lock-up Agreement
have been delivered to you;
(o) The Company and its subsidiaries own or have valid,
binding, enforceable licenses or other rights to use any patents,
trademarks, trade names, service marks, service names, copyrights, and
other proprietary intellectual
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<PAGE> 5
property rights ("Intellectual Property") necessary to conduct the
business of the Company and its subsidiaries in the manner in which it
has been and is being conducted, without any conflict with the rights
of others, except for such conflicts as do not and will not have a
material adverse effect on the condition, financial or otherwise,
results of operations, business affairs or business prospects of the
Company and its subsidiaries, taken as a whole; the information
contained in the Registration Statement and Prospectus concerning
patents issued to, or patent applications filed on behalf of, the
Company and its subsidiaries is accurate in all material respects;
and, except as described in the Prospectus, neither the Company nor
any of its subsidiaries has received any notice from any other person
of infringement of or conflict with (and knows of no such infringement
of or conflict with) asserted rights of others with respect to any
Intellectual Property or any trade secrets, proprietary information,
inventions, know-how, processes and procedures owned or used by or
licensed to the Company or any of its subsidiaries, which if
determined adversely to the Company or any of its subsidiaries would,
individually or in the aggregate, have a material adverse effect on
the condition, financial or otherwise, results of operations, business
affairs or business prospects of the Company and its subsidiaries,
taken as a whole.
(p) The conduct of the business of the Company is in
compliance in all respects with applicable federal, state, local and
foreign laws and regulations, except where the failure to be in
compliance would not have a material adverse effect upon the
condition, financial or otherwise, results of operations, business
affairs or business prospects of the Company and its subsidiaries,
taken as a whole.
(q) The Company is not and, after giving effect to the
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");
(r) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes; and
(s) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of
the Commission thereunder.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, at a purchase price of .....% of the principal
amount thereof, plus accrued interest, if any, from ...................., 1996
to the Time of Delivery (as defined in Section 4 hereof) hereunder, the Firm
Securities, and (b) in the event and to the extent that the Underwriter shall
exercise the election to purchase Optional Securities as provided below, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, at the same purchase price set forth in clause
(a) of this Section 2 that portion of the aggregate principal amount of the
Optional Securities as to which such election shall have been exercised.
The Company hereby grants to the Underwriter the right to purchase at
their election up to $__,000,000 aggregate principal amount of Optional
Securities, at the purchase price set forth in clause (a) of the first
paragraph of this Section 2, for the sole purpose of covering overallotments in
the sale of Firm Securities. Any such election to purchase Optional Securities
may be exercised by written notice from you to the Company, given within a
period of 30 calendar days after the date of this Agreement, setting forth the
aggregate principal amount of Optional Securities to be purchased and the date
on which such Optional Securities are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section (4)
hereof)
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<PAGE> 6
or, unless you and the Company otherwise agree in writing, earlier than two or
later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm
Securities, the Underwriter propose to offer the Firm Securities for sale upon
the terms and conditions set forth in the Prospectus.
4. (a) The Securities to be purchased by the Underwriter hereunder
will be represented by one or more definitive global Securities in book-entry
form which will be deposited by or on behalf of the Company with The Depository
Trust Company ("DTC") or its designated custodian. The Company will deliver
the Securities to Goldman, Sachs & Co., against payment by or on behalf of the
Underwriter of the purchase price therefor by certified or official bank check
or checks or by wire transfer, payable to the order of the Company in federal
(same day) funds, by causing DTC to credit the Securities to the account of
Goldman, Sachs & Co. at DTC. The Company will cause the certificates
representing the Securities to be made available to Goldman, Sachs & Co. for
checking at least twenty-four hours prior to the Time of Delivery (as defined
below) at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with
respect to the Firm Securities, 9:30 a.m., New York City time, on August __,
1996 or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing, and, with respect to the Optional Securities, 9:30 a.m.,
New York City time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriter's election to
purchase such Optional Securities, or such other time and date as Goldman,
Sachs & Co. and the Company may agree upon in writing. Such time and date for
delivery of the Firm Securities is herein called the "First Time of Delivery",
such time and date for delivery of the Optional Securities, if not the First
Time of Delivery, is herein called the "Second Time of Delivery", and each such
time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Underwriter pursuant to Section 7(j) hereof, will be delivered at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304-1050 (the "Closing Location"), and the Securities will be delivered at
the Designated Office, all at the Time of Delivery. A meeting will be held at
the Closing Location at 1 p.m., New York City time, on the New York Business
Day next preceding the Time of Delivery, at which meeting the final drafts of
the documents to be delivered pursuant to the preceding sentence will be
available for review by the parties hereto. For the purposes of this Section
4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York City
are generally authorized or obligated by law or executive order to close.
5. The Company agrees with the Underwriter:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus prior
to the applicable Time of Delivery which shall be disapproved by you promptly
after reasonable notice thereof; to advise you, promptly after it receives
notice thereof, of the time when any amendment to the Registration Statement
has been filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies thereof; to
file promptly all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the
Prospectus and for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Securities; to advise you, promptly
after it receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus,
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<PAGE> 7
of the suspension of the qualification of the Securities or the shares of Stock
issuable upon conversion of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending
any such qualification, to promptly use its best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the shares of Stock issuable
upon conversion of the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws so
as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Securities, provided 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 in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriter with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Securities and the shares of Stock issuable upon conversion of the
Securities and if at such time any event shall have occurred as a result of
which the Prospectus 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 such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary during such same period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the Act,
the Exchange Act or the Trust Indenture Act, to notify you and upon your
request to file such document and to prepare and furnish without charge to the
Underwriter and to any dealer in securities as many copies as you may from time
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance; and in case the Underwriter is required to deliver a prospectus in
connection with sales of any of the Securities and the shares of Stock issuable
upon conversion of the Securities at any time nine months or more after the
time of issue of the Prospectus, upon your request but at the expense of the
Underwriter, to prepare and deliver to the Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) (i) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder any securities of the Company that are substantially similar
to the Securities or the Stock, including but not limited to any securities
that are convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans existing on, or upon the conversion or
exchange of convertible or exchangeable securities outstanding as of, the date
of this Agreement), without your prior written consent; and (ii) that it will
use reasonable efforts to cause each person who entered into a Lock-up
Agreement to comply therewith; in each case unless and to the extent that it
shall have obtained your prior written consent;
(f) To furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholder' equity and cash flows of
the Company and its
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<PAGE> 8
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholder, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which the Securities or any class of securities of the Company is
listed; and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the extent
the accounts of the Company and its subsidiaries are consolidated in reports
furnished to its stockholder generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of its Stock upon conversion of the Securities; and
(j) To use its best efforts to have the shares of Stock issuable
upon conversion of the Securities accepted for quotation on the Nasdaq National
Market (the "Exchange").
6. The Company covenants and agrees with the Underwriter that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Securities and the shares of Stock issuable upon conversion
of the Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof to the Underwriter and dealers; (ii)
the cost of printing or producing this Agreement, the Indenture, the Blue Sky
and Legal Investment Memoranda, closing documents (including any compilations
thereof) and any other documents in connection with the offering, purchase,
sale and delivery of the Securities; (iii) all expenses in connection with the
qualification of the Securities and the shares of Stock issuable upon
conversion of the Securities for offering and sale under state securities laws
as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriter in connection with such qualification and in
connection with the Blue Sky and legal investment surveys; (iv) if applicable,
any fees charged by securities rating services for rating the Securities; (v)
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriter in connection with, any required review by the National Association
of Securities Dealers, Inc. of the terms of the sale of the Securities; (vi)
the cost of preparing the Securities; (vii) the fees and expenses of the
Trustee and any agent of the Trustee and the fees and disbursements of counsel
for the Trustee in connection with the Indenture and the Securities; and (viii)
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section.
It is understood, however, that, except as provided in this Section, and
Sections 8 and 11 hereof, the Underwriter will pay all of their own costs and
expenses, including the fees of their counsel, transfer taxes on resale of any
of the Securities by them, and any advertising expenses connected with any
offers they may make.
7. The obligations of the Underwriter hereunder shall be subject,
in their discretion, to the condition that all representations and warranties
and other statements of the Company herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company shall have performed
all of its obligations hereunder theretofore to be performed, and the following
additional conditions:
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<PAGE> 9
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with
Section 5(a) hereof; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated the Time of Delivery, with
respect to the incorporation of the Company, the validity of the Indenture, the
Securities, the shares of Common Stock issuable upon conversion of the
Securities, the Registration Statement, the Prospectus, and other related
matters as you may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Wilson Sonsini Goodrich & Rosati, counsel for the Company, shall
have furnished to you their written opinion (a draft of each such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued and are
fully paid and non-assessable; and the shares of Stock initially
issuable upon conversion of the Securities (based on the initial
Conversion Rate) have been duly and validly authorized and reserved
for issuance and, when issued and delivered in accordance with the
provisions of the Securities and the Indenture, will be duly and
validly issued and fully paid and non-assessable, and will conform in
all material respects to the description of the Stock contained in the
Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) There is no "significant subsidiary" of the Company (as
such term is defined in Rule 405 under the Act);
(v) [Reserved];
(vi) To such counsel's knowledge and other than as set forth in
the Prospectus (including the documents incorporated by reference
therein), there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
that, individually or in the aggregate, could reasonably be expected
to have a material adverse effect on the current or future
consolidated financial position, stockholder' equity or results of
operations of the Company and its subsidiaries taken as
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<PAGE> 10
a whole; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The Securities have been duly authorized by all necessary
corporate action on the part of the Company, and duly executed by the
Company, and when duly authenticated in accordance with the terms of
the Indenture and delivered to and paid by you in accordance with the
provisions of the Underwriting Agreement, will be valid and binding
obligations of the Company entitled to the benefits of the Indenture;
(ix) The Indenture has been duly authorized, executed and
delivered by the parties thereto and constitutes a valid and binding
instrument, enforceable in accordance with its terms (assuming due
execution and delivery by Trustee); provided, however, that we do not
express any opinion regarding the enforceability or effect of Section
515 of the Indenture; and the Indenture has been duly qualified under
the Trust Indenture Act; our opinion that any agreement is valid,
binding or enforceable in accordance with its terms may be qualified
as to:
(i) limitations imposed by bankruptcy, insolvency,
reorganization, arrangement, fraudulent
conveyance, moratorium or other laws relating to
or affecting the rights of creditors generally;
(ii) rights to indemnification and contribution which
may be limited by applicable law or equitable
principles; and
(iii) general principles of equity, including without
limitation concepts of materiality,
reasonableness, good faith and fair dealing, and
the possible unavailability of specific
performance or injunctive relief, regardless of
whether such validity and binding effect are
considered in a proceeding in equity or at law;
(x) The issue and sale of the Securities being issued at such
Time of Delivery and the compliance by the Company with all of the
provisions of the Securities, the Indenture and this Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any Reviewed
Agreement (as defined below) to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties ("Reviewed Agreement" is any agreement filed or which
would be required to be filed as an Exhibit to an Annual Report on
Form 10-K of the Company pursuant to Item 601(b)(10) of Regulation S-K
if such Form 10-K was filed as of the date of such opinion covering
the period of time from the date of the last Form 10-K filed on behalf
of the Company and up to and including the date of such opinion, as
certified to such counsel by the Company);
(xi) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Securities being issued
at such Time of Delivery or the consummation by the Company of the
transactions contemplated by this Agreement or the Indenture, except
such as have been obtained under the Act and the Trust Indenture Act,
such as may be required under the Act in connection with the shares of
Stock issuable upon conversion of the Securities and such consents,
approvals, authorizations,
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<PAGE> 11
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriter;
(xii) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, covenant
or condition contained in any Reviewed Agreement to which it is a
party or by which it or any of its properties may be bound;
(xiii) The statements set forth in the Prospectus under the
captions "Description of Notes" and "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, under the caption "Certain Federal Income
Tax Considerations", and under the caption "Underwriting", insofar as
they purport to describe the provisions of the laws and documents
referred to therein, fairly summarize such provisions in all material
respects;
(xiv) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act; and
(xv) The documents incorporated by reference in the Prospectus
or any further amendment or supplement thereto made by the Company
prior to the Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material
respects with the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder; and they have no reason to believe that any of such
documents, when such documents became effective or were so filed, as
the case may be, contained, in the case of a registration statement
which became effective under the Act, 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, or, in the case of other documents which were filed under
the Act or the Exchange Act with the Commission, an untrue statement
of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such documents were so
filed, not misleading; and
(xvi) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the Trust Indenture Act and the rules and
regulations thereunder; although they do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (xiii) of this Section 7(c),
they have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) 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 or that, as
of its date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading or that, as of such Time of Delivery,
either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules
therein, as to
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<PAGE> 12
which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required
to be filed as an exhibit to the Registration Statement or required to
be incorporated by reference into the Prospectus or required to be
described in the Registration Statement or the Prospectus which are
not filed or incorporated by reference or described as required;
(d) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at each Time of Delivery, Ernst & Young LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock,
short-term debt or long-term debt of the Company or any of its subsidiaries or
any change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, stockholder' equity or
results of operations of the Company and its subsidiaries, otherwise than as
set forth or contemplated in the Prospectus, the effect of which, in any such
case described in Clause (i) or (ii), is in the judgment of the Underwriter so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Securities being issued at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act, and
(ii) no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of the Company's debt securities;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on the Nasdaq National Market; (ii)
a suspension or material limitation in trading in the Company's securities on
the Nasdaq National Market; (iii) a general moratorium on commercial banking
activities declared by any Federal, or New York or California State
authorities; or (iv) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this Clause (iv) in the
judgment of the Underwriter makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities being issued at such
Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(h) The shares of Stock issuable upon conversion of the Securities
shall, upon any such conversion, be available for quotation on the Exchange;
and
12
<PAGE> 13
(i) The Company shall have obtained and delivered to the
Underwriter, at or promptly following the execution and delivery of this
Agreement, executed copies of an agreement from each director, officer and
substantial stockholder of the Company designated by Goldman, Sachs & Co.,
substantially to the effect set forth in Section 5(e) hereof in form and
substance satisfactory to you;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and warranties of
the Company herein at and as of such Time of Delivery, as to the performance by
the Company of all of its obligations hereunder to be performed at or prior to
such Time of Delivery, as to the matters set forth in subsections (a) and (e)
of this Section and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless the
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Underwriter for any legal or other expenses reasonably incurred by the
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by the Underwriter expressly for use therein.
(b) The Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the 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 each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action 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
13
<PAGE> 14
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions 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 in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriter on the other from the offering of the Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, 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 Underwriter on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriter 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 underwriting
discounts and commissions received by the Underwriter, in each case as set
forth in the table on the cover page of the Prospectus. 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 Underwriter 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 Underwriter agree that it would not
be just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (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 subsection (d), the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Securities were offered to the public exceeds the amount of any damages
which the Underwriter 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 Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls the Underwriter within the meaning of the Act; and the obligations of
the Underwriter under this Section 8 shall be in addition to any liability
which the Underwriter may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company and to each person,
if any, who controls the Company within the meaning of the Act.
14
<PAGE> 15
9. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Underwriter, as set
forth in this Agreement or made by or on behalf of them, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of the Underwriter or any controlling person of the Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Securities.
10. If this Agreement shall be terminated upon default of the
Underwriter, the Company shall not then be under any liability to the
Underwriter except as provided in Sections 6 and 8 hereof; but, if for any
other reason, any Securities are not delivered by or on behalf of the Company
as provided herein, the Company will reimburse the Underwriter for all
out-of-pocket expenses, including fees and disbursements of counsel, reasonably
incurred by the Underwriter in making preparations for the purchase, sale and
delivery of the Securities, but the Company shall then be under no further
liability to the Underwriter except as provided in Sections 6 and 8 hereof.
11. All statements, requests, notices and agreements hereunder shall
be in writing, and if to the Underwriter shall be delivered or sent by mail,
telex or facsimile transmission to you at 85 Broad Street, New York, New York
10004, Attention: Registration Department; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of
the Company set forth in the Registration Statement, Attention: Secretary. Any
such statements, requests, notices or agreements shall take effect upon receipt
thereof.
12. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriter the Company and, to the extent provided in Sections
8 and 9 hereof, the officers and directors of the Company and each person who
controls the Company or the Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from the Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
13. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
15. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one
and the same instrument.
15
<PAGE> 16
If the foregoing is in accordance with your understanding, please sign and
return to us four counterparts hereof, and upon the acceptance hereof by you,
this letter and such acceptance hereof shall constitute a binding agreement
between the Underwriter and the Company.
Very truly yours,
Ventritex, Inc.
By:----------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
By: ---------------------------
(Goldman, Sachs & Co.)
16
<PAGE> 17
SCHEDULE I
PARTIES TO LOCK-UP AGREEMENTS
The officers and directors listed in the Prospectus under the
caption "Management:, other than Mr. McNerney, shall enter into the Lock-up
Agreements.
17
<PAGE> 18
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriter to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
prospective financial statements and/or pro forma financial
information) examined by them and included or incorporated by
reference in the Registration Statement or the Prospectus comply as to
form in all material respects with the applicable accounting
requirements of the Act or the Exchange Act, as applicable, and the
related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the consolidated interim financial statements, selected financial
data, pro forma financial information, prospective financial
statements and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have
been [separately] furnished to the representatives of the Underwriter
(the "Representatives") [and are attached hereto];
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statement of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included in the Company's quarterly
report on Form 10-Q incorporated by reference into the Prospectus as
indicated in their reports thereon copies of which [have been
separately furnished to the Underwriter] [are attached hereto]; and on
the basis of specified procedures including inquiries of officials of
the Company who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below comply
as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations, nothing came to their attention that caused
them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and
the related published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of
the Company for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of the
Company's Annual Report on Form 10-K for the most recent fiscal year
agrees with the corresponding amounts (after restatement where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not
conform in all material respects with the disclosure requirements of
Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute
18
<PAGE> 19
books of the Company and its subsidiaries since the date of the latest
audited financial statements included or incorporated by reference in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements
of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus and/or
included or incorporated by reference in the Company's
Quarterly Reports on Form 10-Q incorporated by reference in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
Exchange Act and the related published rules and regulations,
or (ii) any material modifications should be made to the
unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included or incorporated by reference in the Company's
Quarterly Reports on Form 10-Q incorporated by reference in
the Prospectus, for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in
the Company's Annual Report on Form 10-K for the most recent
fiscal year;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited financial statements included or
incorporated by reference in the Company's Annual Report on
Form 10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in
the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest balance sheet included or incorporated
by reference in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholder' equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included or incorporated by
reference in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
19
<PAGE> 20
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the
Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with the
comparable period of the preceding year and with any other
period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Prospectus and
the limited procedures, inspection of minute books, inquiries and
other procedures referred to in paragraphs (iii) and (vi) above, they
have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representatives which are derived from the general
accounting records of the Company and its subsidiaries, which appear
in the Prospectus (excluding documents incorporated by reference) or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives or in documents
incorporated by reference in the Prospectus specified by the
Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of
the Company and its subsidiaries and have found them to be in
agreement.
20
<PAGE> 21
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
Dated as of
____________, 1996
Ventritex, Inc.
701 East Evelyn Avenue
Sunnyvale, California 94086
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Ventritex, Inc. (the "Company") proposes to issue and sell
(the "Offering") up to $___,000,000 aggregate principal amount of the Company's
% Convertible Subordinated Notes due ___________, 2001 (the "Securities"),
convertible into shares of the Company's Common Stock, par value $0.001 per
share (the "Stock").
In connection with the Offering, the Company will enter into
an underwriting agreement with Goldman, Sachs & Co. (the "Underwriter"). The
form, terms and conditions of this agreement, including the amount of
Securities to be sold in the Offering, the amount of Securities to be purchased
by the Underwriter and the Underwriter's purchase price and the initial
offering price, are to be determined by the Company and the Underwriter at a
later date, and references herein to the "Underwriting Agreement" mean such
document in the form in which it will eventually be executed and delivered by
the parties thereto.
The undersigned, to facilitate the marketing of the Securities
and in consideration of the Company and the Underwriter entering into the
Underwriting Agreement, hereby irrevocably confirms and agrees for the benefit
of the Company and the Underwriter as follows:
During the period beginning on and including the date hereof
and continuing to and including the 90th day after the date of the definitive
prospectus relating to the Offering, the undersigned will not, without the
prior written consent of the Underwriter, directly or indirectly, offer, sell,
contract to sell, or otherwise dispose of any Stock, any securities which are
substantially similar to the Securities or the Stock and any securities
convertible into or exchangeable or exercisable for Stock or substantially
similar securities, which Stock and other securities are, on the
<PAGE> 22
date hereof, or become, at any time hereafter, registered in the name of, or
beneficially owned or controlled by, the undersigned.
Very truly yours,
-------------------------------
Signature
-------------------------------
Print Name
2
<PAGE> 1
S&C Draft of August 1, 1996
- --------------------------------------------------------------------------------
VENTRITEX, INC.
TO
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
________________
INDENTURE
Dated as of , 1996
________________
$___,000,000
___% CONVERTIBLE SUBORDINATED NOTES
DUE , 2001
- --------------------------------------------------------------------------------
<PAGE> 2
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not
Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not
Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608
610
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701
702(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(c)
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(b)
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not
Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not
Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not
Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 603(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
Section 316(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not
Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
</TABLE>
- --------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recitals of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Agent Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Applicable Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Price Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Company Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Company Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Constituent Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conversion Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Designated Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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Expiration Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Non-electing Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Payment Blockage Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Record Date Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reference Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Security Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Security Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trading Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 202. Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 204. Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 205. Form of Conversion Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 206. Form of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE THREE
The Securities
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 303. Execution, Authentication, Delivery And Dating . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 304. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 305. Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE FIVE
Remedies
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . . 42
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 505. Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . . . 44
SECTION 506. Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert . . . . 46
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 604. Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . . . . 51
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
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SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 608. Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 610. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . 55
SECTION 613. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 614. Appointment of Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . 58
SECTION 702. Preservation of Information; Communications to Holders . . . . . . . . . . . . . . . . . . . . . 59
SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 906. Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 907. Notice of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 1003. Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 1004. Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 1005. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 1006. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 1007. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 1008. Book-Entry System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 1009. Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 1104. Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 1107. Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 1108. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 1109. Conversion Arrangement on Call for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
___________
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
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ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 1202. No Payments in Certain Circumstances; Payment Over of Proceeds Upon Dissolution, Etc. . . . . . . 74
SECTION 1203. Prior Payment to Senior Indebtedness Upon Acceleration of Securities . . . . . . . . . . . . . . 77
SECTION 1204. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 1205. Payment Permitted If No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 1206. Subrogation to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . 78
SECTION 1207. Provisions Solely to Define Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 1208. Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 1209. No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 1210. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . . . . . 81
SECTION 1212. Trustee Not Fiduciary for Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 81
SECTION 1213. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights . . . . . . 81
SECTION 1214. Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 1215. Certain Conversions Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Privilege and Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 1302. Exercise of Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 1303. Fractions of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 1304. Adjustment of Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 1305. Notice of Adjustments of Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 1306. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 1307. Company to Reserve Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 1308. Taxes on Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 1309. Covenant as to Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
</TABLE>
___________
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
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SECTION 1310. Cancellation of Converted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 1311. Provision in Case of Consolidation, Merger or Sale of Assets . . . . . . . . . . . . . . . . . . 94
SECTION 1312. Responsibility of Trustee for Conversion Provisions . . . . . . . . . . . . . . . . . . . . . . . 96
ARTICLE FOURTEEN
Repurchase Of Securities At The Option Of The
Holder Upon A Change Of Control
SECTION 1401. Right to Require Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 1402. Conditions to the Company's Election to Pay the Repurchase Price in Common Stock. . . . . . . . . 98
SECTION 1403. Notices; Method of Exercising Repurchase Right, Etc. . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 1404. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 1405. Consolidation, Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
ARTICLE FIFTEEN
Immunity Of Incorporators, Stockholders,
Officers And Directors
SECTION 1501. Indenture and Securities Solely Corporate Obligations . . . . . . . . . . . . . . . . . . . . . . 104
</TABLE>
___________
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
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<PAGE> 11
INDENTURE, dated as of [ ,] 1996, between Ventritex,
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 701 East
Evelyn Avenue, Sunnyvale, California 94086, and State Street Bank and Trust
Company, a Massachusetts trust company duly organized and existing under the
laws of Massachusetts, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its
____% Convertible Subordinated Notes Due __________, 2001 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done. Further, all things necessary to duly authorize the issuance of the
Common Stock of the Company issuable upon the conversion of the Securities, and
to duly reserve for issuance the number of shares of Common Stock issuable upon
such conversion, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article One have the meanings
assigned to them in this Article and include the plural as well as the
singular;
<PAGE> 12
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date of
such computation; and
(4) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control", when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent Member" means any member of, or participant in, the
Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the
Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the
Board of Directors, a copy of which, certified by the
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<PAGE> 13
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, shall have been delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York or San Jose, California are authorized or obligated by law or executive
order to close.
"Change of Control" has the meaning specified in Section
1404(b).
"Closing Price Per Share" means, with respect to the Common
Stock of the Company, for any day, the reported last sales price regular way
per share or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either
case (i) on the Nasdaq National Market or, if the Common Stock is not quoted on
the Nasdaq National Market, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or (ii) if not quoted
on the Nasdaq National Market or listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices in the
over-the- counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Company for that purpose.
"Code" has the meaning specified in Section 201.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Stock" means the Common Stock, par value $0.001 per
share, of the Company authorized at the date of this instrument as originally
executed. Subject to the provisions of Section 1311, shares issuable on
conversion or repurchase of Securities shall include only shares of Common
Stock or shares of any class or classes of common stock resulting from any
reclassification or reclassifications thereof; provided, however, that if at
any time there shall be more than one such resulting class, the shares so
issuable on conversion of Securities shall include shares of all such classes,
and the shares of each such class then so issuable shall be substantially in
the proportion which the total number of shares of such class resulting from
all such reclassifications bears to the total number of shares of all such
classes resulting from all such reclassifications.
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<PAGE> 14
"common stock" includes any stock of any class of capital
stock which has no preference in respect of dividends or of amounts payable in
the event of any voluntary or involuntary liquidation, dissolution or winding
up of the issuer thereof and which is not subject to redemption by the issuer
thereof.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Notice" has the meaning specified in Section 1403.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
Vice Chairman of the Board, its President or a Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Constituent Person" has the meaning specified in Section
1311.
"Conversion Agent" means any Person authorized by the Company
to convert Securities in accordance with Article Thirteen. The Company has
initially appointed the Trustee as its Conversion Agent.
"Conversion Price" has the meaning specified in Section 1404.
"Conversion Rate" has the meaning specified in Section 1301.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
administered, which office on the date hereof is located at Two International
Place, Boston, Massachusetts 02110.
"corporation" means a corporation, association, company,
joint-stock company or business trust.
"Custodian" means State Street Bank and Trust Company, as
custodian with respect to any Global Security, or any successor entity thereto.
"Defaulted Interest" has the meaning specified in Section 307.
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<PAGE> 15
"Depositary" means, with respect to any Global Securities, a
clearing agency that is registered as such under the Exchange Act and is
designated by the Company to act as Depositary for such Global Securities (or
any successor securities clearing agency so registered).
"Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which
the Company is a party) expressly provides that such indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness).
"Distribution Date" has the meaning specified in Section
1304(4).
"DTC" means The Depository Trust Company, a New York
corporation.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the United States Securities Exchange Act
of 1934 (or any successor statute), as amended from time to time.
"Expiration Date" has the meaning specified in Section 104.
"Expiration Time" has the meaning specified in Section 1304.
"Global Security" means a Security that is registered in the
Security Register in the name of a Depositary or a nominee thereof.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
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<PAGE> 16
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, submission for repurchase or otherwise.
"Non-electing Share" has the meaning specified in Section
1311.
"Notice of Default" means a written notice of the kind
specified in Section 501(4) or 501(5).
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company, and delivered to the Trustee. One of the
officers signing an Officers' Certificate given pursuant to Section 1004 shall
be the principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for payment or redemption of which
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company shall act
as its own Paying Agent) for the Holders of such Securities; provided
that, if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to
Section 306 or in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture,
other than any such
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<PAGE> 17
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Company; and
(iv) Securities converted into Common Stock pursuant to
Article Thirteen.
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities are present at a meeting of Holders
for quorum purposes or have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities owned by the Company
or any other obligor upon the Securities or any Affiliate of the Company or of
such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such determination as to the presence of a quorum or upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Payment Blockage Notice" has the meaning specified in Section
1202.
"Person" means any individual, corporation, limited liability
company partnership, joint venture, a joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Record Date Period" means the period from the close of
business on any Regular Record Date next preceding any Interest
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<PAGE> 18
Payment Date to the opening of business on such Interest Payment Date.
"Record Date" means any Regular Record Date or Special Record
Date.
"Redemption Date", when used with respect to any Security to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Reference Date" has the meaning specified in Section 1304.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the August 15 or February 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Rights" has the meaning specified in Section 1304(4).
"Rights Agreement" has the meaning specified in Section
1304(4).
"Repurchase Date" has the meaning specified in Section 1401.
"Repurchase Price" has the meaning specified in Section 1401.
"Responsible Officer", when used with respect to the Trustee,
means any officer within the Corporate Trust Office of the Trustee (including
without limitation any vice president, assistant vice president, assistant
treasurer, assistant secretary, corporate trust officer, assistant corporate
trust officer or other employee of the Trustee customarily performing functions
similar to those performed by any of the above designated officers) and also
means, with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of his knowledge and familiarity with
the particular subject.
"Securities" has the meaning ascribed to it in the first
paragraph under the caption "Recitals of the Company".
"Securities Act" means the United States Securities Act of
1933 (or any successor statute), as amended from time to time.
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<PAGE> 19
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Senior Indebtedness" means the principal of (and premium, if
any) and interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim
for post-petition interest is allowable as a claim in any such proceeding) on,
and all fees and other amounts payable in connection with, the following,
whether absolute or contingent, secured or unsecured, due or to become due,
outstanding on the date of the Indenture or thereafter created, incurred or
assumed: (a) indebtedness of the Company to banks, insurance companies and
other financial institutions evidenced by credit or loan agreements, notes or
other written obligations, (b) all other indebtedness of the Company (including
indebtedness of others guaranteed by the Company) other than the Securities,
whether outstanding on the date of this Indenture or thereafter created,
incurred or assumed, which is (i) for money borrowed or (ii) evidenced by a
note, security, debenture, bond or similar instrument, (c) obligations of the
Company as lessee under leases required to be capitalized on the balance sheet
of the lessee under generally accepted accounting principles or in respect of
any lease or related document (including a purchase agreement) which provides
that the Company is contractually obligated to purchase or cause a third party
to purchase the leased property and thereby effectively guarantee a minimum
residual value of the leased property to the landlord and the obligations of
the Company under such lease or related document to purchase or cause a third
party to purchase such leased property, (d) obligations of the Company under
interest rate and currency swaps, caps, floors, collars or similar agreements
or arrangements, and (e) renewals, extensions, modifications, restatements and
refundings of, and any amendments, modifications or supplements to, or any
indebtedness or obligation issued in exchange for, any such indebtedness or
obligation described in clauses (a) through (d) of this paragraph; provided,
however, that Senior Indebtedness shall not include any such indebtedness or
obligation if the terms of such indebtedness or obligation (or the terms of the
instrument under which, or pursuant to which, it is issued) expressly provide
that such indebtedness or obligation shall not be senior in right of payment to
the Securities, or expressly provide that such indebtedness or obligation is
pari passu with or junior to the Securities.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the
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<PAGE> 20
principal of such Security or such installment of interest is due and payable.
"Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"Trading Days" means (i) if the Common Stock is quoted on the
Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, days on which trades may be effected through
such system; (ii) if the Common Stock is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange
is open for business; or (iii) if the Common Stock is not listed or admitted
for trading on any national securities exchange or quoted on the Nasdaq
National Market or any other system of automated dissemination of quotation of
securities prices, days on which the Common Stock is traded regular way in the
over-the- counter market and for which a closing bid and a closing asked price
for the Common Stock are available.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in
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<PAGE> 21
this Indenture relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate (other than certificates provided pursuant
to Section 1004) or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include, without limitation:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion such individual, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with
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<PAGE> 22
respect to the matters upon which such certificate or opinion is based are
erroneous.
Any such certificate or opinion of counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and (subject to Section 601) conclusive in favor of the Trustee
and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
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<PAGE> 23
(c) The ownership of Securities shall be proved by the
Security Register.
(d) The Company may set any day as a record date for the
purpose of determining the Holders entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided or permitted by this Indenture to be given, made or taken by Holders,
provided that the Company may not set a record date for, and the provisions of
this Section 104(d) shall not apply with respect to, the giving or making of
any notice, declaration, request or direction referred to in Section 104(e).
If any record date is set pursuant to this Section 104(d), the Holders on such
record date, and only such Persons, shall be entitled to take the relevant
action, whether or not such Holders remain Holders after such record date;
provided that no such action shall be effective hereunder unless taken on or
prior to the applicable Expiration Date by Holders of the requisite principal
amount of Securities on such record date. Nothing in this Section 104(d) shall
be construed to prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and
with no action by any Person be cancelled and of no effect), and nothing in
this Section 104(d) shall be construed to render ineffective any action taken
by Holders of the requisite principal amount of Securities on the date such
action is taken. Promptly after any record date is set pursuant to this
Section 104(d), the Company, at its own expense, shall cause notice of such
record date, the proposed action by Holders and the applicable Expiration Date
to be given to the Trustee in writing and to each Holder in the manner set
forth in Section 106.
(e) The Trustee may set any day as a record date for the
purpose of determining the Holders entitled to join in the giving or making of
(i) any Notice of Default, (ii) any declaration of acceleration referred to in
Section 502, (iii) any request to institute proceedings referred to in Section
507(2), or (iv) any direction referred to in Section 512. If any record date
is set pursuant to this Section 104(e), the Holders on such record date, and
only such Persons, shall be entitled to join in such notice, declaration,
request or direction, whether or not such Holders remain Holders after such
record date; provided that no such action be effective hereunder unless taken
on or prior to the applicable Expiration Date by Holders of the requisite
principal amount of Securities on such record date. Nothing in this Section
104(e) shall be construed to prevent the Trustee from setting a new record date
for any action for which a record date has previously been set pursuant to this
Section 104(e) (whereupon the record date previously set shall automatically
and with no action by any Person be cancelled and of no effect), and
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<PAGE> 24
nothing in this Section 104(e) shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this Section 104(e), the Trustee, at the Company's expense, shall cause notice
of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities in the manner set forth in Section 106.
(f) With respect to any record date set pursuant to Sections
104(d) or 104(e), the party hereto which sets such record date may designate
any day as the "Expiration Date" and from time to time may change the
Expiration Date to any earlier or later day; provided that no such change shall
be effective unless notice of the proposed new Expiration Date is given to the
other party hereto in writing, and to each Holder in the manner set forth in
Section 106, on or prior to the existing Expiration Date. If an Expiration
Date is not designated with respect to any record date set pursuant to Sections
104(d) or 104(e), the party hereto which set such record date shall be deemed
to have initially designated the 180th day after such record date as the
Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing,
no Expiration Date shall be later than the 180th day after the applicable
record date.
(g) Without limiting the foregoing, a Holder entitled
hereunder to take any action hereunder with regard to any particular Security
may do so with regard to all or any part of the principal amount of such
Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any part of such principal
amount.
(h) Except as provided in Sections 512 and 513 any request,
demand, authorization, direction, notice, consent, waiver or other Act of the
Holder of any Security shall bind every future Holder of the same Security and
the Holder of every Security issued upon the registration of transfer thereof
or in exchange therefor or in lieu thereof in respect of anything done, omitted
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or
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<PAGE> 25
permitted by this Indenture to be made upon, given or furnished to, or filed
with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Department (Ventritex, Inc. ___%
Convertible Subordinated Notes due 2001), or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its
principal office specified in the first paragraph of this instrument
or at any other address previously furnished in writing to the Trustee
by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
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<PAGE> 26
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or to be excluded, as the
case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Indebtedness and the Holders of
Securities, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 112. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 27
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity of any Security or the last date on which a Holder has the
right to convert his Securities shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) or conversion of the
Securities need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated Maturity, or on such
last day for conversion, provided that no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of any securities
exchange, the Internal Revenue Code of 1986, as amended, and the regulations
thereunder (the "Code"), or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities.
Any definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any automated quotation system or
securities exchange on which the Securities may be quoted or listed, as the
case may be, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
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<PAGE> 28
SECTION 202. Form of Face of Security.
[The following legend shall appear on the face of each Global Security:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY,
THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL
PURPOSES.]
[The following legend shall appear on the face of each Global Security for
which The Depository Trust Company is to be the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
REGISTERED SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED
CIRCUMSTANCES REFERRED TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY
OR A NOMINEE OR SUCH SUCCESSOR DEPOSITARY.]
VENTRITEX, INC.
__% CONVERTIBLE SUBORDINATED NOTE
DUE , 2001
No. __________ $________
Ventritex, Inc., a corporation duly organized and existing
under the laws of Delaware (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to __________________, or registered assigns,
the principal sum of _____________________ Dollars ($_______) on [ ],
2001, and to pay interest thereon from [_________], 1996 or from
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<PAGE> 29
the most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually in arrears on ______________ and __________ in each
year (each, an "Interest Payment Date"), commencing __________, 1997 at the
rate of ___% per annum, until the principal hereof is due, and at the rate of
___% per annum on any overdue principal and premium, if any, and, to the extent
permitted by law, on any overdue interest. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the __________ or
__________ (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Except as otherwise provided in the Indenture, any
such interest not so punctually paid or duly provided for will forthwith cease
to be payable to the Holder on such Regular Record Date and may either be paid
to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Company, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any automated quotation system or
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such quotation system or exchange, as the case may be,
all as more fully provided in the Indenture. Payments of principal shall be
made upon the surrender of this Security at the option of the Holder at the
Corporate Trust Office of the Trustee, or at such other office or agency of the
Company as may be designated by it for such purpose in the Borough of
Manhattan, The City of New York, in such 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; provided, however, that at the option of the Company
payment of interest may be made by check, mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register, or,
upon written application by the Holder to the Security Registrar.
Except as specifically provided in the Indenture, the Company
shall not be required to make any payment with respect to any tax, assessment
or other governmental charge imposed by any governmental or any political
subdivision or taxing authority thereof or therein.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
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<PAGE> 30
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated:
VENTRITEX, INC.
[Corporate Seal]
By
------------------------
Title:
Attest:
- ---------------------------
Title:
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities
of the Company designated as its __% Convertible Subordinated Notes Due [ ],
2001 (herein called the "Securities"), limited in aggregate principal amount
to $______, issued and to be issued under an Indenture, dated as of [ ],
1996 (herein called the "Indenture"), between the Company and State Street
Bank and Trust Company, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. The Securities are issuable in registered form
only without coupons in denominations of $1,000 and any integral multiple
thereof.
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Security is entitled, at his option, at any time
before the close of business on [______], 2001 (except that (a) if this
Security or a portion hereof is called for redemption, the right of conversion
in respect of this
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<PAGE> 31
Security shall terminate at the close of business on the Business Day
immediately preceding the Redemption Date, and (b) if the Holder hereof has
exercised his right to require the Company to repurchase this Security or a
portion hereof, the right of conversion in respect of this Security shall
terminate at the close of business on the Repurchase Date, unless in each case
the Company defaults in making the payment due upon redemption or repurchase,
as the case may be) to convert this Security (or any portion of the principal
amount hereof that is an integral multiple of $1,000, provided that the
unconverted portion of such principal amount is $1,000 or any integral multiple
of $1,000 in excess thereof) into fully paid and nonassessable shares of Common
Stock of the Company at an initial Conversion Rate of [_____] for each share of
Common Stock (or at the then current adjusted Conversion Rate if an adjustment
has been made as provided in the Indenture) by surrender of this Security, duly
endorsed or assigned to the Company or in blank and, in case such surrender
shall be made during the period from the close of business on any Regular
Record Date next preceding any Interest Payment Date to the opening of business
on such Interest Payment Date (except if this Security has been called for
redemption on a Redemption Date or is repurchasable on a Repurchase Date
occurring, in either case, during such period and is surrendered for such
conversion during such period (including any Securities or portions thereof
called for redemption on a Redemption Date that is a Regular Record Date or an
Interest Payment Date, as the case may be)), also accompanied by payment in New
York Clearing House or other funds acceptable to the Company of an amount equal
to the interest payable on such Interest Payment Date on the principal amount
of this Security then being converted, and also the conversion notice hereon
duly executed, to the Company at the Corporate Trust Office of the Trustee, or
at such other office or agency of the Company, subject to any laws or
regulations applicable thereto and subject to the right of the Company to
terminate the appointment of any Conversion Agent (as defined below) as may be
designated by it for such purpose in the Borough of Manhattan, The City of New
York, or at such other offices or agencies as the Company may designate (each a
"Conversion Agent"), provided further, that if this Security or portion hereof
has been called for redemption on a Redemption Date or is repurchasable on a
Repurchase Date occurring, in either case, during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such succeeding Interest Payment Date and is
surrendered for conversion during such period, then the Holder of this Security
who converts this Security or a portion hereof during such period (or on the
last Business Day prior to the Regular Record Date or Interest Payment Date in
case of any Security (or portion thereof) called for redemption on a Regular
Record Date or Interest Payment Date, as the case may be) will be entitled to
receive the interest accruing hereon from the
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<PAGE> 32
Interest Payment Date next preceding the date of such conversion to such
succeeding Interest Payment Date and shall not be required to pay such interest
upon surrender of this Security for conversion. Subject to the provisions of
the preceding sentence and, in the case of a conversion after the close of
business on the Regular Record Date next preceding any Interest Payment Date
and or before the close of business on such Interest Payment Date, to the right
of the Holder of this Security (or any Predecessor Security of record as of
such Regular Record Date) to receive the related installment of interest to the
extent and under the circumstances provided in the Indenture, no cash payment
or adjustment is to be made on conversion for interest accrued hereon from the
Interest Payment Date next preceding the day of conversion, or for dividends on
the Common Stock issued on conversion hereof. The Company shall thereafter
deliver to the Holder the fixed number of shares of Common Stock (together with
any cash adjustment, as provided in the Indenture) into which this Security is
convertible and such delivery will be deemed to satisfy the Company's
obligation to pay the principal amount of this Security. No fractions of
shares or scrip representing fractions of shares will be issued on conversion,
but instead of any fractional interest (calculated to the nearest 1/100th of a
share) the Company shall pay a cash adjustment as provided in the Indenture.
The Conversion Rate is subject to adjustment as provided in the Indenture. In
addition, the Indenture provides that in case of certain consolidations or
mergers to which the Company is a party or the conveyance, transfer, sale or
lease of all or substantially all of the property and assets of the Company,
the Indenture shall be amended, without the consent of any Holders of
Securities, so that this Security, if then Outstanding, will be convertible
thereafter, during the period this Security shall be convertible as specified
above, only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, transfer, sale or lease
by a holder of the number of shares of Common Stock of the Company into which
this Security could have been converted immediately prior to such
consolidation, merger, conveyance, transfer, sale or lease (assuming such
holder of Common Stock is not a Constituent Person, failed to exercise any
rights of election and received per share the kind and amount received per
share by a plurality of Non-electing Shares). No adjustment in the Conversion
Rate will be made until such adjustment would require an increase or decrease
of at least one percent of such Conversion Rate, provided that any adjustment
that would otherwise be made will be carried forward and taken into account in
the computation of any subsequent adjustment.
The Securities are subject to redemption upon not less than 20
days' notice by mail, at any time on or after [ ], 1999, as a whole or
in part, at the election of the Company, at the following Redemption Prices
(expressed as
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<PAGE> 33
percentages of the principal amount): If redeemed during the 12-month period
beginning [ ] of the years indicated,
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
1999 %
2000
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount, in
each case together with accrued interest to the Redemption Date; provided,
however, that interest installments whose Stated Maturity is on or prior to
such Redemption Date will be payable to the Holders of such Securities, or one
or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
In the event of redemption, repurchase or conversion of this
Security in part only, a new Security or Securities for the unredeemed,
unrepurchased or unconverted portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
In any case where the due date for the payment of the
principal of, premium, if any, or interest on any Security or the last day on
which a Holder of a Security has a right to convert his Security shall be a day
on which banking institutions are authorized or obligated by law or executive
order to close, then payment of principal, premium, if any, or interest, or
delivery for conversion of such Security need not be made on or by such date at
such place but may be made on or by the next succeeding day at such place which
is not a day on which banking institutions are authorized or obligated by law
or executive order to close, with the same force and effect as if made on the
date for such payment or the date fixed for redemption or repurchase, or by
such last day for conversion, and no interest shall accrue on the amount so
payable for the period after such date.
If a Change of Control occurs, the Holder of this Security, at
the Holder's option, shall have the right, in accordance with the provisions of
the Indenture, to require the Company to repurchase this Security (or any
portion of the principal amount hereof that equal to $1,000 or any integral
multiple of $1,000 in excess thereof) for cash at a Repurchase Price equal to
100% of the principal amount thereof plus interest accrued to the Repurchase
Date. At the option of the Company, the Repurchase Price may be paid in cash
or, subject to the conditions provided in the Indenture, by delivery of shares
of
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<PAGE> 34
Common Stock having a fair market value equal to the Repurchase Price. For
purposes of this paragraph, the fair market value of shares of Common Stock
shall be determined by the Company and shall be equal to 95% of the average of
the Closing Prices Per Share for the five consecutive Trading Days ending on
and including the third Trading Day immediately preceding the Repurchase Date.
Whenever in this Security there is a reference, in any context, to the
principal of any Security as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in respect of such Security
to the extent that such Repurchase Price is, was or would be so payable at such
time, and express mention of the Repurchase Price in any provision of this
Security shall not be construed as excluding the Repurchase Price so payable in
those provisions of this Security when such express mention is not made;
provided, however, that, for the purposes of the next paragraph, such reference
shall be deemed to include reference to the Repurchase Price only to the extent
the Repurchase Price is payable in cash.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each Holder
of this Security, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
so provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes.
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount
of the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and
of any Security issued upon the registration of transfer hereof or in exchange
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<PAGE> 35
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Security on the respective Stated
Maturities expressed herein (or in the case of redemption, on the Redemption
Date) or to convert this Security as provided in the Indenture.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any
proceeding with respect to the Indenture or for the appointment of a receiver
or trustee or for any other remedy thereunder, unless such Holder shall have
previously given the Trustee written notice of a continuing Event of Default,
the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity and the Trustee shall not have received from the
Holders of a majority in principal amount of the Securities Outstanding a
direction inconsistent with such request, and shall have failed to institute
any such proceeding, for 60 days after receipt of such notice, request and
offer of indemnity. The foregoing shall not apply to any suit instituted by
the Holder of this Security for the enforcement of any payment of principal
hereof, premium, if any, or interest hereon on or after the respective due
dates expressed herein or for the enforcement of the right to convert this
Security as provided in the Indenture.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for that purpose
pursuant to Section 1002, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
No service charge shall be made to a Holder for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
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<PAGE> 36
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee, any Authenticating Agent, any Conversion
Agent, any Paying Agent or any other agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Company, the Trustee nor any Authenticating Agent, Conversion Agent, Paying
Agent or other agent of the Company or the Trustee shall be affected by notice
to the contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Security, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT--________ Custodian ____________
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors Act
JT TEN - as joint tenants with _______________________________________________
right of survivorship (State)
and not as tenants in
common
</TABLE>
Additional abbreviations may also be used
though not in the above list.
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<PAGE> 37
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 1401 of the Indenture, the undersigned
hereby elects to have this Security repurchased by the Company.
2. The undersigned hereby directs the Trustee or the Company
to pay it or __________________ an amount in cash or, at the Company's
election, Common Stock valued as set forth in the Indenture, equal to 100% of
the principal amount to be repurchased (as set forth below), plus interest
accrued to the Repurchase Date, as provided in the Indenture.
Dated:
------------------------------
------------------------------
Signature(s)
Signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an
approved signature guarantee program pursuant
to Rule 17Ad-15 under the Securities Exchange
Act of 1934.
-------------------------------
Signature Guaranteed
Principal amount to be repurchased
(an integral multiple of $1,000): __________________________
Remaining principal amount following such repurchase: ____________________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
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<PAGE> 38
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the
within-mentioned Indenture.
STATE STREET BANK
AND TRUST COMPANY,
as Trustee
By ----------------------------------
Authorized Signatory
SECTION 205. Form of Conversion Notice.
The undersigned Holder of this Security hereby irrevocably
exercises the option to convert this Security, or any portion of the principal
amount hereof (which is an integral multiple of $1,000, provided that the
unconverted portion of such principal amount is $1,000 or any integral multiple
of $1,000 in excess thereof) below designated, into shares of Common Stock in
accordance with the terms of the Indenture referred to in this Security, and
directs that such shares, together with a check in payment for any fractional
share and any Securities representing any unconverted principal amount hereof,
be delivered to and be registered in the name of the undersigned unless a
different name has been indicated below. If shares of Common Stock or
Securities are to be registered in the name of a Person other than the
undersigned, 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: ------------------------- -----------------------------------
Fill in for registration of shares of
Common Stock if to be issued, and
Securities if to be delivered,
other than to and in the name of -----------------------------------
Signature(s)
- ---------------------------------
(Name) Signature(s) must be guaranteed
by an Eligible Guarantor Institution
with membership in an approved
signature guarantee program pursuant
to Rule 17Ad-15 under the Securities
Exchange Act of 1934.
SECTION 206. Form of Assignment.
For value received _____________________________ hereby
sell(s), assign(s) and transfer(s) unto __________________________________
(Please insert social security or other identifying number of assignee) the
within Security, and hereby irrevocably constitutes and appoints
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<PAGE> 39
____________________________ as attorney to transfer the said Security on the
books of the Company, with full power of substitution in the premises.
Dated:
-----------------------
-----------------------
Signature(s)
Signature(s) must be guaranteed
by an Eligible Guarantor Institution
with membership in an approved
signature guarantee program pursuant
to Rule 17Ad-15 under the Securities
Exchange Act of 1934.
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $___,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section
304, 305, 306, 906, 1108, 1302 or 1403(e).
The Securities shall be known and designated as the "__%
Convertible Subordinated Notes Due ________, 2001" of the Company. Their
Stated Maturity shall be [ ], 2001, and they shall bear interest at the
rate of ____% per annum, from [ ], 1996 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, payable semi-annually in arrears on __________ and __________ in each
year, commencing __________, 1997, until the principal thereof is paid or made
available for payment, and, to the fullest extent permitted by law, at the rate
of [__]% per annum on any overdue principal and on any overdue installment of
interest.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose pursuant to Section 1002; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person
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<PAGE> 40
entitled thereto as such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article
Eleven.
The Securities are not entitled to the benefit of any sinking
fund.
The Securities shall be subordinated in right of payment to
Senior Indebtedness as provided in Article Twelve.
The Securities shall be convertible as provided in Article
Thirteen.
The Securities shall be subject to repurchase at the option of
the Holders upon a Change of Control as provided in Article Fourteen.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery And Dating.
The Securities shall be executed on behalf of the Company by
its Chairman of the Board, its Vice Chairman of the Board, its President, its
Executive or Senior Vice President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Chief Financial Officer,
Treasurer, Controller, Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Securities; and the Trustee in
accordance with such Company Order shall authenticate and deliver such
Securities as in this Indenture provided and not otherwise.
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<PAGE> 41
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to
Section 1002, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
For purposes of this Section 304, each Global Security shall
be considered a definitive Security.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and
in any other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the
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<PAGE> 42
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at
an office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate
principal amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any
registration of transfer or exchange of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 906, 1108 or 1402 not
involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption under Section 1104 and ending at the close
of business on the day of such mailing, or (ii) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
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<PAGE> 43
The provisions of Clauses (1), (2), (3), (4) and (5) below
shall apply only to Global Securities:
(1) Each Global Security authenticated under this Indenture
shall be registered in the name of the Depositary designated for such
Global Security or a nominee thereof and delivered to such Depositary
or a nominee thereof or Custodian therefor, and each such Global
Security shall constitute a single Security for all purposes of this
Indenture.
(2) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities
registered, and no transfer of a Global Security in whole or in part
may be registered, in the name of any Person other than the Depositary
for such Global Security or a nominee thereof unless (A) such
Depositary (i) has notified the Company that it is unwilling or unable
to continue as Depositary for such Global Security or (ii) has ceased
to be a clearing agency registered under the Exchange Act, or (B)
there shall have occurred and be continuing an Event of Default with
respect to such Global Security.
(3) Subject to Clause (2) above, any exchange of a Global
Security for other Securities may be made in whole or in part, and all
Securities issued in exchange for a Global Security or any portion
thereof shall be registered in such names as the Depositary for such
Global Security shall direct.
(4) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a
Global Security or any portion thereof, whether pursuant to this
Article Three or otherwise, shall be authenticated and delivered in
the form of, and shall be, a Global Security, unless such Security is
registered in the name of a Person other than the Depositary for such
Global Security or a nominee thereof.
(5) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all
purposes under the Indenture and the Securities, and owners of
beneficial interests in a Global Security shall hold such interests
pursuant to the Applicable Procedures. Accordingly, any such owner's
beneficial interest in a Global Security will be shown only on, and
the transfer of such interest shall be effected only through, records
maintained by the Depositary or its nominee or its Agent Members and
such owners of beneficial interests in a Global Security will not be
considered the owners or holders thereof.
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<PAGE> 44
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a new Security of like tenor and principal amount and bearing
a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.
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<PAGE> 45
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix
a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee 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 so mailed, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to
the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice
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<PAGE> 46
as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
Interest on any Security which is converted in accordance with
Section 1302 during a Record Date Period shall be payable in accordance with
the provisions of Section 1302.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and
premium, if any) and (subject to Section 307) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption,
repurchase, registration of transfer or exchange or conversion shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee
shall be disposed of as directed by a Company Order.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
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<PAGE> 47
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as
to any surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused
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<PAGE> 48
to be deposited with the Trustee as trust funds in trust for the
purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee. All moneys deposited with the Trustee pursuant to Section
401 (and held by it or any Paying Agent) for the payment of Securities
subsequently converted shall be returned to the Company upon Company Request.
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<PAGE> 49
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Twelve or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of the principal or Redemption
Price of any Security at its Maturity; or
(2) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(3) failure by the Company to give the Company Notice in
accordance with Section 1403; or
(4) default in the performance, or breach, of any covenant
or warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default
or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(5) any indebtedness of the Company for money borrowed in an
aggregate outstanding principal amount in excess of $10,000,000,
whether such indebtedness now exists or shall hereafter be created, is
not paid at final maturity (either upon its stated maturity or
acceleration thereof) and such default in payment or acceleration has
not been cured or rescinded, within a period of 30 days after there
shall have been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders
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<PAGE> 50
of at least 25% in aggregate principal amount of the Outstanding
Securities a written notice specifying such default and requiring the
Company to cause such indebtedness to be discharged or cause such
default to be cured or waived or such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default"
hereunder; or
(6) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(7) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect
of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under
any applicable Federal or State law, or the consent by it to the
filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or
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<PAGE> 51
the taking of corporate action by the Company in furtherance of any
such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(6) or 501(7)) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities may declare the principal of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal and all accrued interest thereon shall become immediately due
and payable. If an Event of Default specified in Section 501(6) or 501(7)
occurs and is continuing, the principal and any accrued interest thereon, all
Outstanding Securities shall ipso facto become due and payable without any
declaration or other Act on the part of the Trustee or any Holder.
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 in this Article Five provided, the
Holders of a majority in principal amount of the Outstanding Securities, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become 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 at a rate of [______]%
per annum, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
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<PAGE> 52
and
(2) all Events of Default, other than the nonpayment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission or annulment referred to above shall affect any subsequent
default or Event of Default or impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at a rate
of [______]% per annum, and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company 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.
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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 effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor upon
the Securities or the property of the Company or of such other obligor or the
creditors of either, the Trustee (irrespective of whether the principal of, and
any interest on, the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(1) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect
of the Securities and take such other actions, including participating
as a member, voting or otherwise, of any official committee of
creditors appointed in such matter, and to file such other papers or
documents, in each of the foregoing cases, as may be necessary or
advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders of
Securities allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claim and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder 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 to it for the reasonable compensation,
expenses, disbursements and advances
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of the Trustee, its agents and counsel and any other amounts due the Trustee
under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
of a Security any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security in any such proceeding; provided, however, that the Trustee may, on
behalf of such Holders, vote for the election of a trustee in bankruptcy or
similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 506. Application of Money Collected.
Subject to Article Twelve, any money collected by the Trustee
pursuant to this Article Five shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due
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and payable on such Securities for principal (and premium, if any) and
interest, respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more 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.
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SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to convert such Security in accordance with Article Thirteen and to
institute suit for the enforcement of any such payment and right to convert, and
such rights shall not be impaired without the consent of such Holder.
SECTION 509. 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 such 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.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, 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 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy 105
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accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article Five 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 512. Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such
direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any)
or interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the
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Trustee for any action taken, suffered or omitted by it as Trustee, a court may
require any party litigant in such suit to file an undertaking to pay the costs
of such suit, and may assess costs against any such party litigant, in the
manner and to the extent provided in the Trust Indenture Act; provided that the
provisions of this Section 514 (to the extent permitted by law) shall not apply
to any suit instituted by the Trustee, to any suit instituted by any Holder, or
group of Holders, holding in the aggregate more than ten (10) percent in
principal amount of Outstanding Securities, or to any suit instituted by any
Holder for the enforcement of the payment of the principal of, premium, if any,
or interest on any Security or to any suit for the enforcement of the right to
convert any Security in accordance with the provisions of Article Thirteen or
to require the Company to repurchase any Security in accordance with the
provisions of Article Fourteen.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, usury or
extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and the Company
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the
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statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this Indenture,
but not to verify the contents thereof.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except
that
(1) this paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording
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protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder
as to which the Trustee has received written notice, the Trustee shall give to
all Holders of Securities, in the manner provided in Section 106, notice of
such default, unless such default shall have been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of, premium, if any, or interest on any Security, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors or any Responsible
Officer of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders; and provided, further, that in the
case of any default of the character specified in Section 501(4), no such
notice to Holders of Securities shall be given until at least 30 days after the
occurrence of such default. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
other certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
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Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the
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Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense
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incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of this trust,
including the 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.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
a Person that is eligible pursuant to the Trust Indenture Act to act as such,
having a combined capital and surplus of at least $50,000,000 subject to
supervision by Federal or State Authority and in good standing. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 609, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article and a successor shall be appointed pursuant to Section 610.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 611.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition
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any court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section
609 and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a
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Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Company or the successor Trustee, such retiring Trustee shall, upon payment
of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee (including the trust created by this Indenture),
shall be the successor of the Trustee hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities
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shall have been authenticated, but not delivered, by the Trustee then in
office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, partial
conversion or partial redemption or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
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Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder,
with like effect as if originally named as an Authenticating Agent. No
successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section, and
the Trustee shall be entitled to be reimbursed for such payments, subject to
the provisions of Section 607.
If an appointment is made pursuant to this Section, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the
following form:
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This is one of the Securities described in the
within-mentioned Indenture.
STATE STREET BANK
AND TRUST COMPANY,
As Trustee
By
---------------------------
As Authenticating Agent
By
---------------------------
Authorized Signatory
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished
to the Trustee
(a) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular
Record Date, and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished;
provided that such list need not be furnished by the Company so long as the
Trustee is acting as Security Registrar.
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SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the Securities, and
the corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder, by receiving and holding the Securities,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other reports, and
such summaries thereof, as may be required pursuant to the Trust Indenture Act
at the times and in the manner provided pursuant to such Act; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be
filed with the
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Trustee within 15 days after the same is so required to be filed with the
Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company (a) shall not consolidate with or merge into any
other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person (other than a conveyance, transfer or
lease to a wholly-owned Subsidiary), and (b) shall not permit any Person (other
than a wholly-owned Subsidiary) to merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company,
unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties
and assets of the Company substantially as an entirety shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due
and punctual payment of the principal of (and premium, if any) and
interest on all the Securities and the performance or observance of
every covenant of this Indenture on the part of the Company to be
performed or observed and shall have provided for conversion rights in
accordance with Article Thirteen;
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice
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or lapse of time or both, would become an Event of Default, shall have
happened and be continuing; and
(3) in the case of any transaction identified in clause (a)
of the lead-in to this Section 801, the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating to such
transaction have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety in accordance
with Section 801, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence, pursuant to Article Eight, the succession of
another Person to the Company and the assumption by any such successor
of the covenants and obligations of the Company herein and in the
Securities; or
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(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights
of Holders pursuant to the requirements of Section 1311 or the
repurchase obligations of the Company pursuant to the requirements of
Section 1405; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, 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 (5) shall not materially adversely affect the
interests of the Holders.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the written consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities, by the Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture
or of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent or affirmative vote of the Holder of each Outstanding Security affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or the amounts payable
upon the redemption or repurchase thereof, or change the place of
payment where, or the place or currency in which, any Security or any
premium or interest thereon or any other amount in respect thereof is
payable, or impair the right to institute suit for the enforcement of
any payment in respect of any Security on or after the Stated Maturity
thereof (or, in the case of redemption or
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any repurchase, on or after the Redemption Date or Repurchase Date, as
the case may be), or, except as provided by Section 1311, adversely
affect the right to convert any Security as provided in Article
Thirteen, or modify the provisions of this Indenture with respect to
the subordination of the Securities in a manner adverse to the
Holders, or
(2) reduce the percentage in principal amount of the
Outstanding Securities the consent of whose Holders is required for
any such supplemental indenture or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify the obligation of the Company to maintain an
office or agency in the Borough of Manhattan, The City of New York
pursuant to Section 1002, or
(4) modify any of the provisions of this Section, Section 513
or Section 1009, except to increase any percentage contained herein or
therein or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; or
(5) modify the provisions of Article Fourteen in a manner
adverse to the Holders.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
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SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article Nine, this Indenture shall be modified in accordance therewith, and
such supplemental indenture shall form a part of this Indenture for all
purposes; and every Holder of Securities theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the Trust Indenture Act, as then in
effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article Nine may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice to all Holders of Securities of such fact, setting
forth in general terms the substance of such supplemental indenture, in the
manner provided in Section 106. Any failure of the Company to give such
notice, or any defect therein, shall not in any way impair or affect the
validity of any such supplemental indenture.
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ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company hereby appoints the corporate trust office of
State Street Bank and Trust Company, N.A., an Affiliate of the Trustee, as its
agent in The City of New York where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer
or exchange, where conversion notices, certificates and other items required to
be delivered to effect conversion may be delivered and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served.
The Company hereby also appoints the Corporate Trust Office
of the Trustee as Paying Agent for the payment of principal of and interest
on the Securities and as Conversion Agent for the Conversion of any of the
Securities in accordance with Article Thirteen, and appoints the Corporate
Trust Office of the Trustee as transfer agent where Securities may be
surrendered for registration of transfer or exchange.
The Company may at any time and from time to time vary or
terminate the appointment of any such agent or appoint any additional agents
with or without cause for any or all of such purposes; provided, however,
that until all of the Securities have been delivered to the Trustee for
cancellation, or moneys sufficient to pay the principal of and interest on the
Securities have been made available for payment and either paid or returned to
the Company pursuant to the provisions of Section 1003, the Company will
maintain in the Borough of Manhattan, The City of New York, an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange, where
Securities may be surrendered for conversion and where notices and demands to
or upon the Company, in respect of the Securities and this Indenture may be
served. The Company will give prompt written notice to the Trustee, and will
give notice to Holders of Securities in the manner specified in Section 105,
of the appointment or termination of
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any such agents and of the location and any change in the location of any such
office or agency.
If at any time the Company shall fail to maintain any such
required office or agency, or shall fail to furnish the Trustee with the address
thereof, presentations and surrenders may be made and notices and demands may be
served on and Securities may be surrendered for conversion to the Corporate
Trust Office of the Trustee, and the Company hereby appoints the same as its
agent to receive such respective presentations, surrenders, notices and demands.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall act as its own Paying Agent, it will, on or
before each due date of the principal of, premium, if any, or interest on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and the Company will promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, on or before each due date of the principal of, premium, if any, or
interest on any Securities, deposit with such Paying Agent(s) a sum sufficient
to pay the principal, premium, if any, or interest so becoming due, such sum to
be held for the benefit of the Persons entitled to such principal, premium, if
any, or interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of any failure so to act; provided that if such
deposit is made on such due date, such deposit shall be received by the Paying
Agent(s) by 10:00 a.m. New York City time on such date.
The Company will cause each Paying Agent other than the
Trustee or State Street Bank and Trust Company, N.A., an Affiliate of the
Trustee, to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of, premium, if any, or interest on Securities for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
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(2) give the Trustee notice of any default by the Company
(or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest; and
(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, or interest on any Security and remaining unclaimed for two
years after such principal, premium, if any, or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that in the event
that the Securities are no longer Global Securities, the Trustee or such Paying
Agent, before being required to make any such repayment, may at the expense of
the Company cause to be published once, in a newspaper in the English language,
customarily published on each Business Day and of general circulation in the
Borough of Manhattan, The City of New York, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company, an Officer's Certificate
stating whether or not to the knowledge
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of the signers thereof the Company is in compliance with all conditions and
covenants under the Indenture (without regard to any period of grace or
requirement of notice provided hereunder).
The Company will deliver to the Trustee, forthwith upon
becoming aware of any default or Event of Default under this Indenture, an
Officers' Certificate specifying with particularity such default or Event of
Default and further stating what action the Company has taken, is taking or
proposes to take with respect thereto. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default.
Any notice required to be given under this Section 1004 shall
be delivered to the Trustee at its Corporate Trust Office.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties used or useful in the
conduct of its business to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the operation or
maintenance of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business and not
disadvantageous in any material respect to the Holders.
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SECTION 1007. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all taxes, assessments
and governmental charges levied or imposed upon the Company or upon the income,
profits or property of the Company, (2) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien upon the property of
the Company; provided, however, that the Company shall not 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.
SECTION 1008. Book-Entry System.
If the Securities cease to trade in DTC's book-entry
settlement system, the Company covenants and agrees that it shall use
reasonable efforts to make such other book-entry arrangements that it
determines are reasonable for the Securities.
SECTION 1009. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any covenant or condition set forth in Sections 1005 to 1007, inclusive, if
before the time for such compliance the Holders of not less than a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance
with such covenant or condition, but no such waiver shall extend to or affect
such covenant or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such covenant or condition shall remain
in full force and effect.
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption.
The Securities may be redeemed at the election of the Company,
as a whole or from time to time in part, at any time on or after [ ],
1999, at the Redemption Prices specified in the form of Security hereinbefore
set forth, together with accrued interest to the Redemption Date.
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SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article Eleven.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all the Securities, the
Company shall, at least 30 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities
to be redeemed.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 30 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
portions (equal to $1,000 or any integral multiple thereof) of the principal
amount of Securities of a denomination larger than $1,000.
If any Security selected for partial redemption is converted
in part before termination of the conversion right with respect to the portion
of the Security so selected, the converted portion of such Security shall be
deemed (so far as may be) to be the portion selected for redemption.
Securities which have been converted during a selection of Securities to be
redeemed shall be treated by the Trustee as Outstanding for the purpose of such
selection.
The Trustee shall promptly notify the Company and each
Security Registrar in writing of the Securities selected for redemption and, in
the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the
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redemption of Securities shall relate, in the case of any Securities redeemed
or to be redeemed only in part, to the portion of the principal amount of such
Securities which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 20 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at such Holder's
address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and accrued interest, if any,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption
of any Securities, the principal amounts) of the particular Securities
to be redeemed,
(4) that on the Redemption Date the Redemption Price and
accrued interest, if any, will become due and payable upon each such
Security to be redeemed and that interest thereon will cease to accrue
on and after said date,
(5) the Conversion Rate, the date on which the right to
convert the Securities to be redeemed will terminate and the place or
places where such Securities may be surrendered for conversion, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company, and such
notice, when given to the Holders, shall be irrevocable.
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SECTION 1106. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 1003) an
amount of money (which shall be in immediately available funds on such
Redemption Date) sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest on, all the
Securities which are to be redeemed on that date other than any Securities
called for redemption on that date which have been converted prior to the date
of such deposit; provided that if such deposit is made on the Redemption Date,
such deposit shall be received by the Trustee or Paying Agent, as the case may
be, by 10:00 a.m. New York City time on such date.
If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held
in trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the Redemption Price,
including accrued interest) such Securities shall cease to bear interest. Upon
surrender of any such Security for redemption in accordance with said notice,
such Security shall be paid by the Company at the Redemption Price, together
with accrued interest to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at a rate of ____%
per annum.
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SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be
surrendered at an office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered.
SECTION 1109. Conversion Arrangement on Call for Redemption.
In connection with any redemption of Securities, the Company
may arrange for the purchase and conversion of any Securities by an agreement
with one or more investment bankers or other purchasers to purchase such
Securities by paying to the Trustee in trust for the Holders, on or before the
Redemption Date, an amount not less than the applicable Redemption Price,
together with interest accrued to the Redemption Date, of such Securities.
Notwithstanding anything to the contrary contained in this Article Eleven, the
obligation of the Company to pay the Redemption Price, together with interest
accrued to the Redemption Date, shall be deemed to be satisfied and discharged
to the extent such amount is so paid by such purchasers. If such an agreement
is entered into (a copy of which shall be filed with the Trustee prior to the
Redemption Date), 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, and consistent with any agreement or agreements with
such purchasers, acquired by such purchasers from such Holders and
(notwithstanding anything to the contrary contained in Article Thirteen)
surrendered by such purchasers for conversion, all as of immediately prior to
the close of business on the Redemption Date (and the right to convert any such
Securities shall be extended through such time), subject to payment of the
above amount as aforesaid. At the direction of the Company, the Trustee shall
hold and dispose of any such amount paid to it in the same manner as it would
monies deposited with it by the Company for the redemption of Securities.
Without the Trustee's prior written consent, no arrangement between the Company
and such purchasers for the purchase and conversion of any Securities shall
increase or otherwise affect any of the powers, duties,
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responsibilities or obligations of the Trustee as set forth in this Indenture,
and the Company agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising out of or in connection with
any such arrangement for the purchase and conversion of any Securities between
the Company and such purchasers to which the Trustee has not consented in
writing, including the costs and expenses, including reasonable legal fees,
incurred by the Trustee in the defense of any claim or liability arising out of
or in connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a
Security, by his acceptance thereof, likewise covenants and agrees, that, to
the extent and in the manner hereinafter set forth in this Article Twelve
(subject to the provisions of Article Four), the indebtedness represented by
the Securities and the payment of the principal of (and premium, if any) and
interest on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness. Whenever in this Article Twelve there is a reference, in
any context, to the principal of any Security as of any time, such reference
shall be deemed to include reference to the Repurchase Price payable in cash in
respect of such Security to the extent that such Repurchase Price or Redemption
Price payable in cash is, was or would be so payable at such time, and express
mention of the Repurchase Price and the Redemption Price in any provision of
this Article Twelve shall not be construed as excluding the Repurchase Price
payable in cash in those provisions of this Article Twelve when such express
mention is not made.
SECTION 1202. No Payments in Certain Circumstances; Payment Over of Proceeds
Upon Dissolution, Etc.
No payment on account of principal of, premium, if any, or
interest on, or redemption or repurchase of, the Securities shall be made if,
at the time of such payment or immediately after giving effect thereto: (i) a
default in the payment of principal, premium, if any, or interest or other
amounts due on any Senior Indebtedness occurs and is
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continuing (or, in the case of Senior Indebtedness for which there is a period
of grace, in the event of such a default that continues beyond the period of
grace specified in the instrument or lease evidencing such Senior
Indebtedness), unless and until such default shall have been cured or waived or
shall have ceased to exist; or (ii) a default, other than a payment default, on
any Designated Senior Indebtedness occurs and is continuing that then permits
holders of such Designated Senior Indebtedness to accelerate the maturity
thereof and the Trustee receives a notice of the default (a "Payment Blockage
Notice") from a Person who may give it pursuant to Section 1210 hereof.
Notwithstanding the foregoing, the Company may make, and the Trustee may
receive and shall apply, any payment in respect of the Securities (for
principal, premium, if any, or interest or repurchase) if such payment was made
prior to the occurrence of any of the contingencies specified in clauses (i)
and (ii) above.
If the Trustee receives any Payment Blockage Notice pursuant
to clause (ii) above, no subsequent Payment Blockage Notice shall be effective
for purposes of this Section unless and until (A) at least 365 days shall have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice, and (B) all scheduled payments of principal, premium, if any, and
interest on the Securities that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for
a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions
in respect of the Securities upon the earlier of: (i) in the case of a payment
default, the date upon which the default is cured or waived, or (ii) in the
case of a nonpayment default, the earlier of the date on which such default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (b) any liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (c) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of the
Company, then and in any such event the holders of Senior Indebtedness shall be
entitled to receive payment in full of all amounts due or to become due on or
in respect of all Senior Indebtedness in cash or other immediately available
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funds, or provision shall be made for such payment in cash or other immediately
available funds or otherwise in a manner satisfactory to each holder of Senior
Indebtedness with respect to its indebtedness, before the Holders of the
Securities are entitled to receive any payment on account of principal of (or
premium, if any) or interest on the Securities, and to that end the holders of
Senior Indebtedness shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, which may be payable or deliverable in respect
of the Securities in any such case, proceeding, dissolution, liquidation or
other winding up or event.
In the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Indebtedness
is paid in full or payment thereof provided for, and if such fact shall, at or
prior to the time of such payment or distribution, have been made known to the
Trustee or, as the case may be, such Holder, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of the Company
for application to the payment of all Senior Indebtedness remaining unpaid, to
the extent necessary to pay all Senior Indebtedness in full, after giving
effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.
For purposes of this Article only, the words "cash, securities
or other property" shall not be deemed to include shares of stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which
shares of stock are subordinated in right of payment to all then outstanding
Senior Indebtedness to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article Twelve.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance or transfer of its properties and assets substantially as an
entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of
assets and liabilities of the Company for the purposes of this Section if the
Person formed
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by such consolidation or into which the Company is merged or which acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in Article Eight.
SECTION 1203. Prior Payment to Senior Indebtedness Upon Acceleration of
Securities.
In the event that any Securities are declared due and payable
before their Stated Maturity, then and in such event the holders of the Senior
Indebtedness outstanding at the time such Securities so become due and payable
shall be entitled to receive payment in full of all amounts due or to become
due on or in respect of such Senior Indebtedness, or provision shall be made
for such payment in money or money's worth, before the Holders of the
Securities are entitled to receive any payment by the Company on account of the
principal of (or premium, if any) or interest on the Securities or on account
of the purchase or other acquisition of Securities.
In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any Security prohibited
by the foregoing provisions of this Section, and if such fact shall, at or
prior to the time of such payment, have been made known to the Trustee or, as
the case may be, such Holder, then and in such event such payment shall be paid
over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment
with respect to which Section 1202 would be applicable.
SECTION 1204. Reserved.
[Reserved]
SECTION 1205. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this
Indenture or in any of the Securities shall prevent (a) the Company, at any
time except during the pendency of any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of creditors or
other marshalling of assets and liabilities of the Company referred to in
Section 1202 or under the conditions described in
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Section 1203, from making payments at any time of principal of (and premium, if
any) or interest on the Securities, or (b) the application by the Trustee of
any money deposited with it hereunder to the payment of or on account of the
principal of (and premium, if any) or interest on the Securities or the
retention of such payment by the Holders, if, at the time of such application
by the Trustee, it did not have knowledge that such payment would have been
prohibited by the provisions of this Article.
SECTION 1206. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the
Holders of the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness pursuant to the
provisions of this Article to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of
the Senior Indebtedness of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Company, its creditors other than holders
of Senior Indebtedness and the Holders of the Securities, be deemed to be a
payment or distribution by the Company to or on account of the Senior
Indebtedness.
SECTION 1207. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the Holders of the Securities on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities
is intended to or shall (a) impair, as among the Company, its creditors other
than holders of Senior Indebtedness and the Holders of the Securities, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders of the Securities the principal of (and premium, if any) and interest
on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the
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Holders of the Securities and creditors of the Company other than the holders
of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 1208. Trustee to Effectuate Subordination.
Each holder of a Security by his acceptance thereof authorizes
and directs the Trustee on his behalf to take such action as may be necessary
or appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1209. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder
of any Senior Indebtedness, or by any non-compliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
or the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement
under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (iii) release any Person liable in any manner for the
collection of Senior Indebtedness; and (iv) exercise or refrain from exercising
any rights against the Company and any other Person.
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SECTION 1210. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit
the making of any payment to or by the Trustee in respect of the Securities,
unless and until the Trustee shall have received written notice thereof from
the Company or a holder of Senior Indebtedness or from any trustee therefor;
and, prior to the receipt of any such written notice, the Trustee, subject to
the provisions of Section 601, shall be entitled in all respects to assume that
no such facts exist; provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least two Business Days
prior to the date upon which by the terms hereof any money may become payable
for any purpose (including, without limitation, the payment of the principal of
(and premium, if any) or interest on any Security), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power
and authority to receive such money and to apply the same to the purpose for
which such money was received and shall not be affected by any notice to the
contrary which may be received by it within two Business Days prior to such
date.
Notwithstanding anything in this Article Twelve to the
contrary, nothing shall prevent any payment by the Trustee to the Holders of
monies deposited with it pursuant to Section 401, and any such payment shall
not be subject to the provisions of Section 1202 or 1203.
Subject to the provisions of Section 601, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of
any Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial
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determination as to the right of such Person to receive such payment.
SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee, subject to the provisions of Section
601, and the Holders of the Securities shall be entitled to rely upon any order
or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior 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.
SECTION 1212. Trustee Not Fiduciary for 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
if it shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other Person cash, property or
securities to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article or otherwise.
SECTION 1213. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Senior
Indebtedness which may at any time be held by it, to the same extent as any
other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 607.
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SECTION 1214. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying
Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; provided, however, that Section 1213 shall not apply to the Company or
any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
SECTION 1215. Certain Conversions Deemed Payment.
For the purposes of this Article only, (1) the issuance and
delivery of junior securities upon conversion of Securities in accordance with
Article Thirteen or upon the repurchase of Securities in accordance with
Article Fourteen shall not be deemed to constitute a payment or distribution on
account of the principal of or premium or interest on Securities or on account
of the purchase or other acquisition of Securities, and (2) the payment,
issuance or delivery of cash, property or securities (other than junior
securities) upon conversion of a Security shall be deemed to constitute payment
on account of the principal of such Security. For the purposes of this
Section, the term "junior securities" means (a) shares of any stock of any
class of the Company and any cash, securities or other property into which the
Securities are convertible pursuant to Article Thirteen and (b) securities of
the Company which are subordinated in right of payment to all Senior
Indebtedness which may be outstanding at the time of issuance or delivery of
such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities
is intended to or shall impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article Thirteen or to exchange such Security
for Common Stock in accordance with Article Fourteen if the Company elects to
satisfy its obligation under Article Fourteen by the delivery of Common Stock.
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ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Privilege and Conversion Rate.
Subject to and upon compliance with the provisions of this
Article Thirteen, at the option of the Holder thereof, any Security may be
converted at any time into fully paid and nonassessable shares (calculated as
to each conversion to the nearest 1/100th of a share) of Common Stock of the
Company at the Conversion Rate, determined as hereinafter provided, in effect
at the time of conversion. Such conversion right shall expire at the close of
business on [ ], 2001, subject, in the case of conversion of any Global
Security, to any Applicable Procedures. In case a Security or portion thereof
is called for redemption at the election of the Company or the Holder thereof
exercises his right to require the Company to repurchase a Security or portion
thereof, such conversion right in respect of such Security, shall expire (a) at
the close of business on the Business Day immediately preceding the Redemption
Date, in the case of a Security called for redemption, and (b) at the close of
business on the Repurchase Date, in the case of a Security tendered for
repurchase, in each case unless the Company defaults in making the payment due
upon redemption or repurchase, as the case may be, and in each case subject as
aforesaid to any Applicable Procedures with respect to any Global Security.
The rate at which shares of Common Stock shall be delivered
upon conversion (herein called the "Conversion Rate") shall be initially [ ]
shares of Common Stock for each $1,000 principal amount of Securities. The
Conversion Rate shall be adjusted in certain instances as provided in this
Article Thirteen.
SECTION 1302. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of
any Security to be converted shall surrender such Security, duly endorsed or
assigned to the Company or in blank, at any office or agency of the Company
maintained for that purpose pursuant to Section 1002, accompanied by a duly
signed conversion notice substantially in the form set forth in Section 205
stating that the Holder elects to convert such Security or, if less than the
entire principal amount thereof is to be converted the portion thereof to be
converted. Each Security surrendered for conversion (in whole or in part)
during the Record Date Period shall (except in the case of any Security or
portion thereof which has been called for redemption
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on a Redemption Date, or which is repurchasable on a Repurchase Date,
occurring, in either case, within such Record Date Period (including any
Securities or portions thereof called for redemption on a Redemption Date that
is a Regular Record Date or an Interest Payment Date, as the case may be)) be
accompanied by payment in New York Clearing House funds or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of such Security (or part
thereof, as the case may be) being surrendered for conversion. The interest so
payable on such Interest Payment Date with respect to any Security (or portion
thereof, if applicable) which has been called for redemption on a Redemption
Date, or is repurchasable on a Repurchase Date, occurring, in either case,
during the Record Date Period, which Security (or portion thereof, if
applicable) is surrendered for conversion during such Record Date Period (or on
the last Business Day prior to the Regular Record Date or Interest Payment Date
in the case of any Security (or portion thereof, as the case may be) called for
redemption on such Regular Record Date or Interest Payment Date, as the case
may be), shall be paid to the Holder of such Security being converted in an
amount equal to the interest that would have been payable on such Security if
such Security had been converted as of the close of business on such Interest
Payment Date. The interest so payable on such Interest Payment Date in respect
of any Security (or portion thereof, as the case may be) which has not been
called for redemption on a Redemption Date, or is not eligible for repurchase
on a Repurchase Date, occurring, in either case, during the Record Date Period,
which Security (or portion thereof, as the case may be) is surrendered for
conversion during such Record Date Period, shall be paid to the Holder of such
Security as of such Regular Record Date. Interest payable in respect of any
Security surrendered for conversion on or after a Regular Record Date and prior
to an Interest Payment Date shall be paid to the Holder of such Security as of
the next preceding Regular Record Date, notwithstanding the exercise of the
right of conversion. Except as provided in this paragraph and subject to the
last paragraph of Section 307, no cash payment or adjustment shall be made upon
any conversion on account of any interest accrued from the Interest Payment
Date next preceding the conversion date, in respect of any Security (or part
thereof, as the case may be) surrendered for conversion, or on account of any
dividends on the Common Stock issued upon conversion. The Company's delivery
to the Holder of the number of shares of Common Stock (and cash in lieu of
fractions thereof, as provided in this Indenture) into which a Security is
convertible will be deemed to satisfy the Company's obligation to pay the
principal amount of the Security.
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Securities shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of such Securities for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such Securities as Holders shall cease, and the Person
or Persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common
Stock at such time. As promptly as practicable on or after the conversion
date, the Company shall issue and deliver to the Trustee, for delivery to the
Holder, a certificate or certificates for the number of full shares of Common
Stock issuable upon conversion, together with payment in lieu of any fraction
of a share, as provided in Section 1303.
In the case of any Security which is converted in part only,
upon such conversion the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the Company,
a new Security or Securities of authorized denominations in an aggregate
principal amount equal to the unconverted portion of the principal amount of
such Security. A Security may be converted in part, but only if the principal
amount of such Security to be converted is any integral multiple of $1,000 and
the principal amount of such security to remain Outstanding after such
conversion is equal to $1,000 or any integral multiple of $1,000 in excess
thereof.
SECTION 1303. Fractions of Shares.
No fractional shares of Common Stock shall be issued upon
conversion of any Security or Securities. If more than one Security shall be
surrendered for conversion at one time by the same Holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities (or specified
portions thereof) so surrendered. Instead of any fractional share of Common
Stock which would otherwise be issuable upon conversion of any Security or
Securities (or specified portions thereof), the Company shall calculate and pay
a cash adjustment in respect of such fraction (calculated to the nearest
1/100th of a share) in an amount equal to the same fraction of the Closing
Price Per Share at the close of business on the day of conversion.
SECTION 1304. Adjustment of Conversion Rate.
The Conversion Rate shall be subject to adjustments from time
to time as follows:
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(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in shares of
Common Stock, the Conversion Rate in effect at the opening of business on the
day following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the opening
of business on the day following the date fixed for such determination. For
the purposes of this paragraph (1), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of shares of Common Stock. The Company will not pay any
dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(2) In case the Company shall issue rights, options or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share (determined as provided in paragraph (8) of this Section
1304) of the Common Stock on the date fixed for the determination of
shareholders entitled to receive such rights, options or warrants, the
Conversion Rate in effect at the opening of business on the day following the
date fixed for such determination shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock
so offered for subscription or purchase would purchase at such current market
price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase, such increase to become effective immediately after the opening of
business on the day following the date fixed for such determination. For the
purposes of this paragraph (2), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of shares of Common Stock. The Company will not issue any
rights, options
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or warrants in respect of shares of Common Stock held in the treasury of the
Company.
(3) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Rate
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase
or reduction, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(4) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness,
shares of any class of capital stock, or other property (including securities,
but excluding (i) any rights, options or warrants referred to in paragraph (2)
of this Section, (ii) any dividend or distribution paid exclusively in cash,
(iii) any dividend or distribution referred to in paragraph (1) of this Section
and (iv) any merger or consolidation to which Section 1411 applies), the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior to the
close of business on the date fixed for the determination of shareholders
entitled to receive such distribution by a fraction of which the numerator
shall be the current market price per share (determined as provided in
paragraph (8) of this Section 1304) of the Common Stock on the date fixed for
such determination (the "Reference Date") less the then fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution filed with the Trustee) on the Reference
Date of the portion of the assets, shares or evidences of indebtedness so
distributed applicable to one share of Common Stock and the denominator shall
be the current market price per share of the Common Stock on the Reference
Date, such adjustment to become effective immediately prior to the opening of
business on the day following the Reference Date. If after the Distribution
Date (the "Distribution Date"), as defined in the Preferred Shares Rights
Agreement, dated as of August 16, 1994, between the Company and Chemical Trust
Company of California as in effect on the date hereof (the "Rights Agreement"),
converting Holders of the Securities are not entitled to receive the Rights, as
defined in the Rights Agreement, which would otherwise be attributable (but
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for the date of conversion) to the shares of Common Stock received upon such
conversion, then adjustment of the Conversion Rate shall be made under this
paragraph, except the Distribution Date with respect to such Rights shall be
substituted as the "Reference Date". If such an adjustment is made and the
Rights are later redeemed, invalidated or terminated, then a corresponding
reversing adjustment shall be made to the Conversion Rate, on an equitable
basis, to take account of such event. However, it is hereby agreed that the
Company may elect to amend the provisions presently applicable to the Rights so
that each share of Common Stock issuable upon conversion of the Securities,
whether or not issued after the Distribution Date for such Rights, will be
accompanied by the Rights which would otherwise be attributable (but for the
date of conversion) to such shares of Common Stock, in which event the
preceding two sentences will not apply. The foregoing provisions shall also be
applicable to any other similar rights plan of the Company. In any case in
which this paragraph (4) is applicable, paragraph (2) of this Section shall not
be applicable.
(5) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash that is
distributed as part of a distribution referred to in paragraph (4) of this
Section) in an aggregate amount that, combined together with (I) the aggregate
amount of any other cash distributions to all holders of its Common Stock made
exclusively in cash within the 12 months preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to this paragraph
(5) has been made and (II) the aggregate of any cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) of consideration payable in
respect of any tender offer by the Company or any of its subsidiaries for all
or any portion of the Common Stock concluded within the 12 months preceding the
date of payment of such distribution and in respect of which no adjustment
pursuant to paragraph (6) of this Section 1304 has been made (the "combined
cash and tender amount") exceeds 10% of the product of the current market price
per share (determined as provided in paragraph (8) of this Section 1304) of the
Common Stock on the date for the determination of holders of shares of Common
Stock entitled to receive such distribution times the number of shares of
Common Stock outstanding on such date (the "aggregate current market price"),
then, and in each such case, immediately after the close of business on such
date for determination, the Conversion Rate shall be adjusted so that the same
shall equal the rate determined by dividing the Conversion Rate in effect
immediately prior to the close of business on the date fixed for determination
of the
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shareholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section) of the Common Stock
on the date fixed for such determination less an amount equal to the quotient
of (x) the excess of such combined cash and tender amount over such aggregate
current market price divided by (y) the number of shares of Common Stock
outstanding on such date for determination and (ii) the denominator of which
shall be equal to the current market price per share (determined as provided in
paragraph (8) of this Section 1304) of the Common Stock on such date for
determination.
(6) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall expire and such
tender offer or exchange (as amended upon the expiration thereof) shall require
the payment to shareholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares (as defined
below)) of an aggregate consideration having a fair market value (as determined
by the Board of Directors, whose determination shall be conclusive and
described in a Board Resolution) that combined together with (I) the aggregate
of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer by the
Company or any Subsidiary for all or any portion of the Common Stock expiring
within the 12 months preceding the expiration of such tender or exchange offer
and in respect of which no adjustment pursuant to this paragraph (6) has been
made and (II) the aggregate amount of any cash distributions to all holders of
the Company's Common Stock within 12 months preceding the expiration of such
tender or exchange offer and in respect of which no adjustment pursuant to
paragraph (5) of this Section has been made (the "combined tender and cash
amount") exceeds 10% of the product of the current market price per share of
the Common Stock (determined as provided in paragraph (8) of this Section 1304)
as of the last time (the "Expiration Time") tenders or exchanges could have
been made pursuant to such tender or exchange offer (as it may be amended)
times the number of shares of Common Stock outstanding (including any tendered
or exchanged shares) as of the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the day after the date of the
Expiration Time, the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Conversion Rate immediately prior to
close of business on the date of the Expiration Time by a fraction (i) the
numerator of which shall be equal to (A) the product of (I) the current
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market price per share of the Common Stock (determined as provided in paragraph
(8) of this Section 1304) on the date of the Expiration Time multiplied by (II)
the number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the Expiration Time less (B) the combined tender and cash
amount, and (ii) the denominator of which shall be equal to the product of (A)
the current market price per share of the Common Stock (determined as provided
in paragraph (8) of this Section 1304) as of the Expiration Time multiplied by
(B) the number of shares of Common Stock outstanding (including any tendered or
exchanged shares) as of the Expiration Time less the number of all shares
validly tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted up to any such maximum, being referred to as the
"Purchased Shares").
(7) The reclassification of Common Stock into securities
other than Common Stock (other than any reclassification upon a consolidation
or merger to which Section 1311 applies) shall be deemed to involve (a) a
distribution of such securities other than Common Stock to all holders of
Common Stock (and the effective date of such reclassification shall be deemed
to be "the date fixed for the determination of shareholders entitled to receive
such distribution" and "the date fixed for such determination" within the
meaning of paragraph (4) of this Section), and (b) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of
shares of Common Stock outstanding immediately thereafter (and the effective
date of such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such combination becomes
effective", as the case may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning of paragraph (3) of this
Section 1304).
(8) For the purpose of any computation under paragraphs (2),
(4), (5) or (6) of this Section 1304, the current market price per share of
Common Stock on any date shall be calculated by the Company and be deemed to be
the average of the daily Closing Prices Per Share for the five consecutive
Trading Days selected by the Company commencing not more than 10 Trading Days
before, and ending not later than, the earlier of the day in question and the
day before the "ex" date with respect to the issuance or distribution requiring
such computation. For purposes of this paragraph, the term "'ex' date", when
used with respect to any issuance or distribution, means the first date on
which the Common Stock trades regular way in the applicable securities market
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or on the applicable securities exchange without the right to receive such
issuance or distribution.
(9) No adjustment in the Conversion Rate shall be required
unless such adjustment (plus any adjustments not previously made by reason of
this paragraph (9)) would require an increase or decrease of at least one
percent in such rate; provided, however, that any adjustments which by reason
of this paragraph (9) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Article shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(10) The Company may make such increases in the Conversion
Rate, for the remaining term of the Securities or any shorter term, in addition
to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section
1304, as it considers to be advisable in order to avoid or diminish any income
tax to any holders of shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
The Company shall have the power to resolve any ambiguity or correct any error
in this paragraph (10) and its actions in so doing shall, absent manifest
error, be final and conclusive.
(11) To the extent permitted by applicable law, the Company
from time to time may increase the Conversion Rate by any amount for any period
of time if the period is at least twenty (20) days, the reduction is
irrevocable during such period, and the Board of Directors shall have made a
determination that such reduction would be in the best interests of the
Company, which determination shall be conclusive; provided, however, that no
such reduction shall be taken into account for purposes of determining whether
the Closing Price Per Share of the Common Stock exceeds the Conversion Price by
105% in connection with an event which would otherwise be a Change of Control
pursuant to Section 1404. Whenever the Conversion Price is reduced pursuant to
the preceding sentence, the Company shall give notice of the reduction to the
Holders in the manner provided in Section 106 at least fifteen (15) days prior
to the date the increased Conversion Rate takes effect, and such notice shall
state the increased Conversion Rate and the period during which it will be in
effect.
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SECTION 1305. Notice of Adjustments of Conversion Rate.
Whenever the Conversion Rate is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Rate in
accordance with Section 1304 and shall prepare a certificate signed by
the principal accounting or financial officer of the Company setting
forth the adjusted Conversion Rate and showing in reasonable detail
the facts upon which such adjustment is based, and such certificate
shall promptly be filed with the Trustee and with each Conversion
Agent; and
(2) a notice stating that the Conversion Rate has been
adjusted and setting forth the adjusted Conversion Rate shall
forthwith be prepared, and as soon as practicable after it is
prepared, such notice shall be provided by the Company to all Holders
in accordance with Section 106.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours.
SECTION 1306. Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that
would require any adjustment pursuant to Section 1304; or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights, options or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(c) of any reclassification of the Common Stock of the
Company, or of any consolidation, merger or share exchange to which
the Company is a party and for which approval of any stockholders of
the Company is required, or of the conveyance,
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sale, transfer or lease of all or substantially all of the assets of the
Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender
offer for all or a portion of the Company's outstanding shares of
Common Stock (or shall amend any such tender offer);
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Securities pursuant to Section 1002, and shall
cause to be provided to all Holders in accordance with Section 106, at least 15
days (or 10 days in any case specified in clause (a) or (b) above) prior to the
applicable record, expiration or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights, options or warrants, or, if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, options or warrants are to be
determined, (y) the date on which the right to make tenders under such tender
offer expires or (z) the date on which such reclassification, consolidation,
merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, conveyance, transfer, sale,
lease, dissolution, liquidation or winding up. Neither the failure to give
such notice or the notice referred to in the following paragraph nor any defect
therein shall affect the legality or validity of the proceedings described in
clauses (a) through (e) of this Section 1306. If at the time the Trustee shall
not be a Conversion Agent, a copy of such notice shall also forthwith be filed
by the Company with the Trustee.
The preceding paragraph to the contrary notwithstanding, the
Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of Securities pursuant to Section 1002, and shall cause
to be provided to all Holders in accordance with Section 106, notice of any
tender offer by the Company or any Subsidiary for all or any portion of the
Common Stock at or about the time that such notice of tender offer is provided
to the public generally.
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SECTION 1307. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purpose of effecting the conversion of Securities, the full number of
shares of Common Stock then issuable upon the conversion of all Outstanding
Securities.
SECTION 1308. Taxes on Conversions.
Except as provided in the next sentence, the Company will pay
any and all taxes and duties that may be payable in respect of the issue or
delivery of shares of Common Stock on conversion of Securities pursuant hereto.
The Company shall not, however, be required to pay any tax or duty which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that of the Holder of the Security or
Securities to be converted, and no such issue or delivery shall be made unless
and until the Person requesting such issue has paid to the Company the amount
of any such tax or duty, or has established to the satisfaction of the Company
that such tax or duty has been paid.
SECTION 1309. Covenant as to Common Stock.
The Company agrees that all shares of Common Stock which may
be delivered upon conversion of Securities, upon such delivery, will have been
duly authorized and validly issued and will be fully paid and nonassessable
and, except as provided in Section 1308, the Company will pay all taxes, liens
and charges with respect to the issue thereof.
SECTION 1310. Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to
the Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1311. Provision in Case of Consolidation, Merger or Sale of Assets.
In case of any consolidation or merger of the Company with or
into any other Person, any merger of another Person with or into the Company
(other than a merger which
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does not result in any reclassification, conversion, exchange or cancellation
of outstanding shares of Common Stock of the Company) or any conveyance, sale,
transfer or lease of all or substantially all of the assets of the Company, the
Person formed by such consolidation or resulting from such merger or which
acquires such assets, as the case may be, shall execute and deliver to the
Trustee a supplemental indenture providing that the Holder of each Security
then Outstanding shall have the right thereafter, during the period such
Security shall be convertible as specified in Section 1301, to convert such
Security only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, sale, transfer or lease
by a holder of the number of shares of Common Stock of the Company into which
such Security might have been converted immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease, assuming such
holder of Common Stock of the Company (i) is not a Person with which the
Company consolidated or merged with or into or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be ("Constituent Person"), or an Affiliate of a Constituent Person and
(ii) failed to exercise his rights of election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer, or lease is not the same for
each share of Common Stock of the Company held immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 1311 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of each Non-electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-electing
Shares). Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall
be as nearly equivalent as may be practicable to the adjustments provided for
in this Article. The above provisions of this Section 1311 shall similarly
apply to successive consolidations, mergers, conveyances, sales, transfers or
leases. Notice of the execution of such a supplemental indenture shall be
given by the Company to the Holder of each Security as provided in Section 106
promptly upon such execution.
Neither the Trustee, any Paying Agent nor any Conversion Agent
shall be under any responsibility to
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determine the correctness of any provisions contained in any such supplemental
indenture relating either to the kind or amount of shares of stock or other
securities or property or cash receivable by Holders of Securities upon the
conversion of their Securities after any such consolidation, merger,
conveyance, transfer, sale or lease or to any such adjustment, but may accept
as conclusive evidence of the correctness of any such provisions, and shall be
protected in relying upon, an Opinion of Counsel with respect thereto, which
the Company shall cause to be furnished to the Trustee upon request.
For purposes of preventing duplicative adjustments, if and to
the extent Section 1311 applies to any event or occurrence, Section 1304 shall
not apply.
SECTION 1312. Responsibility of Trustee for Conversion Provisions.
The Trustee, subject to the provisions of Section 601, and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Rate, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in making the
same, or whether a supplemental indenture need be entered into. Neither the
Trustee, subject to the provisions of Section 601, nor any Conversion Agent
shall be accountable with respect to the validity or value (or the kind or
amount) of any Common Stock, or of any other securities or property or cash,
which may at any time be issued or delivered upon the conversion of any
Security; and it or they do not make any representation with respect thereto.
Neither the Trustee, subject to the provisions of Section 601, nor any
Conversion Agent shall be responsible for any failure of the Company to make or
calculate any cash payment or to issue, transfer or deliver any shares of
Common Stock or share certificates or other securities or property or cash upon
the surrender of any Security for the purpose of conversion; and the Trustee,
subject to the provisions of Section 601, and any Conversion Agent shall not be
responsible for any failure of the Company to comply with any of the covenants
of the Company contained in this Article.
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ARTICLE FOURTEEN
Repurchase Of Securities At The Option Of The
Holder Upon A Change Of Control
SECTION 1401. Right to Require Repurchase.
In the event that a Change of Control (as hereinafter defined)
shall occur, then each Holder shall have the right, at the Holder's option, but
subject to the provisions of Section 1402, to require the Company to
repurchase, and upon the exercise of such right the Company shall repurchase,
all of such Holder's Securities, or any portion of the principal amount thereof
that is equal to $1,000 or any integral multiple of $1,000 in excess thereof,
on the date (the "Repurchase Date") that is 45 days after the date of the
Company Notice (as defined in Section 1403) at a purchase price equal to 100%
of the principal amount of the Securities to be repurchased plus interest
accrued to the Repurchase Date (the "Repurchase Price"); provided, however,
that installments of interest on Securities whose Stated Maturity is on or
prior to the Repurchase Date shall be payable in cash to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Regular Record Date according to their terms
and the provisions of Section 307. Such right to require the repurchase of the
Securities shall not continue after a discharge of the Company from its
obligations with respect to the Securities in accordance with Article Four,
unless a Change of Control shall have occurred prior to such discharge. At the
option of the Company, the Repurchase Price may be paid in cash or, subject to
the fulfillment by the Company of the conditions set forth Section 1402, by
delivery of shares of Common Stock having a fair market value equal to the
Repurchase Price. Whenever in this Indenture (including Sections 202, 301,
501(2) and 508) there is a reference, in any context, to the principal of any
Security as of any time, such reference shall be deemed to include reference to
the Repurchase Price payable in respect of such Security to the extent that
such Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Indenture shall not be
construed as excluding the Repurchase Price in those provisions of this
Indenture when such express mention is not made; provided, however, that for
the purposes of Article Twelve such reference shall be deemed to include
reference to the Repurchase Price only to the extent the Repurchase Price is
payable in cash.
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SECTION 1402. Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock.
The Company may elect to pay the Repurchase Price by
delivery of shares of Common Stock pursuant to Section 1401 if and only if the
following conditions shall have been satisfied:
(a) The shares of Common Stock deliverable in payment of
the Repurchase Price shall have a fair market value as of the Repurchase Date
of not less than the Repurchase Price. For purposes of this Section 1402, the
fair market value of shares of Common Stock shall be determined by the Company
and shall be equal to 95% of the average of the Closing Prices Per Share for
the five consecutive Trading Days ending on and including the third Trading Day
immediately preceding the Repurchase Date;
(b) The shares of Common Stock deliverable in payment of
the Repurchase Price are, or shall have been, approved for quotation on the
Nasdaq National Market or are, or shall have been, listed on a national
securities exchange, in either case, prior to the Repurchase Date; and
(c) All shares of Common Stock deliverable in payment of
the Repurchase Price shall be issued out of the Company's authorized but
unissued Common Stock and, will upon issue, be duly and validly issued and
fully paid and nonassessable and free of any preemptive rights.
If all of the conditions set forth in this Section 1402 are
not satisfied in accordance with the terms thereof, the Repurchase Price shall
be paid by the Company only in cash.
SECTION 1403. Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for
redemption all of the Outstanding Securities, on or before the 30th day after
the occurrence of a Change of Control, the Company or, at the request and
expense of the Company on or before the 15th day after such occurrence, the
Trustee, shall give to all Holders, in the manner provided in Section 106,
notice (the "Company Notice") of the occurrence of the Change of Control and of
the repurchase right set forth herein arising as a result thereof. The Company
shall also deliver a copy of such notice of a repurchase right to the Trustee.
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Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price, and whether the Repurchase Price
shall be paid by the Company in cash or by delivery of shares of
Common Stock,
(4) a description of the procedure which a Holder must follow
to exercise a repurchase right, and the place or places where such
Securities are to be surrendered for payment of the Repurchase Price
and accrued interest, if any,
(5) that on the Repurchase Date the Repurchase Price, and
accrued interest, if any, will become due and payable upon each such
Security designated by the Holder to be repurchased, and that interest
thereon shall cease to accrue on and after said date, and
(6) the Conversion Rate then in effect, the date on which the
right to convert the principal amount of the Securities to be
repurchased will terminate and the place or places where such
Securities may be surrendered for conversion.
No failure of the Company to give the foregoing notices or
defect therein shall limit any Holder's right to exercise a repurchase right or
affect the validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this
Article Fourteen are inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall
deliver to the Trustee or any Paying Agent on or before the 30th day after the
date of the Company Notice (i) written notice of the Holder's exercise of such
right, which notice shall set forth the name of the Holder, the principal
amount of the Securities to be repurchased (and, if any Security is to
repurchased in part, the portion of the principal amount thereof to be
repurchased and the name of the Person in which the portion thereof to remain
Outstanding after such repurchase is to be registered) and a statement that an
election to exercise the repurchase right is being made thereby, and, in the
event that the Repurchase Price shall be paid in shares of Common Stock, the
name or names (with
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addresses) in which the certificate or certificates for shares of Common Stock
shall be issued, and (ii) the Securities with respect to which the repurchase
right is being exercised. Such written notice shall be irrevocable, except
that the right of the Holder to convert the Securities with respect to which
the repurchase right is being exercised shall continue until the close of
business on the Repurchase Date.
(c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to be paid to
the Trustee or the Paying Agent the Repurchase Price in cash or shares of
Common Stock, as provided above, for payment to the Holder on the Repurchase
Date or, if shares of Common Stock are to be paid, as promptly after the
Repurchase Date as practicable, together with accrued and unpaid interest to
the Repurchase Date payable with respect to the Securities as to which the
purchase right has been exercised; provided, however, that installments of
interest on Securities whose Stated Maturity is on or prior to the Repurchase
Date shall be payable in cash to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Regular Record Date according to the terms and provisions of Section
307.
(d) If any Security (or portion thereof) surrendered for
repurchase shall not be so paid on the Repurchase Date, the principal amount of
such Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
the rate of [ ] per annum, and each Security shall remain convertible into
Common Stock until the principal of such Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
(e) Any Security which is to be repurchased only in part
shall be surrendered to the Trustee (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and make available for delivery to
the Holder of such Security without service charge, a new Security or
Securities, containing identical terms and conditions, each in an authorized
denomination in aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so surrendered.
(f) Any issuance of shares of Common Stock in respect of
the Repurchase Price shall be deemed to have been
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effected immediately prior to the close of business on the Repurchase Date and
the Person or Persons in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such repurchase shall be
deemed to have become on the Repurchase Date the holder or holders of record of
the shares represented thereby; provided, however, that any surrender for
repurchase on a date when the stock transfer books of the Company shall be
closed shall constitute the Person or Persons in whose name or names the
certificate or certificates for such shares are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open. No payment or
adjustment shall be made for dividends or distributions on any Common Stock
issued upon repurchase of any Security declared prior to the Repurchase Date.
(g) No fractions of shares shall be issued upon
repurchase of Securities. If more than one Security shall be repurchased from
the same Holder and the Repurchase Price shall be payable in shares of Common
Stock, the number of full shares which shall be issuable upon such repurchase
shall be computed on the basis of the aggregate principal amount of the
Securities so repurchased. Instead of any fractional share of Common Stock
which would otherwise be issuable on the repurchase of any Security or
Securities, the Company will deliver to the applicable Holder its check for the
current market value of such fractional share. The current market value of a
fraction of a share is determined by multiplying the current market price of a
full share by the fraction, and rounding the result to the nearest cent. For
purposes of this Section, the current market price of a share of Common Stock
is the Closing Price Per Share of the Common Stock on the Trading Day
immediately preceding the Repurchase Date.
(h) Any issuance and delivery of certificates for shares
of Common Stock on repurchase of Securities shall be made without charge to the
Holder of Securities being repurchased for such certificates or for any tax or
duty in respect of the issuance or delivery of such certificates or the
securities represented thereby; provided, however, that the Company shall not
be required to pay any tax or duty which may be payable in respect of (i)
income of the Holder or (ii) any transfer involved in the issuance or delivery
of certificates for shares of Common Stock in a name other than that of the
Holder of the Securities being repurchased, and no such issuance or delivery
shall be made unless and until the Person requesting such issuance or delivery
has paid to the Company the amount of any such tax or duty or has established,
to the satisfaction of the Company, that such tax or duty has been paid.
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<PAGE> 112
(i) All Securities delivered for repurchase shall be
delivered to the Trustee, the Paying Agent or any other agents (as shall be set
forth in the Company Notice) to be canceled by or at the direction of the
Trustee, which shall dispose of the same as provided in Section 309.
SECTION 1404. Certain Definitions.
For purposes of this Article Fourteen,
(a) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3, as in effect on the date of the original execution
of this Indenture, promulgated by the Commission pursuant to the Exchange Act;
(b) a "Change of Control" shall be deemed to have
occurred at the time, after the original issuance of the Securities, of:
(i) the acquisition by any Person of beneficial
ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of
the Company entitling such person to exercise 50% or
more of the total voting power of all shares of
capital stock of the Company entitled to vote
generally in the elections of directors (any shares
of voting stock of which such person or group is the
beneficial owner that are not then outstanding being
deemed outstanding for purposes of calculating such
percentage), other than any such acquisition by the
Company, any Subsidiary of the Company or any
employee benefit plan of the Company existing on the
date of this Indenture; or
(ii) any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of
another Person into the Company, or any sale or
transfer of all or substantially all of the assets
(other than to a wholly-owned Subsidiary of the
Company) of the Company to any other Person (other
than (a) any such transaction pursuant to which the
holders of 50% or more of the total voting power of
all shares of capital stock of the Company entitled
to vote generally in elections of directors
immediately prior to such transaction have, directly
or indirectly,
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<PAGE> 113
at least 50% or more of the total voting power of all
shares of capital stock of the continuing or
surviving corporation entitled to vote generally in
elections of directors of the continuing or surviving
corporation immediately after such transaction and
(b) a merger (x) which does not result in any
reclassification, conversion, exchange or
cancellation of outstanding shares of capital stock
of the Company or (y) which is effected solely to
change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock
into solely shares of common stock);
provided, however, that a Change of Control shall not be deemed to have
occurred if either (a) the Closing Price Per Share on any five Trading Days
within the period of 10 consecutive Trading Days ending immediately after the
later of the date of the Change of Control or the date of the public
announcement of the Change of Control (in the case of a Change of Control under
Clause (i) above) or the period of 10 consecutive Trading Days ending
immediately prior to the date of the Change of Control (in the case of a Change
of Control under Clause (ii) above) shall equal or exceed 105% of the
Conversion Price in effect on each such Trading Day or (b) all of the
consideration (excluding cash payments for fractional shares and cash payments
made pursuant to the exercise of dissenters' appraisal rights) in a merger or
consolidation otherwise constituting a Change of Control under Clause (i)
and/or Clause (ii) above consists of shares of common stock traded on a
national securities exchange or quoted on the Nasdaq National Market and as a
result of such transaction or transactions the Securities become convertible
solely into shares of such common stock;
(c) the term "Conversion Price" shall equal $1,000 divided by
the Conversion Rate; and
(d) for the purposes of Section 1404(b)(i), the term "Person"
shall include any syndicate or group which would be deemed to be a "person"
under Section 12(d)(3) of the Exchange Act, as in effect on the date of the
original execution of this Indenture.
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<PAGE> 114
SECTION 1405. Consolidation, Merger, Etc.
In the case of any reclassification, change, consolidation,
merger, combination, sale or conveyance to which Section 1311 applies, in which
the Common Stock of the Company is changed or exchanged as a result into the
right to receive shares of stock and other securities or property or assets
(including cash) which includes shares of Common Stock of the Company or common
stock of another person that are, or upon issuance will be, traded on a United
States national securities exchange or approved for trading on an established
automated over- the-counter trading market in the United States and such shares
constitute at the time such change or exchange becomes effective in excess of
50% of the aggregate fair market value of such shares of stock and other
securities, property and assets (including cash) (as determined by the Company,
which determination shall be conclusive and binding), then the person formed by
such consolidation or resulting from such merger or combination or which
acquires the properties or assets (including cash) of the Company, as the case
may be, shall execute and deliver to the Trustee a supplemental indenture
(which shall comply with the Trust Indenture Act as in force at the date of
execution of such supplemental indenture) modifying the provisions of this
Indenture relating to the right of Holders to cause the Company to repurchase
the Securities following a Change of Control, including without limitation the
applicable provisions of this Article Fourteen and the definitions of the
Common Stock and Change of Control, as appropriate, and such other related
definitions set forth herein as determined in good faith by the Company (which
determination shall be conclusive and binding), to make such provisions apply
to the common stock and the issue thereof if different from the Company and
Common Stock of the Company (in lieu of the Company and the Common Stock of the
Company).
ARTICLE FIFTEEN
Immunity Of Incorporators, Stockholders,
Officers And Directors
SECTION 1501. Indenture and Securities Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if
any, or interest on any Security, or for any claim based thereon or otherwise
in respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture or in any supplemental indenture or
in any Security, or because of the creation of any indebtedness represented
thereby, shall be had against any
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<PAGE> 115
incorporator, stockholder, employee, agent, officer, or director or subsidiary,
as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Securities.
____________________
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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<PAGE> 116
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed all as of the day and year first above written.
VENTRITEX, INC.
By:
-----------------------
Attest:
- --------------------------
STATE STREET BANK AND TRUST
COMPANY
By:
-------------------------
Attest:
- ---------------------------
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<PAGE> 117
STATE OF ) ss.:
COUNTY OF )
On the _____ day of __________, 1996, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is __________________________________________ of
___________________________, one of the corporations described in and which said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like authority.
-----------------------------
COMMONWEALTH OF MASSACHUSETTS) ss.:
COUNTY OF SUFFOLK )
On the _____ day of __________, 1996, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he/she is _________________________________________ of STATE
STREET BANK AND TRUST COMPANY, one of the corporations described in and which
executed the foregoing instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like authority.
-----------------------------
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<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Senior Vice President and Corporate Secretary
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
VENTRITEX, INC.
(Exact name of obligor as specified in its charter)
Delaware 77-0056340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 East Evelyn Avenue
Sunnyvale, California 94086
(Address of principal executive offices) (Zip Code)
--------------------
% Convertible Subordinated Notes Due , 2001
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22- 17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and
Qualification which relates to matters peculiarly within the knowledge of the
obligor or any underwriter of the obligor, the trustee has relied upon the
information furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary,
to reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Boston
and The Commonwealth of Massachusetts, on the 2nd day of August, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/Eric J. Donaghey
-------------------------------
Eric J. Donaghey
Assistant Vice President
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Ventritex,
Inc. of its _% Convertible Subordinated Notes due 2003, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Eric J. Donaghey
-------------------------------
Eric J. Donaghey
Assistant Vice President
Dated: August 2, 1996
3
