<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) OCTOBER 30, 1998
-------------------------------
CYGNUS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE 0-18962 94-2978092
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
400 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063-4719
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 369-4300
-----------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. OTHER EVENTS.
On October 28, 1998, Cygnus, Inc. (the "Company") and certain
institutional investors restructured the Company's 4% Senior Subordinated
Convertible Notes due 2005 (the "Notes"). Under the terms of the
restructuring, the Company will redeem $18.5 million of the original
principal amount of the Notes. The remaining $24.5 million principal amount
of the Notes are redeemable by the Company at par with accrued interest. In
addition, $18.5 million of the Notes will not be convertible into Common
Stock by the Note Holders (the "Note Holders") until June 30, 1999,
effectively a five-month delay from the original agreement. The restructured
Notes are divided into three tranches.
The first tranche of restructured Notes has an original principal
amount of $6 million and is convertible in whole or in part into Common Stock
at any time, at a price that is fixed until June 30, 1999, subject to a
potential price adjustment on February 1, 1999, in each case based on certain
market formulas. Thereafter, the conversion price of the first tranche of
restructured Notes will reflect market prices. The second tranche of
restructured Notes also has an original principal amount of $6 million but
cannot be converted into Common Stock until June 30, 1999, at which time the
second tranche becomes convertible in whole or in part into Common Stock at a
price determined on such date based on certain market formulas. The third
tranche of restructured Notes has an original principal amount of $12.5
million and cannot be converted into Common Stock until July 1, 1999.
Beginning July 1, 1999, no more than 15% of the second and third tranches may
be converted per calendar month at conversion prices which reflect market
prices. Any portions of the 15% monthly amounts of the second and third
tranches that are not converted in the relevant month may be rolled over for
conversion in future months.
If the Company calls the second tranche of restructured Notes ($6
million) for redemption prior to February 1, 1999, the Note Holders will be
entitled to convert not more than 50% of such Notes called before the
redemption occurs. If the Company calls the third tranche of restructured
Notes ($12.5 million) for redemption before July 1, 1999, the Note Holders
will not be entitled to convert any portion of such tranche so called. The
Note Holders will otherwise be entitled to convert restructured Notes called
for redemption before the redemption occurs, at conversion prices based on
market formulas. Interest on the new principal balance will be paid at the
annual rate of 5.5%. The final maturity of the restructured Notes is October
1, 2000.
The foregoing description of the restructured Notes does not
purport to be complete and is qualified in its entirety by reference to the
Exhibits to this Current Report. The Second Supplemental Indenture is
attached hereto as Exhibit 4.8 and is incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS. The following documents are filed as exhibits to this
report:
<TABLE>
<S> <C>
4.8 Second Supplemental Indenture, dated as of October 28, 1998, to
the Indenture dated as of February 3, 1998 and the First
Supplemental Indenture dated as of February 3, 1998, including
the Form of Conversion Agent Agreement Amendment (Annex I), the
Form of Letter of Consent to Consent to Certain Indenture
Amendments between the Company and Note Holders (Annex II), the
Form of Opinion of Brobeck, Phleger & Harrison LLP to the Note
Holders listed therein (Annex III) and the Form of Interest Note
(Annex IV).
99.1 Press Release
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CYGNUS, INC.
DATE: October 30, 1998 By: /s/ John C. Hodgman
-----------------------------
Name: John C. Hodgman
Title: President, Chief
Executive Officer and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
4.8 Second Supplemental Indenture, dated as of October 28th, 1998, to the
Indenture dated as of February 3, 1998 and the First Supplemental
Indenture dated as of February 3, 1998, including the Form of
Conversion Agent Agreement Amendment (Annex I), the Form of Letter of
Consent to Consent to Certain Indenture Amendments between the Company
and Note Holders (Annex II), the Form of Opinion of Brobeck, Phleger &
Harrison LLP to the Note Holders listed therein (Annex III) and the
Form of Interest Note (Annex IV).
99.1 Press Release
</TABLE>
<PAGE>
CYGNUS, INC.
TO
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
AS TRUSTEE
____________
SECOND SUPPLEMENTAL INDENTURE
Dated as of October 28, 1998
____________
$43,000,000
4% Senior Subordinated Convertible Notes due 2005
____________
Supplemental to Indenture Dated as of February 3, 1998
And
First Supplemental Indenture Dated as of February 3, 1998
<PAGE>
CYGNUS, INC.
TO
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., AS TRUSTEE
SECOND SUPPLEMENTAL INDENTURE
4% Senior Subordinated Convertible Notes due 2005
SECOND SUPPLEMENTAL INDENTURE, dated as of October 28, 1998, between
CYGNUS, INC., a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal
executive office at 400 Penobscot Drive, Redwood City, California 94063-4719,
and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national
banking association duly organized and existing under the laws of the United
States of America, as Trustee under the Original Indenture mentioned below
(herein called the "Trustee").
RECITALS OF THE COMPANY
The Company and the Trustee have heretofore entered into an Indenture,
dated as of February 3, 1998 (the "Original Indenture") and a First
Supplemental Indenture, dated as of February 3, 1998 (the "First Supplemental
Indenture"; the Original Indenture, as amended by the First Supplemental
Indenture being the "Indenture").
Section 902 of the Original Indenture provides that, with the consent of
all of the Holders of each Outstanding Security affected thereby, the
Company, when authorized by a Board Resolution, and the Trustee, at any time
or from time to time, may enter into one or more indentures supplemental to
the Indenture, in form satisfactory to the Trustee, for the purpose of, among
other things, making any change that adversely affects the right to convert
any security as provided in Article Fourteen of the Original Indenture or
pursuant to Section 301 of the Original Indenture or decrease the conversion
rate or increase the conversion price of any such security.
In addition to the requirements of Section 902 of the Original
Indenture, Section 9.11 of the First Supplemental Indenture provides that, no
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby, change the obligations of the Company to
redeem or repurchase Notes pursuant to Section 6.01 or Article Seven of the
First Supplemental Indenture or reduce the Minimum Conversion Redemption
Price or the Redemption Price.
The Company desires to amend the provisions of the Indenture and the
First Supplemental Indenture as set forth herein.
The entry into this Supplemental Indenture by the parties hereto is in
all respects authorized by the provisions of the Indenture.
All things necessary to make this Supplemental Indenture a valid
agreement of the Company in accordance with its terms have been done.
1.
<PAGE>
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the Notes,
without preference, priority or distinction of any of the Notes over any of
the others by reason of priority in time of issuance or otherwise, except as
otherwise provided in the Original Indenture or the First Supplemental
Indenture, in each case as amended by this Supplemental Indenture, as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.01 DEFINITIONS.
(a) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;
(2) terms used herein in capitalized form and defined in the
Original Indenture or the First Supplemental Indenture and not otherwise
defined herein shall have the respective meanings specified in the Indenture
or the First Supplemental Indenture;
(3) the words "herein", "hereof" and "hereunder" and other words
of similar import used in this Supplemental Indenture refer to this
Supplemental Indenture as a whole and not to any particular Article, Section
or other subdivision of this Supplemental Indenture;
(4) the terms defined in the first paragraph of the Recitals of
the Company herein shall have the meanings specified therein;
(5) 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 in the United States at the date of such computation; and
(6) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of
the terms defined) and Section 1.01(a) of the First Supplemental Indenture is
hereby amended to add the following terms and definitions thereto and any
terms defined in Section 1.01(a) of the First Supplemental Indenture which is
also defined below is hereby amended to read as set forth below:
"Applicable Interest Rate" means interest per annum at a rate equal to:
(i) for any interest accrued on the Notes prior to the Second Supplement
Effective Date, 4.4% and (ii) for any interest accrued on the Restructuring
Tranche Notes on and after the Second Supplement Effective Date, 5.5%.
2.
<PAGE>
"Bid Price" on any date means the per share closing bid price for the
Common Stock on such date (and, in the case of the use of the term Bid Price
to determine the Conversion Price in connection with any conversion of a Note
by the Holder thereof, in a bid in which neither such Holder nor any Holder
nor any of their respective Affiliates is the bidder), on the first
applicable among the following: (a) the national securities exchange on
which the shares of Common Stock are listed which constitutes the principal
securities market for the Common Stock or (b) Nasdaq, in either case as
reported by Bloomberg, L.P. (subject during any Measurement Period to
equitable adjustment from time to time as provided in Section 9.15(a) of the
First Supplemental Indenture for events occurring or for which "ex-" trading
commences during such Measurement Period).
"Closing Bid Price" means, for any date of determination, the arithmetic
average of the Bid Price on each of the Trading Days occurring during the
applicable Measurement Period.
"Closing Date Price" means the Closing Bid Price in effect on the Second
Supplement Effective Date, subject to adjustment as provided in Section
9.15(a) of the First Supplemental Indenture.
"Closing Conversion Tranche Note" means any Note which, at the time of
its authentication by the Trustee, bears a notation that such Note is a
Closing Conversion Tranche Note as provided in Section 2.01 of this
Supplemental Indenture and Section 8.01 of the First Supplemental Indenture
(as amended by the Second Supplemental Indenture).
"Closing Conversion Tranche Price" means, (i) for any date of
determination on and after the Second Supplement Effective Date but before
February 1, 1999, the Closing Date Price, (ii) for any date of determination
on and after February 1, 1999 but before July 1, 1999, the HIGHER of (A) the
Closing Date Price and (B) the February 1 Price, and (iii) for any date of
determination on and after July 1, 1999, the LOWER of (A) the Low Trading
Price in effect on such date of determination and (B) the HIGHEST of (1) the
Closing Date Price, (2) the February 1 Price and (3) the July 1 Price.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Company, together with related Preferred Stock Purchase Rights (until such
time as such rights are no longer applicable or the Rights Agreement is
terminated) or similar rights of the Company applicable to the Common Stock
generally, or any shares of capital stock and the related rights into which
such class of stock or such rights shall be changed or reclassified after the
Second Supplemental Effective Date.
"Computed Price" means, for any date of determination, the arithmetic
average of the Market Price of the Common Stock for the five consecutive
Trading Days ending one Trading Day prior to such date of determination;
PROVIDED, HOWEVER, that when used for purposes of exercise of the Stock
Payment Option in respect of any payment of interest on the Restructuring
Tranche Notes, "Computed Price" means, on any date of determination, the
Closing Bid Price in effect on such date of determination.
"Conversion Agent" means ChaseMellon Shareholder Services L.L.C. or any
successor thereof serving as conversion agent and registrar for the Common
Stock.
3.
<PAGE>
"Conversion Agent Agreement Amendment" means the Conversion Agent
Agreement Amendment to be entered into by and among the Company, the
Conversion Agent and the Trustee for the benefit of the holders of the Notes
in the form attached hereto as ANNEX I.
"Conversion Price" means (i) in the case of any Closing Conversion
Tranche Notes, the applicable Closing Conversion Tranche Price, (ii) in the
case of any Gated Conversion Tranche Notes, the applicable Gated Conversion
Tranche Price, (iii) in the case of any Redemption-Gated Conversion Tranche
Notes, the applicable Redemption-Gated Conversion Tranche Price, as provided
in Section 8.01 of the First Supplemental Indenture (as amended by the Second
Supplemental Indenture) and (iv) in the case of any conversion of any
Restructuring Tranche Note called for redemption, the Redemption-Conversion
Price.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.
"February 1 Price" means the Closing Bid Price in effect on February 1,
1999, subject to adjustment as provided in Section 9.15(a) of the First
Supplemental Indenture.
"Final Maturity Date" means October 1, 2000.
"Gated Conversion Tranche Note" means any Note which, at the time of its
authentication by the Trustee, bears a notation that such Note is a Gated
Conversion Tranche Note as provided in Section 2.01 of this Supplemental
Indenture and Section 8.01 of the First Supplemental Indenture (as amended by
the Second Supplemental Indenture).
"Gated Conversion Tranche Price" means, on any date of determination,
the LOWER of (i) the Low Trading Price in effect on such date of
determination and (ii) the HIGHER of (A) the February 1 Price and (B) the
July 1 Price; PROVIDED, HOWEVER, that in the case of the date of
determination that is June 30, 1999, such term shall mean the February 1
Price.
"Interest Note" shall have the meaning provided in Section 4.11 of this
Supplemental Indenture.
"Interest Payment Date" means December 15 of each year.
"July 1 Price" means the Closing Bid Price in effect on July 1, 1999,
subject to adjustment as provided in Section 9.15(a) of the First
Supplemental Indenture.
"Low Trading Price" means, for any date of determination, the arithmetic
average of the lowest per share Trading Price on each of the two Trading Days
on which the two lowest daily per share Trading Prices occurred during the
applicable Measurement Period.
"Maximum Monthly Gated Conversion Amount" as applicable to any Gated
Conversion Tranche Note means an aggregate amount for any single calendar
month equal to 15% of the principal amount of such Note outstanding on the
Second Supplement Effective Date.
"Maximum Monthly Redemption-Gated Conversion Amount" as applicable to
any Redemption-Gated Conversion Tranche Note means an aggregate amount for
any single calendar
4.
<PAGE>
month equal to 15% of the original principal amount of such Note outstanding
on the Second Supplement Effective Date.
"Measurement Period" means, (i) in respect of any date of determination
for purposes of determining the Low Trading Price, the period of ten
consecutive Trading Days ending on and including the Trading Day immediately
prior to such date of determination and (ii) in respect of any date of
determination for purposes of determining the Closing Bid Price, the period
of fifteen consecutive Trading Days ending on and including the Trading Day
immediately prior to such date of determination; PROVIDED, HOWEVER, that, if
on any Trading Day during a Measurement Period determined in accordance with
the preceding clause (i) or clause (ii), as the case may be, there shall be
no reported Trading Price of the Common Stock, in the case of a determination
of the Measurement Period for purposes of determining an applicable Low
Trading Price, or no reported Bid Price of the Common Stock, in the case of a
determination of the Measurement Period for purposes of determining an
applicable Closing Bid Price, as the case may be, then such Measurement
Period shall be extended by one Trading Day for each such Trading Day on
which there shall be no such reported Trading Price or Bid Price, as the case
may be.
"Notes" means (i) prior to the Second Supplement Effective Date,
collectively, the Tranche 1 Notes and the Tranche 2 Notes and (ii) on and
after the Second Supplement Effective Date, collectively, the Closing
Conversion Tranche Notes, the Gated Conversion Tranche Notes, and the
Redemption-Gated Conversion Tranche Notes.
"Preliminary December Meeting Proxy" has the meaning set forth in the
definition of SEC Reports.
"Redemption-Conversion Price" means, on any date of determination in
respect of any conversion of a Restructuring Tranche Note with respect to
which the Holder thereof has been given (in the manner provided in the Notes)
a Redemption Notice, the Conversion Price that would otherwise apply to
conversion of such Restructuring Tranche Note if such conversion were
occurring in the absence of a Redemption Notice in respect of such
Restructuring Tranche Note; provided that (i) in the case of any conversion
of any portion of a Gated Conversion Tranche Note called for redemption (in
the manner provided in the Notes) prior to February 1, 1999, the applicable
Redemption-Conversion Price shall be the Closing Date Price, and (ii) in the
case of any conversion of any portion of the Gated Conversion Tranche Notes
called for redemption (in the manner provided in the Notes) on or after
February 1, 1999 and before July 1, 1999, the applicable
Redemption-Conversion Price shall be the February 1 Price.
"Redemption Date" has the meaning set forth in the First Supplemental
Indenture, except that the reference to Section 6.05 made therein shall
instead be a reference to Section 6.09.
"Redemption-Gated Conversion Tranche Note" means any Note which, at the
time of its authentication by the Trustee, bears a notation that such Note is
a Redemption-Gated Conversion Tranche Note as provided in Section 2.01 of
this Supplemental Indenture and Section 8.01 of the First Supplemental
Indenture (as amended by the Second Supplemental Indenture).
5.
<PAGE>
"Redemption-Gated Conversion Tranche Price" means, on any date of
determination, the LOWER of (i) the Low Trading Price in effect on such date
of determination and (ii) the July 1 Price.
"Redemption Notice" means a Redemption Notice in the form set forth in
Section 6.06 of the First Supplemental Indenture, except that the reference
to Section 6.05 made therein shall instead be a reference to Section 6.09.
"Restructuring Tranche Notes" means, collectively, the Closing
Conversion Tranche Notes, the Gated Conversion Tranche Notes and the
Redemption-Gated Conversion Tranche Notes.
"Rollover Gated Conversion Amount" as applicable to any Gated Conversion
Tranche Note during any calendar month means the cumulative amount from time
to time of the portions of all Maximum Monthly Gated Conversion Amounts
applicable to such Note for each calendar month prior to the calendar month
in which the Rollover Gated Conversion Amount is being determined that was
not used for conversion exercises in the calendar month in which such Maximum
Monthly Gated Conversion Amount arose and which has not been used for
conversion exercises prior to the date on which the Rollover Gated Conversion
Amount for such Note is being determined.
"Rollover Redemption-Gated Conversion Amount" as applicable to any
Redemption-Gated Conversion Tranche Note during any calendar month means the
cumulative amount from time to time of the portions of all Maximum Monthly
Redemption-Gated Conversion Amounts applicable to such Note for each calendar
month prior to the calendar month in which the Rollover Redemption-Gated
Conversion Amount is being determined that was not used for conversion
exercises in the calendar month in which such Maximum Monthly
Redemption-Gated Conversion Amount arose and which has not been used for
conversion exercises prior to the date on which the Rollover Redemption-Gated
Conversion Amount for such Note is being determined.
"SEC Reports" means the 1996 10-K, the Prospectus (as defined in the
Note Purchase Agreements), the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998, the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders and
the Company's preliminary proxy statement for its special meeting of
stockholders scheduled for December 1, 1998 (the "Preliminary December
Meeting Proxy"), in each case filed with the SEC.
"Second Supplement Effective Date" has the meaning set forth in Section
3.01 of this Supplemental Indenture.
"Second Supplement Post-Redemption Outstanding Amount" has the meaning
set forth in Section 4.10 of this Supplemental Indenture.
"Second Supplemental Indenture" or "this Supplemental Indenture," when
used in reference to this instrument, means this instrument as originally
executed or, if amended pursuant to the applicable provisions of the
Indenture, as amended or supplemented and "this
6.
<PAGE>
Indenture" or "this Supplemental Indenture" means, when used in reference to
the Original Indenture or the First Supplemental Indenture, respectively,
such instrument, as the case may be, as amended by this Supplemental
Indenture and otherwise pursuant to the applicable provisions of the
Indenture, as amended or supplemented.
"Securities" means, collectively, the Notes and the Conversion Shares.
"Shares" means the Conversion Shares and the Payment Shares.
"Subsidiary" means any corporation or other entity of which a majority
of the capital stock or other ownership interests have ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by the Company.
"Supplemental Indentures" means the First Supplemental Indenture and the
Second Supplemental Indenture.
"Transaction Documents" means, collectively, the Indenture, this
Supplemental Indenture, the Notes, the Conversion Agent Agreement Amendment
and the other agreements, instruments and documents contemplated hereby and
thereby.
ARTICLE TWO
AMENDMENTS TO THE FIRST SUPPLEMENTAL INDENTURE
SECTION 2.01 FORM OF NOTES. Section 2.01 of the First Supplemental
Indenture is hereby amended and restated in its entirety as follows:
The Notes shall be in substantially the form set forth in
this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by
the Indenture and the Supplemental Indentures, and may have such
other 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 or Depositary
therefor or as may, consistently herewith, be determined by the
officers executing the Notes, as evidenced by their execution
thereof. On the Second Supplement Effective Date, Notes having an
aggregate principal amount equal to (i) $6,000,000 shall be
designated as Closing Conversion Tranche Notes, (ii) $6,000,000
shall be designated Gated Conversion Tranche Notes and (iii) Notes
having an aggregate principal amount equal to $12,500,000 shall be
designated Redemption-Gated Conversion Tranche Notes in order to
give effect to the limitations in Section 8.01 hereof regarding
the dates on which and prices at which Notes are convertible in
accordance therewith. The Restructuring Tranche Notes to be so
designated shall be determined pro rata based on the principal
amount of each Outstanding Note on the Second Supplement Effective
Date, after giving effect to the redemption of Notes pursuant to
Section 4.10 of this Supplemental Indenture.
7.
<PAGE>
SECTION 2.02 FORM OF FACE OF NOTES. Section 2.02 of the First
Supplemental Indenture is hereby amended and restated in its entirety
as follows:
SECTION 2.02A. Form of Closing Conversion Tranche Note.
CYGNUS, INC.
No. $
--------- ---------------
Closing Conversion Tranche
Maximum Share Amount
------------
Cygnus, 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 (or such lesser principal amount of
this Note as is outstanding on the date of payment) on the Final Maturity
Date, and to pay interest thereon from February 3, 1998 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, on December 15 in each year, commencing on December 15, 1998, and at the
Maturity of this Security, at the Applicable Interest Rate, until the
principal hereof is paid or made available for payment, provided that any
installment of interest, which is overdue shall bear interest at a rate per
annum equal to the Prime Rate in effect from time to time plus 2.5% (to the
extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Supplemental Indentures, 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 Business Day next preceding such Interest
Payment Date. 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 Trustee, notice whereof shall be given to Holders of Securities of this
series not less than ten 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 securities exchange on which the Securities of this series may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Original Indenture and the Supplemental Indentures.
Payment of the principal of (and premium, if any) and any such interest
on this Security will be made at the office or agency of the Company
maintained for that purpose in the city in which the Corporate Trust Office
is located, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts
or, at the option of the Company and subject to the provisions of this
Security, interest payable on the Interest Payment Dates may be paid, on 20
Trading Days' prior written notice to the Holder in accordance with Section
3.02 of the First Supplemental Indenture (as amended by the Second
8.
<PAGE>
Supplemental Indenture), in whole or in part in fully paid and non-assessable
shares (calculated to the nearest 1/100th of a share) of Common Stock;
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; PROVIDED FURTHER, HOWEVER,
that cash payments shall be made by wire transfer of immediately available
funds to such account within the United States of America as the Holder may
from time to time designate by notice to the Company in accordance with the
Indenture. 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.
The obligations of the Company under this Security are subordinated on
the terms set forth in the Indenture.
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 the Supplemental
Indentures 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: CYGNUS, INC.
------------------------------
By:
---------------------------------
Title:
--------------------------
Attest:
-----------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
STATE STREET BANK AND TRUST OF CALIFORNIA, N.A., as Trustee, certifies that
this is one of the Securities referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
---------------------------------
Authorized Officer
Date of Authentication: , ,
--------- --- ----
SECTION 2.02B. FORM OF GATED CONVERSION TRANCHE NOTE.
9.
<PAGE>
CYGNUS, INC.
No. $
--------- -------------
Gated Conversion Tranche
Maximum Share Amount
-------------
Cygnus, 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 (or such lesser principal amount of
this Note as is outstanding on the date of payment) on the Final Maturity
Date, and to pay interest thereon from February 3, 1998 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, on December 15 in each year, commencing on December 15, 1998, and at the
Maturity of this Security, at the Applicable Interest Rate, until the
principal hereof is paid or made available for payment, provided that any
installment of interest, which is overdue shall bear interest at a rate per
annum equal to the Prime Rate in effect from time to time plus 2.5% (to the
extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Supplemental Indentures, 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 Business Day next preceding such Interest
Payment Date. 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 Trustee, notice whereof shall be given to Holders of Securities of this
series not less than ten 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 securities exchange on which the Securities of this series may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Original Indenture and the Supplemental Indentures.
Payment of the principal of (and premium, if any) and any such interest
on this Security will be made at the office or agency of the Company
maintained for that purpose in the city in which the Corporate Trust Office
is located, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts
or, at the option of the Company and subject to the provisions of this
Security, interest payable on the Interest Payment Dates may be paid, on 20
Trading Days' prior written notice to the Holder in accordance with Section
3.02 of the First Supplemental Indenture (as amended by the Second
Supplemental Indenture), in whole or in part in, fully paid and
non-assessable shares (calculated to the nearest 1/100th of a share) of
Common Stock; 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; PROVIDED
FURTHER, HOWEVER, that cash payments shall be made by wire transfer of
immediately available funds to such account within
10.
<PAGE>
the United States of America as the Holder may from time to time designate by
notice to the Company in accordance with the Indenture. 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.
The obligations of the Company under this Security are subordinated on
the terms set forth in the Indenture.
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 the Supplemental
Indentures 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: CYGNUS, INC.
------------------------------
By:
---------------------------------
Title:
--------------------------
Attest:
-----------------------------
11.
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
STATE STREET BANK AND TRUST OF CALIFORNIA, N.A., as Trustee, certifies that
this is one of the Securities referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
---------------------------------
Authorized Officer
Date of Authentication: , ,
--------- --- ----
SECTION 2.02C. FORM OF REDEMPTION-GATED CONVERSION TRANCHE NOTE.
CYGNUS, INC.
No. $
--------- -------------
Redemption-Gated Conversion Tranche
Maximum Share Amount
-------------
Cygnus, 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 (or such lesser principal amount of
this Note as is outstanding on the date of payment) on the Final Maturity
Date, and to pay interest thereon from February 3, 1998 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, on December 15 in each year, commencing on December 15, 1998, and at the
Maturity of this Security, at the Applicable Interest Rate, until the
principal hereof is paid or made available for payment, provided that any
installment of interest, which is overdue shall bear interest at a rate per
annum equal to the Prime Rate in effect from time to time plus 2.5% (to the
extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Supplemental Indentures, 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 Business Day next preceding such Interest
Payment Date. 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 Trustee, notice whereof shall
12.
<PAGE>
be given to Holders of Securities of this series not less than ten 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 securities exchange on
which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in the Original
Indenture and the Supplemental Indentures.
Payment of the principal of (and premium, if any) and any such interest
on this Security will be made at the office or agency of the Company
maintained for that purpose in the city in which the Corporate Trust Office
is located, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts
or, at the option of the Company and subject to the provisions of this
Security, interest payable on the Interest Payment Dates may be paid, on 20
Trading Days' prior written notice to the Holder in accordance with Section
3.02 of the First Supplemental Indenture (as amended by the Second
Supplemental Indenture), in whole or in part in fully paid and non-assessable
shares (calculated to the nearest 1/100th of a share) of Common Stock;
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; PROVIDED FURTHER, HOWEVER,
that cash payments shall be made by wire transfer of immediately available
funds to such account within the United States of America as the Holder may
from time to time designate by notice to the Company in accordance with the
Indenture. 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.
The obligations of the Company under this Security are subordinated on
the terms set forth in the Indenture.
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 the Supplemental
Indentures 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: CYGNUS, INC.
------------------------------
By:
---------------------------------
Title:
--------------------------
Attest:
-----------------------------
13.
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
STATE STREET BANK AND TRUST OF CALIFORNIA, N.A., as Trustee, certifies that this
is one of the Securities referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.,
AS TRUSTEE
By:
---------------------------------
Authorized Officer
Date of Authentication: , ,
--------- --- ----
SECTION 2.03 FORM OF REVERSE OF NOTES. Section 2.03 of the First
Supplemental Indenture is hereby amended and restated in its entirety as
follows:
SECTION 2.03A. FORM OF REVERSE OF CLOSING CONVERSION TRANCHE NOTES.
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 3, 1998 (the "Original
Indenture") between the Company and State Street Bank and Trust Company of
California, N.A., as Trustee (the "Trustee," which term includes any
successor trustee under the Original Indenture), a First Supplemental
Indenture, dated as of February 3, 1998, between the Company and the Trustee
(the "First Supplemental Indenture"), and a Second Supplemental Indenture,
dated as of October __, 1998, between the Company and the Trustee (the
"Second Supplemental Indenture" and, together with the First Supplemental
Indenture, being the "Supplemental Indentures," the Original Indenture, as
amended by the Supplemental Indentures, being the "Indenture," which terms
shall have the respective meanings assigned to them in such instruments), and
reference is hereby made to the Original Indenture, and Supplemental
Indentures and all indentures supplemental thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms
upon which the Securities are, and are to be, authenticated and delivered.
This Security is one of the series designated on the face hereof, limited in
aggregate principal amount to $43,000,000 until the Second Supplemental
Indenture becomes effective, and thereafter limited in aggregate principal
amount to $24,500,000 (in each such case except as otherwise provided in the
Indenture and the Supplemental Indentures).
The Securities of this series are subject to redemption in whole or in
part from time to time upon not less than four Trading Days' notice by
telephone line facsimile transmission to the Holder at such telephone line
facsimile transmission number as shall have been provided by the Holder to
the Company for such purpose (or, if no such telephone line facsimile
transmission number shall have been so provided by the Holder, by overnight
delivery or such other means permitted by the Indenture which shall result in
such notice being received by the Holder), which shall be deemed given upon
receipt by the Holder, at any time at a Redemption Price equal to
14.
<PAGE>
100% of the outstanding principal amount PLUS accrued and unpaid interest to
the Redemption Date but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such
Securities of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Original Indenture and
Supplemental Indentures; PROVIDED that from and after any Redemption Notice
shall be given in respect of any portion of this Note to and including the
date that is one Trading Day immediately prior to the Redemption Date set
forth therein, the Holder hereof shall be entitled to convert in accordance
with the Original Indenture and Supplemental Indentures in whole or in part
up to 100% of the principal amount of any portion of this Security subject to
such Redemption Notice, plus an amount equal to accrued and unpaid interest
thereon plus any Default Interest to the date of conversion, at the
applicable Redemption-Conversion Price for each share of Common Stock in
effect at the date of conversion determined as provided in the Original
Indenture and Supplemental Indentures upon the delivery of a Conversion
Notice relating thereto, duly executed in the manner specified in Section
8.03(a) of the First Supplemental Indenture.
In the event of redemption of this Security in part only, a new Security
or Securities of this series and of like tenor for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The Original Indenture and Supplemental Indentures contain provisions
for defeasance at any time of certain restrictive covenants, Events of
Default or other circumstances with respect to this Security upon compliance
with certain conditions set forth in the Original Indenture and Supplemental
Indentures.
Subject to the provisions of the Original Indenture and the Supplemental
Indentures, the Holder of this Security is entitled, at its option, (except
that, in case this Security or any portion hereof shall be called for
redemption, such right shall terminate with respect to this Security or
portion hereof, as the case may be, so called for redemption at 11:59 p.m.,
Eastern Time, on the Trading Day immediately prior to the Redemption Date as
provided in the Original Indenture and the Supplemental Indentures unless the
Company defaults in making the payment due upon redemption and subject,
however, to the conversion right provided for in the second paragraph
hereof), to convert the principal amount of this Security (or any portion
hereof which is at least equal to $5,000 (or such lesser amount of such
principal as shall remain Outstanding at the time of such conversion or may
be permitted by the Company in its discretion)), plus an amount equal to
accrued and unpaid interest thereon (including any Default Interest) to the
date of conversion, into fully paid and non-assessable shares (calculated as
to each conversion to the nearest 1/100th of a share) of the Common Stock of
the Company, as said shares shall be constituted at the date of conversion,
at the Closing Conversion Tranche Price for each share of Common Stock in
effect at the date of conversion determined as provided in the Original
Indenture, upon the delivery of a Conversion Notice relating thereto, duly
executed in the manner specified in Section 8.03(a) of the First Supplemental
Indenture. Upon such conversion, no adjustment is to be made for interest
accrued hereon or for dividends on shares of Common Stock issued on
conversion. The Company is not required to issue fractional shares upon any
such conversion, but shall make adjustment therefor in cash on the basis of
the current market value of such fractional interest or may round up the
number of shares of Common Stock issued on conversion as provided in the
Indenture. The Conversion Price is subject to adjustment as provided in the
Indenture and the Supplemental Indentures. In addition, the Indenture
provides that in case of
15.
<PAGE>
certain consolidations or mergers to which the Company is a party or the sale
of substantially all of the assets of the Company or certain share exchanges
involving 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, on the basis provided in the Indenture. In
the event of conversion of this Security in part only, if the Holder elects
to surrender this security in connection therewith, a new Security or
Securities for the unconverted portion hereof shall be issued in the name of
the Holder hereof upon the cancellation hereof.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of and premium on the Securities of
this series 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 of each series to be
affected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of more than 50% in principal amount of the
Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, 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
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee
or for any other remedy thereunder, unless such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of not less than 25% in
principal amount of the Securities of this series at the time Outstanding
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 Securities of this series at the
time 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 or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Original Indenture or the Supplemental
Indentures and no provision of this Security or of the Original Indenture or
the Supplemental Indentures shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in
the coin or currency, herein prescribed.
16.
<PAGE>
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 in any place where the principal of and any
premium and interest on this Security are payable, 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 its
attorney duly authorized in writing, and thereupon one or more new Securities
of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees. THE HOLDER IS SUBJECT TO RESTRICTIONS ON TRANSFER OF THIS
SECURITY PURSUANT TO THE INDENTURE AND THE APPLICABLE NOTE PURCHASE AGREEMENT.
The Securities of this series are issuable only in registered form
without coupons. As provided in the Original Indenture and the Supplemental
Indentures and subject to certain limitations therein set forth, Securities
of this series are exchangeable for a like aggregate principal amount of
Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
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.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name 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 such agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture or
the Supplemental Indentures shall have the meanings assigned to them therein
(but any such terms which are superseded by a Supplemental Indenture shall
have the meanings assigned to them in such Supplemental Indenture).
2.03B. FORM OF REVERSE OF GATED CONVERSION TRANCHE NOTES. THIS
Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 3, 1998 (herein called the
"Original Indenture") between the Company and State Street Bank and Trust
Company of California, N.A., as Trustee (the "Trustee," which term includes
any successor trustee under the Original Indenture), a First Supplemental
Indenture, dated as of February 3, 1998, between the Company and the Trustee
(the "First Supplemental Indenture"), and a Second Supplemental Indenture,
dated as of October ___, 1998, between the Company and the Trustee (the
"Second Supplemental Indenture" and, together with the First Supplemental
Indenture, being the "Supplemental Indentures", the Original Indenture, as
amended by the Supplemental Indentures, being the "Indenture", which terms
shall have the respective meanings assigned to them in such instruments), and
reference is hereby made to the Original Indenture and the Supplemental
Indentures and all indentures supplemental thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the
17.
<PAGE>
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$43,000,000 until the Second Supplemental Indenture becomes effective, and
thereafter limited in aggregate principal amount to $24,500,000 (in each such
case except as otherwise provided in the Indenture and the Supplemental
Indentures).
The Securities of this series are subject to redemption in whole or in
part from to time upon not less than four Trading Days' notice by telephone
line facsimile transmission to the Holder at such telephone line facsimile
transmission number as shall have been provided by the Holder to the Company
for such purpose (or, if no such telephone line facsimile transmission number
shall have been so provided by the Holder, by overnight delivery or such
other means permitted by the Indenture which shall result in such notice
being received by the Holder), which shall be deemed given upon receipt by
the Holder, at any time at a Redemption Price equal to 100% of the
outstanding principal amount PLUS accrued and unpaid interest to the
Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such
Securities of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Original Indenture and
Supplemental Indentures; PROVIDED that from and after any Redemption Notice
shall be given in respect of any portion of this Note to and including the
date that is one Trading Day immediately prior to the Redemption Date set
forth therein, the Holder hereof shall be entitled to convert in accordance
with the Original Indenture and Supplemental Indentures in whole or in part
up to 100% of the principal amount of any portion of this Security subject to
a Redemption Notice, plus an amount equal to accrued and unpaid interest
thereon plus any Default Interest to the date of conversion, at the
applicable Redemption-Conversion Price for each share of Common Stock in
effect at the date of conversion determined as provided in the Original
Indenture and Supplemental Indentures, upon the delivery of a Conversion
Notice relating thereto, duly executed in the manner specified in Section
8.03(a) of the First Supplemental Indenture; PROVIDED HOWEVER, that such
conversion right shall apply to not more than 50% of any portion of the
principal amount of this Security called for redemption in a Redemption
Notice given to the Holder (in the manner provided in this Security) prior to
February 1, 1999, plus an amount equal to accrued and unpaid interest thereon
plus any Default Interest to the date of conversion.
In the event of redemption of this Security in part only, a new Security
or Securities of this series and of like tenor for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The Original Indenture and the Second Supplemental Indenture contain
provisions for defeasance at any time of certain restrictive covenants,
Events of Default or other circumstances with respect to this Security upon
compliance with certain conditions set forth in the Original Indenture and
the Second Supplemental Indenture.
Subject to the provisions of the Original Indenture and the Second
Supplemental Indenture, the Holder of this Security is entitled, at its
option on and after June 30, 1999 (except that, in case this Security or any
portion hereof shall be called for redemption, such right shall terminate
with respect to this Security or portion hereof, as the case may be, so
called for redemption at 11:59 p.m. Eastern Time, on the Trading Day
immediately prior to the Redemption Date as provided in the Original
Indenture and the Supplemental Indentures, unless
18.
<PAGE>
the Company defaults in making the payment due upon redemption and subject,
however, to the conversion right provided for in the second paragraph
hereof), to convert (A) on June 30, 1999, the principal amount hereof (or any
portion hereof which is at least equal to $5,000 (or such lesser amount of
such principal as shall remain Outstanding at the time of such conversion or
may be permitted by the Company in its discretion)), plus an amount equal to
accrued and unpaid interest thereon (including any Default Interest) to the
date of conversion, into fully paid and non-assessable shares (calculated as
to each conversion to the nearest 1/100th of a share) of the Common Stock of
the Company, as said shares shall be constituted at the date of conversion,
at the February 1 Price for each share of Common Stock, upon the delivery of
a Conversion Notice relating thereto, duly executed in the manner specified
in Section 8.03(a) of the First Supplemental Indenture and (B) on and after
July 1, 1999 and prior to the date this Security is paid in full, in any one
calendar month, all or from time to time any part of the outstanding and
unpaid principal amount hereof in an aggregate amount in such month of not
more than the sum of the Maximum Monthly Gated Conversion Amount and the
Rollover Gated Conversion Amount, if any, applicable hereto (or any portion
hereof which is at least equal to $5,000 (or such lesser amount of such
principal as shall remain Outstanding at the time of such conversion or may
be permitted by the Company in its discretion)), plus an amount equal to
accrued and unpaid interest thereon (including Default Interest) to the date
of conversion, into fully paid and non-assessable shares (calculated as to
each conversion to the nearest 1/100th of a share) of the Common Stock of the
Company, as said shares shall be constituted at the date of conversion, at
the Gated Conversion Tranche Price for each share of Common Stock in effect
at the date of conversion determined as provided in the Original Indenture,
upon the delivery of a Conversion Notice relating thereto, duly executed in
the manner specified in Section 8.03(a) of the First Supplemental Indenture.
Upon any such conversion, no adjustment is to be made for interest accrued
hereon or for dividends on shares of Common Stock issued on conversion. The
Company is not required to issue fractional shares upon any such conversion,
but shall make adjustment therefor in cash on the basis of the current market
value of such fractional interest or may round up the number of shares of
Common Stock issued on conversion as provided in the Indenture. The
Conversion Price is subject to adjustment as provided in the Original
Indenture and Supplemental Indentures. In addition, the Indenture provides
that in case of certain consolidations or mergers to which the Company is a
party or the sale of substantially all of the assets of the Company or
certain share exchanges involving 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, on the basis
provided in the Indenture. In the event of conversion of this Security in
part only, if the Holder elects to surrender this security in connection
therewith, a new Security or Securities for the unconverted portion hereof
shall be issued in the name of the Holder hereof upon the cancellation hereof.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of and premium on the Securities of
this series 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 of each series to be
affected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of more than 50% in principal amount
19.
<PAGE>
of the Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, 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
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee
or for any other remedy thereunder, unless such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of not less than 25% in
principal amount of the Securities of this series at the time Outstanding
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 Securities of this series at the
time 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 or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Original Indenture or the Supplemental
Indentures and no provision of this Security or of the Original Indenture or
the Supplemental Indentures shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in
the coin or currency, herein prescribed.
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 in any place where the principal of and any
premium and interest on this Security are payable, 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 its
attorney duly authorized in writing, and thereupon one or more new Securities
of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees. THE HOLDER IS SUBJECT TO RESTRICTIONS ON TRANSFER OF THIS
SECURITY PURSUANT TO THE INDENTURE AND THE APPLICABLE NOTE PURCHASE AGREEMENT.
The Securities of this series are issuable only in registered form
without coupons. As provided in the Original Indenture and the Supplemental
Indentures and subject to certain limitations therein set forth, Securities
of this series are exchangeable for a like aggregate principal amount of
Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
20.
<PAGE>
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.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name 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 such agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture or
the Supplemental Indentures shall have the meanings assigned to them therein
(but any such terms which are superseded by a Supplemental Indenture shall
have the meanings assigned to them in such Supplemental Indenture).
2.03C. FORM OF REVERSE OF REDEMPTION-GATED CONVERSION TRANCHE NOTES.
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 3, 1998 (herein called the
"Original Indenture") between the Company and State Street Bank and Trust
Company of California, N.A., as Trustee (the "Trustee", which term includes
any successor trustee under the Original Indenture), a First Supplemental
Indenture, dated as of February 3, 1998, between the Company and the Trustee
(the "First Supplemental Indenture"), and a Second Supplemental Indenture,
dated as of October __, 1998, between the Company and the Trustee (the
"Second Supplemental Indenture" and, together with the First Supplemental
Indenture, being the "Supplemental Indentures", the Original Indenture, as
amended by the Supplemental Indentures, being the "Indenture", which terms
shall have the respective meanings assigned to them in such instruments), and
reference is hereby made to the Original Indenture and the Supplemental
Indentures and all indentures supplemental thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms
upon which the Securities are, and are to be, authenticated and delivered.
This Security is one of the series designated on the face hereof, limited in
aggregate principal amount to $43,000,000 until the Second Supplemental
Indenture becomes effective, and thereafter limited in aggregate principal
amount to $24,500,000 (in each such case except as otherwise provided in the
Indenture and the Supplemental Indentures).
The Securities of this series are subject to redemption in whole or in
part from to time upon not less than four Trading Days' notice by telephone
line facsimile transmission to the Holder at such telephone line facsimile
transmission number as shall have been provided by the Holder to the Company
for such purpose (or, if no such telephone line facsimile transmission number
shall have been so provided by the Holder, by overnight delivery or such
other means permitted by the Indenture which shall result in such notice
being received by the Holder), which shall be deemed given upon receipt by
the Holder, at any time at a Redemption Price equal to 100% of the
outstanding principal amount PLUS accrued and unpaid interest to the
Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such
Securities of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Original Indenture and
21.
<PAGE>
Supplemental Indentures; PROVIDED that from and after any Redemption Notice
shall be given in respect of any portion of this Note to and including the
date that is one Trading Day immediately prior to the Redemption Date set
forth therein, the Holder hereof shall be entitled to convert in accordance
with the Original Indenture and the Supplemental Indentures in whole or in
part up to 100% of the principal amount of any portion of this Security
subject to a Redemption Notice, plus an amount equal to accrued and unpaid
interest thereon plus any Default Interest to the date of conversion, at the
applicable Redemption-Conversion Price for each share of Common Stock in
effect at the date of conversion determined as provided in the Original
Indenture and the Supplemental Indentures, upon the delivery of a Conversion
Notice relating thereto, duly executed in the manner specified in Section
8.03(a) of the First Supplemental Indenture; PROVIDED HOWEVER, that such
conversion right shall not apply to any portion of the principal amount of
this Security called for redemption in a Redemption Notice given (in the
manner provided in this Security) to the Holder prior to July 1, 1999, plus
an amount equal to accrued and unpaid interest thereon plus any Default
Interest to the date of conversion.
In the event of redemption of this Security in part only, a new Security
or Securities of this series and of like tenor for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The Original Indenture and the Second Supplemental Indenture contain
provisions for defeasance at any time of certain restrictive covenants, Events
of Default or other circumstances with respect to this Security upon compliance
with certain conditions set forth in the Original Indenture and the Second
Supplemental Indenture.
Subject to the provisions of the Original Indenture and the Second
Supplemental Indenture, the Holder of this Security is entitled, at its
option on and after July 1, 1999 (except that, in case this Security or any
portion hereof shall be called for redemption, such right shall terminate
with respect to this Security or portion hereof, as the case may be, so
called for redemption at 11:59 p.m., Eastern Time, on the Trading Day
immediately prior to the Redemption Date as provided in the Original
Indenture and the Supplemental Indentures unless the Company defaults in
making the payment due upon redemption and subject, however, to the
conversion right provided for in the second paragraph hereof), to convert, on
and after July 1, 1999 and prior to the date this Security is paid in full,
in any one calendar month, all or from time to time any part of the
outstanding and unpaid principal amount hereof in an aggregate amount in such
month of not more than the sum of the Maximum Monthly Redemption-Gated
Conversion Amount and the Rollover Gated Conversion Amount, if any,
applicable hereto (or any portion hereof which is at least equal to $5,000
(or such lesser amount of such principal as shall remain Outstanding at the
time of such conversion or may be permitted by the Company in its
discretion)), plus an amount equal to accrued and unpaid interest thereon
(including any Default Interest) to the date of conversion, into fully paid
and non-assessable shares (calculated as to each conversion to the nearest
1/100th of a share) of the Common Stock, as said shares shall be constituted
at the date of conversion, at the Redemption-Gated Conversion Tranche Price
for each share of Common Stock in effect at the date of conversion determined
as provided in the Original Indenture, upon the delivery of a Conversion
Notice relating thereto, duly executed in the manner specified in Section
8.03(a) of the First Supplemental Indenture. Upon any such conversion, no
adjustment is to be made for interest accrued hereon or for dividends on
shares of Common Stock issued on conversion. The Company is not required to
issue fractional
22.
<PAGE>
shares upon any such conversion, but shall make adjustment therefor in cash
on the basis of the current market value of such fractional interest or may
round up the number of shares of Common Stock issued on conversion as
provided in the Indenture. The Conversion Price is subject to adjustment as
provided in the Indenture and the Supplemental Indentures. In addition, the
Indenture provides that in case of certain consolidations or mergers to which
the Company is a party or the sale of substantially all of the assets of the
Company or certain share exchanges involving 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, on the basis
provided in the Indenture. In the event of conversion of this Security in
part only, if the Holder elects to surrender this security in connection
therewith, a new Security or Securities for the unconverted portion hereof
shall be issued in the name of the Holder hereof upon the cancellation hereof.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of and premium on the Securities of
this series 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 of each series to be
affected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of more than 50% in principal amount of the
Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, 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
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee
or for any other remedy thereunder, unless such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of not less than 25% in
principal amount of the Securities of this series at the time Outstanding
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 Securities of this series at the
time 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 or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Original Indenture or the Supplemental
Indentures and no provision of this Security or of the Original Indenture or
the Supplemental Indentures shall alter
23.
<PAGE>
or impair the obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed.
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 in any place where the principal of and any
premium and interest on this Security are payable, 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 its
attorney duly authorized in writing, and thereupon one or more new Securities
of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees. THE HOLDER IS SUBJECT TO RESTRICTIONS ON TRANSFER OF THIS
SECURITY PURSUANT TO THE INDENTURE AND THE APPLICABLE NOTE PURCHASE AGREEMENT.
The Securities of this series are issuable only in registered form
without coupons. As provided in the Original Indenture and the Supplemental
Indentures and subject to certain limitations therein set forth, Securities
of this series are exchangeable for a like aggregate principal amount of
Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
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.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name 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 such agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture or
the Supplemental Indentures shall have the meanings assigned to them therein
(but any such terms which are superseded by a Supplemental Indenture shall
have the meanings assigned to them in such Supplemental Indenture).
SECTION 2.04 FORM OF CONVERSION NOTICE. Section 2.04 of the First
Supplemental Indenture is hereby amended and restated in its entirety as
follows:
NOTICE OF CONVERSION OF
5.5% SENIOR SUBORDINATED CONVERTIBLE NOTE DUE 2000
OF CYGNUS, INC.
To: ChaseMellon Shareholder Services L.L.C.,
as Conversion Agent
235 Montgomery Street, 23rd Floor
San Francisco, CA 94104
24.
<PAGE>
Attention: Mr. Asa Drew
Facsimile No.: (415) 989-5241
and
State Street Bank and Trust Company of California, N.A.,
as Trustee
633 West 5th Street, 12th Floor
Los Angeles, CA 90071
Attention: Corporate Trust Administration
(Cygnus, Inc. 1998 Note Restructuring)
Facsimile No.: (213) 362-7357
Pursuant to the terms of one of the notes included in the 5.5% Senior
Subordinated Convertible Notes due 2000 (the "Notes") issued by Cygnus, Inc.,
a Delaware corporation (the "Company") which note (the "Holder Note") is held
by the undersigned (the "Holder"), the Holder hereby elects to convert
$_______________ in principal amount of the Holder Note PLUS $_______________
of accrued and unpaid interest on such principal amount PLUS $_______________
of Default Interest on such interest into shares of Common Stock of the
Company, as set forth in this Notice. Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Holder
Note and in the Original Indenture, the First Supplemental Indenture and the
Second Supplemental Indenture (as such terms are defined in the Holder Note).
(1) The Holder Note to which this Notice pertains is a [Closing
Conversion Tranche Note][Gated Conversion Tranche Note][Redemption-Gated
Conversion Tranche Note] in the original principal amount, on the date of
authentication thereof, of $_____________.
(2) The number of shares of Common Stock issuable upon the
conversion of the Holder Note to which this Notice relates is _______________.
(3) (a) (i) The type of Conversion Price applicable to the
conversion exercise to which this Notice pertains is [the applicable Closing
Conversion Tranche Price] [the applicable Gated Conversion Tranche Price]
[the applicable Redemption-Gated Conversion Tranche Price] [the applicable
Redemption-Conversion Price].
(ii) If such Conversion Price referred to in paragraph
3(a)(i) above is based upon the Low Trading Price, set forth below or on a
schedule which accompanies this Notice are the Trading Prices during the
Measurement Period applicable to the determination of such Low Trading Price
and an indication of the two Trading Prices used for such determination
25.
<PAGE>
<TABLE>
<CAPTION>
DATE TRADING PRICE
<S> <C> <C>
1. , $
---------------- ------ ------------
2. , $
---------------- ------ ------------
3. , $
---------------- ------ ------------
4. , $
---------------- ------ ------------
5. , $
---------------- ------ ------------
6. , $
---------------- ------ ------------
7. , $
---------------- ------ ------------
8. , $
---------------- ------ ------------
9. , $
---------------- ------ ------------
10. , $
---------------- ------ ------------
</TABLE>
(iii) If such Conversion Price referred to in paragraph
3(a)(i) above is based on the Closing Bid Price, set forth below or on a
schedule which accompanies this Notice are the Bid Prices during the
Measurement Period applicable to the determination of such Conversion Price.
<TABLE>
<CAPTION>
DATE BID PRICE
<S> <C> <C>
1. , $
---------------- ------ ------------
2. , $
---------------- ------ ------------
3. , $
---------------- ------ ------------
4. , $
---------------- ------ ------------
5. , $
---------------- ------ ------------
6. , $
---------------- ------ ------------
7. , $
---------------- ------ ------------
8. , $
---------------- ------ ------------
9. , $
---------------- ------ ------------
10. , $
---------------- ------ ------------
11. , $
---------------- ------ ------------
12. , $
---------------- ------ ------------
13. , $
---------------- ------ ------------
14. , $
---------------- ------ ------------
15. , $
---------------- ------ ------------
</TABLE>
(b) The Holder hereby represents to the Company that (a) in
the case of conversion based on the Low Trading Price, neither the Holder nor
any of its Affiliates was the buyer or seller in the trades of shares of
Common Stock listed above in Paragraph 3(a)(ii) on which the Conversion Price
applicable to this Notice is based or (b) in the case of conversion based on
the Closing Bid Price, neither the Holder nor any of its Affiliates was the
bidder in the bids listed above in Paragraph 3(a)(iii) and (c) to the actual
knowledge of the Holder, based on no investigation by the Holder, neither any
other Holder of Notes nor any Affiliate of any other Holder of the Notes was
the buyer or seller in any trade of shares of Common Stock listed above in
Paragraph 3(a)(ii) or bidder of any Bid Price listed above in Paragraph
3(a)(iii), as the case may be, on which the Conversion Price applicable to
this Notice is based.
26.
<PAGE>
(c) The Holder is submitting with this Notice a print-out
from Bloomberg, L.P. which shows the trading data on which Trading Prices or
Bid Prices, as the case may be, shown above are based, unless such print-out
was not reasonably available to the Holder, in which case the Holder will use
commercially reasonable efforts to furnish such print-out to the Company on
or before the date that is at least two Trading Days after this Notice is
given.
(d) The Holder will use commercially reasonable efforts to
give oral confirmation to the Company of the authenticity of this Notice by
attempting to contact by telephone the person designated from time to time
for such purposes by the Company to the Holder at such telephone number as
provided by the Company.
(4) Please issue a certificate or certificates for __________
shares of Common Stock in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
-------------------------------- --------------------------------
Name Name
-------------------------------- --------------------------------
Address Address
-------------------------------- --------------------------------
SS or Tax ID Number SS or Tax ID Number
--------------------------------
Delivery Instructions for
Common Stock
--------------------------------
--------------------------------
If the Person in whose name any shares of Common Stock are to be issued is
other than the Holder, pursuant to the First Supplemental Indenture, the
Company is not required to issue or deliver such shares unless and until the
Holder shall have paid to the Company the amount of any tax which may be
payable in respect of any transfer involved in such issuance of shares of
Common Stock or shall have established to the satisfaction of the Company
that such tax has been paid.
(5) The Holder hereby represents to the Company that the exercise
of conversion rights contained herein does not violate the provisions of
Article Eight of the First Supplemental Indenture relating to beneficial
ownership in excess of 4.9% of the Common Stock.
27.
<PAGE>
NAME:
-------------------------------
Date
------------------------------ -------------------------------------
Signature of Registered Holder
(Must be signed exactly as name
appears in the Holder Note)
SECTION 2.05 SECTION 3.02(c). Section 3.02(c) of the First Supplemental
Indenture is hereby amended by deleting the phrase "ten days" each place it
appears therein and inserting in lieu thereof the phrase "twenty Trading
Days."
SECTION 2.06 ARTICLE SIX. Article Six of the First Supplemental Indenture
is hereby amended by (i) deleting Sections 6.05, 6.07 and 6.08 in their
entirety and inserting in lieu thereof the phrase "[INTENTIONALLY OMITTED],"
and (ii) deleting Section 6.09 in its entirety and inserting in lieu thereof
the following new Section 6.09:
SECTION 6.09. REDEMPTION; OTHER REDEMPTION OR PREPAYMENT;
ABSENCE OF SINKING FUND. (a) Subject to Section 8.01, the
Company shall have the right to redeem all or any part of the
Notes, at any time, or in part from time to time at the Redemption
Price. In order to exercise its right of redemption under this
Section 6.09, the Company shall give a Redemption Notice to each
Holder of Notes subject to redemption not less than four Trading
Days prior to the Redemption Date in the manner provided for in
such Notes. On the Redemption Date, the Company shall pay to or
upon the order of each Holder by wire transfer of immediately
available funds to such account within the United States of
America as shall be specified for such purpose by each Holder an
amount equal to the Redemption Price of the Notes to be redeemed
from such Holder on the Redemption Date.
(b) Notwithstanding the giving of a Redemption Notice, each
Holder of Notes subject thereto shall be entitled to exercise such
conversion rights in respect of such Notes as are provided for in
such Notes and Section 8.01 hereof, by giving an applicable
Conversion Notice not later than 11:59 p.m., Eastern Time, on the
Trading Day immediately prior to the Redemption Date specified in
such Redemption Notice, and otherwise complying with the terms of
such Holder's Notes, this Supplemental Indenture and the Indenture
applicable to such conversion.
(c) Except as expressly provided in this Article Six, the
Notes shall not be subject to redemption or repayment. The Notes
shall not be entitled to the benefit of any sinking fund for
retirement of the Notes.
28.
<PAGE>
SECTION 2.07 SECTION 8.01. Section 8.01 of the First Supplemental
Indenture is hereby amended and restated in its entirety as follows:
SECTION 8.01. CONVERSION RIGHT. Each Holder of Notes shall
have the right:
(w) in the case of any Closing Conversion Tranche Note, from and
after the Second Supplement Effective Date and then at any time
prior to the date such Note is paid in full, to convert at any
time all or from time to time any part of the outstanding and
unpaid principal amount of such Note (at least equal to $5,000 or
such lesser amount of such principal as shall remain Outstanding
at the time of such conversion or may be permitted from time to
time by the Company in its discretion), and accrued and unpaid
interest on the principal amount to be converted and on any such
interest (including any Default Interest), into fully paid and
non-assessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock, as said shares shall
be constituted at the date of conversion, at the Closing
Conversion Tranche Price in effect on the date the applicable
Conversion Notice is given in accordance with the Indenture and
such Note;
(x) in the case of any Gated Conversion Tranche Note, to convert
(A) on June 30, 1999, any part of the outstanding and unpaid
principal amount of such Note (at least equal to $5,000 or such
lesser amount of such principal as shall remain Outstanding at the
time of such conversion or may be permitted by the Company in its
discretion), and accrued and unpaid interest on the principal
amount to be converted and on any such interest, into fully paid
and non-assessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock, as said shares shall
be constituted at the date of conversion, at the February 1 Price
for each share of Common Stock and (B) on and after July 1, 1999
and prior to the date such Note is paid in full, in any calendar
month, all or from time to time any part of the outstanding and
unpaid principal amount of such Note in an aggregate amount in
such month of not more than the sum of the Maximum Monthly Gated
Conversion Amount and the Rollover Gated Conversion Amount
applicable to such Gated Conversion Tranche Note (at least equal
to $5,000 or such lesser amount of such Maximum Monthly Gated
Conversion Amount for any calendar month as shall remain
Outstanding at the time of such conversion or may be permitted
from time to time by the Company in its discretion), and accrued
and unpaid interest on the principal amount to be converted and on
any such interest (including any Default Interest), into fully
paid and non-assessable shares (calculated as to each conversion
to the nearest 1/100th of a share) of Common Stock, as said shares
shall be constituted at the date of conversion, at the Gated
Conversion Tranche Price for each share of Common Stock in effect
at the date the applicable Conversion Notice is given in
accordance with the Indenture and such Note;
(y) in the case of any Redemption-Gated Conversion Tranche Note,
to convert on and after July 1, 1999 and then at any time prior to
the date such Note is paid in
29.
<PAGE>
full, in any calendar month, all or from time to time any part of
the outstanding and unpaid principal amount of such Note in an
aggregate amount in such month of not more than the sum of the
Maximum Monthly Redemption-Gated Conversion Amount and the
Rollover Gated Conversion Amount applicable to such
Redemption-Gated Conversion Tranche Note (at least equal to $5,000
or such lesser amount of such Maximum Monthly Redemption-Gated
Conversion Amount for any calendar month as shall remain
Outstanding at the time of such conversion or may be permitted by
the Company in its discretion), and accrued and unpaid interest on
the principal amount to be converted and on any such interest
(including any Default Interest), into fully paid and
non-assessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock, as said shares shall
be constituted at the date of conversion, at the Redemption-Gated
Conversion Tranche Price for each share of Common Stock in effect
at the date the applicable Conversion Notice is given in
accordance with the Indenture and such Note; and
(z) after any Redemption Notice in respect of any Note shall have
been given by the Company to the Holder thereof, such Holder (by
giving an applicable Conversion Notice not later than 11:59 p.m.
Eastern Time, on the Trading Day immediately prior to the
Redemption Date specified in each Redemption Notice and otherwise
in accordance with the Supplemental Indentures and such Note)
shall be entitled to convert into fully paid and non-assessable
shares (calculated as to each conversion to the nearest 1/100th of
a share) of Common Stock in whole or in part up to 100% of the
outstanding and unpaid principal amount of such portion of such
Note held by such Holder and subject to such Redemption Notice (at
least equal to $5,000 or such lesser amount of such 100% portion
as shall remain Outstanding at the time of such conversion or may
be permitted by the Company in its discretion), and accrued and
unpaid interest on the principal amount to be converted and on any
such interest (including any Default Interest), at the applicable
Redemption-Conversion Price for each share of Common Stock in
effect on the date such Conversion Notice is given; PROVIDED that
(i) such conversion right shall apply to not more than 50% of any
portion of the principal amount of any Gated Conversion Tranche
Note called for redemption in a Redemption Notice given (in the
manner provided in the Notes) prior to February 1, 1999 (plus
accrued and unpaid interest (and any Default Interest) thereon)
and (ii) such conversion right shall not apply to any portion of
the principal of any Redemption-Gated Conversion Tranche Note
called for redemption in a Redemption Notice given prior to July
1, 1999 (plus accrued and unpaid interest (and any Default
Interest) thereon).
Notwithstanding any other provision of the Indenture, any
Supplemental Indenture or the Notes, in no event shall a Holder of
Notes be entitled at any time to convert any portion of the principal
amount of such Holder's Notes (and accrued and unpaid interest thereon
and Default Interest on any such interest) in excess of that portion of
the principal amount of such Holder's Notes (and accrued and unpaid
interest thereon and Default Interest, on any such interest, if any)
upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by such Holder (including shares of Common
Stock beneficially owned by all
30.
<PAGE>
Aggregated Persons of such Holder) (other than shares of Common Stock
deemed beneficially owned by such Holder or any Aggregated Person of
such Holder through the ownership of (x) the unconverted portion of the
principal amount of any Notes and accrued and unpaid interest thereon
and Default Interest on any such interest and (y) the unconverted or
unexercised portion of any instrument which contains limitations
similar to those set forth in this sentence) and (2) the number of
shares of Common Stock issuable upon conversion of the portion of the
principal amount of such Notes and accrued and unpaid interest thereon
and Default Interest on any such interest with respect to which the
determination in this sentence is being made, would result in
beneficial ownership by such Holder and all Aggregated Persons of such
Holder of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
1934 Act, and Regulation 13D-G thereunder, except as otherwise provided
in clause (1) of the immediately preceding sentence. For purposes of
the second preceding sentence, the Company and the Trustee shall be
entitled to rely, and shall be fully protected in relying, on any
statement or representation made by a Holder of Notes to the Company in
connection with a particular conversion, without any obligation on the
part of the Company or the Trustee to make any inquiry or investigation
or to examine its records or the records of any transfer agent for the
Common Stock and without any liability of the Company or the Trustee
with respect thereto. The number of shares of Common Stock to be
issued upon each conversion of a Note shall be determined by dividing
the sum of (1) that portion of the principal amount of such Note to be
converted PLUS (2) accrued and unpaid interest on such principal amount
to the date the Conversion Notice for such conversion is given PLUS (3)
Default Interest, if any, on the amount referred to in the immediately
preceding clause (2) to the date such Conversion Notice is given, by
the applicable Conversion Price in effect on the date the Conversion
Notice for such conversion is given.
SECTION 2.08 METHOD OF CONVERSION. Section 8.03(a) of the First
Supplemental Indenture is hereby amended by inserting the following new
parenthetical at the end of the first sentence thereof: "(with
contemporaneous notice in the same manner provided to the Trustee;
provided, however, that the failure to give such notice to the Trustee
shall not affect the time or validity of such Conversion Notice)."
(b) Section 8.03(b) of the First Supplemental Indenture is hereby
amended and restated in its entirety as follows:
(b) If a Holder elects to convert a Note in accordance with
Section 8.01 of this Supplemental Indenture, such Holder shall not
be required to physically surrender such Note unless the entire
unpaid principal amount of such Note is so converted. The Company
shall maintain records showing the principal amount so converted
(including (A) the amount of the Maximum Monthly Gated Conversion
Amount applicable to any such Note that is a Gated Conversion
Tranche Note, the amounts thereof used for conversion exercises in
each month during which Maximum Monthly Gated Conversion Amount
conversion limitations are in effect, the amount from time to time
of the Rollover Gated Conversion Amounts applicable to such Note
and the amounts thereof used for conversion exercises from time to
time and (B) the amount of the Maximum Monthly Redemption-Gated
Conversion Amount applicable to any such note that
31.
<PAGE>
is a Redemption-Gated Conversion Tranche Note, the amounts thereof
used for conversion exercises in each month during which Maximum
Monthly Redemption-Gated Conversion Amount conversion limitations
are in effect, the amount from time to time of the Rollover
Redemption-Gated Conversion Amounts applicable to such note and
the amounts thereof used for conversion exercises from time to
time) and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Majority Holders and the
Company, so as not to require physical surrender of such Notes
upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and
determinative in the absence of manifest error. Notwithstanding
the foregoing, if any portion of a Note is converted as aforesaid,
in addition to compliance with Section 9.12 of this Supplemental
Indenture, the Holder of such Note may not transfer such Note
unless such Holder first physically surrenders such Note to the
Company, whereupon the Company will forthwith issue and deliver
upon the order of such Holder a new note of like tenor, registered
as such Holder (upon payment by such Holder of any applicable
transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of such Note. EACH HOLDER OF
ANY NOTE AND ANY ASSIGNEE, BY ACCEPTANCE OF SUCH NOTE,
ACKNOWLEDGES AND AGREES THAT, BY REASON OF THE PROVISIONS OF THIS
PARAGRAPH, FOLLOWING CONVERSION OF A PORTION OF SUCH NOTE, THE
UNPAID AND UNCONVERTED PRINCIPAL AMOUNT OF SUCH NOTE REPRESENTED
BY SUCH NOTE MAY BE LESS THAN THE AMOUNT STATED ON THE FACE
HEREOF. The Company may by notice to any Holder from time to time
require such Holder to surrender such Holder's Note in exchange
for the issuance by the Company of a new Note in a principal
amount equal to the outstanding principal amount of such Note and
otherwise having terms identical to such Note.
SECTION 2.09 ADDITIONAL AMENDMENTS. Sections 4.01, 4.02, 5.01, 5.03 and
6.01 of the First Supplemental Indenture are hereby amended by deleting the
phrase "February 1, 2000" each place it appears therein and inserting in lieu
thereof the phrase "October 1, 2000".
ARTICLE THREE
EFFECTIVENESS OF AMENDMENTS
SECTION 3.01 CONDITIONS TO EFFECTIVENESS. The modifications to the
Indenture and the First Supplemental Indenture specified in Articles I and II
of this Supplemental Indenture shall become effective upon, and not prior to,
the date (the "Second Supplement Effective Date") that all of the following
conditions precedent shall have been satisfied:
(a) Each Holder of an outstanding Note shall have executed and
delivered to the Trustee a Letter of Consent in the form attached hereto as
ANNEX II;
(b) The Trustee and the Company shall have executed and delivered one
to the other this Supplemental Indenture;
32.
<PAGE>
(c) The Transfer Agent, the Trustee and the Company shall have executed
and delivered, one to the others, the Conversion Agent Agreement Amendment in
the form attached hereto as ANNEX I;
(d) (i) The representations and warranties of the Company contained
in Section 4.01 of this Supplemental Indenture shall have been true and
correct on the Second Supplement Effective Date as if made on and as of
the Second Supplement Effective Date (except for any representation
given as of a specific date, which representation shall be true and
correct as of such date), and on or before the Second Supplement
Effective Date the Company shall have performed all covenants and
agreements of the Company contained in any of the Transaction Documents
which are required to be performed by the Company on or before the
Second Supplement Effective Date (after giving effect to this Second
Supplemental Indenture and the amendment provided for herein);
(ii) No event which (1) would constitute an Event of Default or,
with the giving of notice or the passage of time, or both, would
constitute an Event of Default shall have occurred and be continuing or
(2) would constitute a Repurchase Event or, with the giving of notice or
the passage of time, or both, would constitute a Repurchase Event shall
have occurred and be continuing;
(iii) On the Second Supplement Effective Date, no legal action, suit
or proceeding shall be pending or to the Company's knowledge, threatened
which seeks to restrain or prohibit the transactions contemplated by
this Supplemental Indenture;
(iv) The Company shall have delivered to the Trustee its
certificate, dated the Second Supplement Effective Date, duly executed
by its President and Chief Executive Officer to the effect set forth in
subparagraphs (d)(i), (ii) and (iii);
(e) The Company shall have delivered to the Trustee a certificate,
dated the Second Supplement Effective Date, of the Secretary of the Company
certifying (i) the Certificate of Incorporation and By-Laws of the Company as
in effect on the Second Supplement Effective Date, and (ii) all resolutions
of the Board of Directors (and committees thereof) of the Company relating to
this Supplemental Indenture and the transactions contemplated hereby;
(f) The Trustee shall have received on the Second Supplement Effective
Date an opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company,
dated the Second Supplement Effective Date and addressed to the Holders,
substantially in the form of ANNEX III attached hereto;
(g) On the Second Supplement Effective Date, (A)(i) trading in
securities on the New York Stock Exchange, Inc., the American Stock Exchange,
Inc. or Nasdaq shall not have been suspended or materially limited, and (ii)
a general moratorium on commercial banking activities in the State of
California of the State of New York shall not have been declared by either
federal or state authorities and (B) (i) any necessary written consents to
this Supplemental Indenture and the transactions contemplated hereby have
been, or on the Second Supplement Effective Date will be, obtained by the
Company from the lenders under the Loan Agreements and (ii) the Trustee shall
have received from the Holders a certificate dated the Second Supplement
Effective
33.
<PAGE>
Date, stating that the Holders shall have received evidence satisfactory to
them that any consents required pursuant to subparagraph (B)(i) of this
Section 3.01(g) shall have been received;
(h) The Company shall have deposited with the Trustee $18,500,000 in
immediately available funds to be applied to the redemption of Notes pursuant
to Section 4.10 and shall have delivered to the Trustee irrevocable written
instructions to so apply and disburse such funds if the Second Supplement
Effective Date shall have occurred; and
(i) The Company shall have issued to the order of each Holder and
delivered to the Trustee an Interest Note in the amount of interest payable
to such Holder pursuant to Section 4.11.
ARTICLE FOUR
SUNDRY PROVISIONS
SECTION 4.01 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
Except to the extent modified by this Supplemental Indenture, the Company
makes and reaffirms as of the date of execution of this Supplemental
Indenture all of its representations, warranties, covenants and agreements
set forth in the Original Indenture and the First Supplemental Indenture. In
addition, the Company represents and warrants to, and covenants and agrees
with, each Holder that:
(a) ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, and has all requisite corporate power and authority to (i) own,
lease and operate its properties and to carry on its business as described in
the Prospectus and the SEC Reports and as currently conducted, and (ii) in
the case of the Company, to execute, deliver and perform its obligations
under this Supplemental Indenture, the Notes and the other agreements
executed and delivered by the Company in connection herewith, and to
consummate the transactions contemplated hereby and thereby.
(b) CAPITALIZATION. The capitalization of the Company as of September
30, 1998 is as set forth in the Third Quarter Form 10-Q; the authorized
Common Stock consists of 40,000,000 shares, of which 20,317,313 shares were
outstanding on October 26, 1988; no shares of preferred stock of the Company
are outstanding; and on the Second Supplement Effective Date there will be no
material increase in the number of shares of Common Stock outstanding (except
for not more than 4,700,000 shares issued upon the exercise of options and
warrants outstanding on the date hereof) and no increase in the number of
shares of preferred stock outstanding. The Company does not have outstanding
any securities convertible into, exchangeable for, or otherwise entitling the
holder to acquire, shares of Common Stock other than the Notes, options
granted under the stock option and similar plans and arrangements which have
been adopted by the Company and the convertible promissory note in the
principal amount of $6,000,000 issued to Sanofi S.A., which is referenced in
the prospectus relating to the Notes and there will be no antidilution or
similar adjustment to such stock options or convertible promissory note which
arises by reason of the amendments provided for herein or the conversion of
the Notes in accordance with their terms.
34.
<PAGE>
(c) CONCERNING THE SHARES THE COMMON STOCK. The Conversion Shares,
when issued upon conversion of the Notes, and the Payment Shares, when issued
in payment of interest on the Notes, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder. The holders of outstanding shares
of capital stock of the Company are not entitled to preemptive or other
rights to subscribe for the Shares or to purchase or otherwise acquire the
Notes. The Company has duly reserved a sufficient number of shares as
necessary to enable the Company to comply with the conversion provisions of
the Notes, the Indenture and the Supplemental Indentures, and the Company
shall from time to time reserve such additional shares of Common Stock as
shall be required to be reserved pursuant to the Notes, the Indenture and the
Supplemental Indentures, as long as the Notes are outstanding. The Common
Stock is listed for trading on Nasdaq and no suspension of trading in Common
Stock is in effect. The Company has been notified by the NASD that the
trading price of the Common Stock for purposes of Nasdaq listing criteria
does not satisfy such criteria. The Company has initiated measures, to be
implemented as described in the Preliminary December Meeting Proxy, to
consummate a reverse stock split, which the Company expects will bring such
trading price back into compliance with such criteria prior to the Common
Stock being removed from listing for trading on Nasdaq as a result of such
noncompliance.
(d) CORPORATE AUTHORIZATION. The Transaction Documents have been duly
and validly authorized by the Company; this Supplemental Indenture has been
duly executed and delivered by the Company and, when duly executed and
delivered by the Trustee, this Supplemental Indenture will be, and the
Conversion Agent Agreement Amendment will be, when executed and delivered by
the Company, the Trustee and the Conversion Agent, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except as the enforceability thereof may be limited by bankruptcy,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and general principles
of equity, regardless of whether enforcement is considered in a proceeding in
equity or at law; and the Closing Conversion Tranche Notes, the Gated
Conversion Tranche Notes and the Redemption-Gated Conversion Tranche Notes
have been duly and validly authorized and, when authenticated by the Trustee
and issued and delivered in accordance with the Indenture and this
Supplemental Indenture, will have been duly and validly executed,
authenticated, issued and delivered and will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms (except as the enforceability thereof may be
limited by bankruptcy, reorganization, moratorium or other similar laws now
or hereafter in effect relating to or affecting creditors' rights generally
and general principles of equity, regardless of whether enforcement is
considered in a proceeding in equity or at law) and entitled to the benefits
provided by the Indenture and this Supplemental Indenture.
(e) NON-CONTRAVENTION. The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated by the Transaction Documents do not and will not,
with or without the giving of notice or the passage of time, or both, (i)
result in any violation of any term of the certificate of incorporation or
by-laws of the Company, (ii) conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under,
or result in the modification of, or result in the creation or imposition of
any lien, security interest, charge or encumbrance upon any of the
35.
<PAGE>
properties or assets of the Company pursuant to, any indenture, mortgage,
deed of trust or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary any of their
respective properties or assets are bound or affected which conflict, breach,
default, modification, lien, security interest, charge or encumbrance would
have a material adverse effect on the business, properties, operations,
condition (financial or other) or results of operations of the Company and
the Subsidiaries, taken as a whole, or the transactions contemplated by the
Transaction Documents or the authority or ability of the Company to perform
its obligations under the Transaction Documents, (iii) violate or contravene
any applicable law, rule or regulation or any applicable decree, judgment or
order of any court, United States federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any Subsidiary or any of their respective properties or assets
which violation or contravention would have a material adverse effect on the
business, properties, operations, condition (financial or other) or results
of operations of the Company and Subsidiaries, taken as a whole, or the
transactions contemplated by the Transaction Documents or the authority or
ability of the Company to perform its obligations under the Transaction
Documents, or (iv) have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise
necessary for the Company or any Subsidiary to own or lease and operate any
of its material properties and to conduct its business or to make use thereof.
(f) DESIGNATED SENIOR DEBT. The Company does not have any Designated
Senior Debt except for the Obligations arising under the Loan Agreements and
the Company shall not incur, assume or designate any Designated Senior Debt
prior to or on the Second Supplement Effective Date. The Company has
furnished to the Holders true and correct copies of the Loan Agreements, as
amended to the date hereof and the Company will not amend or modify the Loan
Agreements prior to or on the Second Supplement Effective Date.
(g) APPROVALS. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company
is required to be obtained or made by the Company in connection with the
execution, delivery and performance of this Second Supplemental Indenture or
the effectiveness of the amendments provided for herein.
(h) ABSENCE OF CERTAIN PROCEEDINGS. Except as described in the SEC
Reports, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body presently pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
Subsidiary wherein an unfavorable decision, ruling or finding could have a
material adverse effect on the business, properties, operations, condition
(financial or other), results of operations or prospects of the Company and
the Subsidiaries taken as a whole or the transactions contemplated by the
Transaction Documents or which could adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, the Transaction Documents.
(i) COMPLIANCE WITH LAW AND OBLIGATIONS. Except as disclosed in the
SEC Reports, neither the Company nor any Subsidiary is in violation of any
statute, law, rule, regulation, ordinance, decision or order of any
governmental agency or body or any court, domestic or foreign, including,
without limitation, those relating to the use, operation, handling,
36.
<PAGE>
transportation, disposal or release of hazardous or toxic substances or
wastes or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances or wastes, except where such
violations would not individually or in the aggregate have a material adverse
effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company and the
Subsidiaries taken as a whole: and the Company is not aware of any pending
investigation which would reasonably be expected to lead to such a claim
against the Company or any Subsidiary. After giving effect to the Consent
referred to in Section 3.01(g)(ii) of this Second Supplemental Indenture, no
default or event which, with notice or lapse of time, or both, would become a
default has occurred and is continuing under any Loan Agreement. After giving
effect to the consent referred to in Section 3.01(g)(ii) of this Second
Supplemental Indenture the Company and each of the Subsidiaries has performed
in all material respects its obligations required to be performed by it, and
is not in default in any material respect, under any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement, lease, contract or other agreement or instrument to which it is a
party or by which its property is bound or affected. To the best knowledge
of the Company and each of its Subsidiaries, no other party under any
material contract or other agreement to which it is a party is in default in
any respect thereunder.
(j) FINANCIAL CONDITION. On and as of the Second Supplement Effective
Date, after giving effect to the transactions contemplated by the Transaction
Documents:
(1) The fair salable value of the assets of the Company is not
less than the amount that the Company reasonably expects will be required to
be paid on the probable liability on the existing debts of the Company as
they become absolute and matured;
(2) The assets of the Company do not constitute unreasonably
small capital for the Company to carry out its business as now conducted and
as proposed to be conducted;
(3) The Company does not intend to or believe that it will incur
debts beyond its ability to pay such debts as they mature; and
(4) The Company believes that no final judgments against it in
actions for money damages currently pending will be rendered at a time when,
or in an amount such that, it will be unable to satisfy all such judgments.
For purposes of this Section 4.01(j), "debt" means any legal liability,
whether matured or unmatured liquidated or unliquidated, absolute, fixed or
contingent.
(k) CERTAIN NASD MATTERS. Based upon the letter, dated February 2,
1998, from the NASD to the Company, a copy of which has been provided to the
Holders, the issuance of the Conversion Shares upon conversion of the Notes
or the Payment Shares in payment of interest on the Notes are not subject to
a requirement of Nasdaq for Stockholder Approval under Rule 4460(i) of
Nasdaq, and the Company will not be limited by Rule 4460(i) of Nasdaq with
respect to the number of Conversion Shares issuable upon conversion of the
Notes or Payment Shares issued in payment of interest on the Notes in order
to remain in compliance with the listing standards of Nasdaq.
37.
<PAGE>
(l) RIGHTS AGREEMENT. Assuming that a Holder does not hold any shares
of Common Stock other than as acquired upon conversion of the Notes, and
subject to compliance with the limitation on the number of shares of Common
Stock that may be held by such Holder as contained therein, the execution and
delivery of this Agreement by the Company, the issuance of the Notes as
contemplated by this Agreement, the issuance of the Conversion Shares upon
conversion of the Notes and the other transactions contemplated by the
Transaction Documents will not result in such Holder becoming an Acquiring
Person, as defined in the Rights Agreement; and the Holders will be entitled
with respect to the Shares to the benefits available to the holders of Common
Stock under the Rights Agreement.
(m) ABSENCE OF SOLICITATION COMPENSATION. The Company has not paid and
will not pay directly or indirectly any commission or other remuneration to
any Person for solicitation of consents of the Holders to this Supplemental
Indenture.
SECTION 4.02 TRUSTEE NOT RESPONSIBLE FOR RECITALS. The recitals contained
herein shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representation as to the validity of this Supplemental Indenture.
SECTION 4.03 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein are for convenience only and shall not affect the
construction hereof.
SECTION 4.04 SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Supplemental Indenture by the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 4.05 SEPARABILITY CLAUSE. In case any provision in this
Supplemental Indenture 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 4.06 BENEFITS OF SUPPLEMENTAL INDENTURE. Nothing in this
Supplemental Indenture, express or implied, shall give to any Person, other
than the parties hereto, any Paying Agent, any Note registrar and their
successors under the Original Indenture and the Holders of Notes, any benefit
or any legal or equitable right, remedy or claim under the Indenture or First
Supplemental Indenture.
SECTION 4.07 GOVERNING LAW. This Supplemental Indenture shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 4.08 COUNTERPARTS. This Supplemental Indenture 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.
SECTION 4.09 REFERENCE TO AND EFFECT ON INDENTURE. This Supplemental
Indenture shall be construed as supplemental to the Indenture and the First
Supplemental Indenture and all the terms and conditions of this Supplemental
Indenture shall be deemed to be part of the terms and conditions of the
Indenture and the First Supplemental Indenture. Except as set forth herein,
the Indenture and the First Supplemental Indenture heretofore executed and
delivered are hereby ratified, approved and confirmed. The provisions of
this Supplemental Indenture shall for the
38.
<PAGE>
purposes of the Notes supersede the provisions of the Indenture and the First
Supplemental Indenture heretofore executed and delivered to the extent such
Indenture and the First Supplemental Indenture heretofore executed and
delivered are expressly inconsistent herewith. This Supplemental Indenture is
subject to the provisions of the Trust Indenture Act, and shall, to the
extent applicable, be governed by such provisions.
SECTION 4.10 CLOSING DATE REDEMPTION; EXCHANGE OF TRANCHE 1 NOTES AND
TRANCHE 2 NOTES. (a) On the Second Supplement Effective Date, Outstanding
Notes in the aggregate principal amount of $18,500,000 shall become
redeemable and shall become due and payable at an aggregate Redemption Price
of $18,500,000, and from and after the Second Supplement Effective Date, the
principal amount of Notes so redeemable shall cease to bear interest. Each
Holder shall be paid such Holder's rateable share (based on the proportion
that the aggregate principal amount of the Outstanding Notes held by such
Holder on the Second Supplement Effective Date bears to the aggregate
principal amount of all of the Outstanding Notes on the Second Supplement
Effective Date) of such aggregate Redemption Price upon such Holder's
surrender to the Trustee of all Outstanding Tranche 1 Notes and Tranche 2
Notes held by such Holder on the Second Supplement Effective Date (in each
case duly endorsed by such Holder or its attorney duly authorized in
writing). No portion of the unpaid interest accrued on the portion of the
Notes so redeemed shall be paid upon such redemption. Such unpaid accrued
interest shall be payable in the manner provided in Section 4.11 of this
Supplemental Indenture.
(b) Upon surrender as specified in paragraph (a) of this Section 4.10
by any Holder of the Tranche 1 Notes and Tranche 2 Notes held by such Holder
on the Second Supplement Effective Date, the Company shall execute, and the
Trustee shall authenticate and deliver to such Holder without service charge,
new Notes in an aggregate principal amount equal to the aggregate principal
amount of the Notes so surrendered by such Holder remaining Outstanding (such
amount being such Holder's "Second Supplement Post-Redemption Outstanding
Amount") after giving effect to the redemption provided for in paragraph (a)
of this Section 4.10, such Notes to be comprised of the following:
(i) a Closing Conversion Tranche Note, in a principal amount equal to
24.4897959% of such Holder's Second Supplement Post-Redemption
Outstanding Amount MINUS such principal amount, if any, of Notes of
such Holder as has been specified for conversion in a Conversion
Notice pertaining to the Closing Conversion Tranche Notes a copy of
which has been delivered to the Trustee concurrently with or prior
to such surrender;
(ii) a Gated Conversion Tranche Note, in a principal amount equal to
24.4897959% of such Holder's Second Supplement Post-Redemption
Outstanding Amount; and
(iii) a Redemption-Gated Conversion Tranche Note, in a principal amount
equal to the remainder of such Holder's Second Supplement
Post-Redemption Outstanding Amount.
The Trustee shall promptly cancel each Tranche 1 Note and Tranche 2 Note
surrendered as specified in paragraph (a) of this Section 4.10 and return
such canceled Notes to the Company or dispose of such canceled Notes as
directed by the Company.
39.
<PAGE>
SECTION 4.11 INTEREST PROVISIONS APPLICABLE TO NOTES REDEEMED ON SECOND
SUPPLEMENT EFFECTIVE DATE. Notwithstanding any provisions in the Indenture
or First Supplemental Indenture to the contrary, unpaid interest accrued to
the date of redemption on any portion of the Notes redeemed as provided in
Section 4.10(a) of this Second Supplemental Indenture shall not be payable
until the Interest Payment Date of December 15, 1998, and on such Interest
Payment Date such interest (to be evidenced by an interest payment note in
the form attached hereto as ANNEX IV (an "Interest Note")) shall become due
and payable otherwise in accordance with the terms applicable to the payment
of interest on the Notes provided for in the Indenture and First Supplemental
Indenture (including, without limitation, terms providing for payment
pursuant to the Stock Payment Option).
SECTION 4.12 ENFORCEABLE OBLIGATION. The Company represents and warrants
that upon authentication and delivery of the Restructuring Notes pursuant to
Section 4.10(b) of this Supplemental Indenture, such Restructuring Notes
shall not be subject to any offset, reduction, counterclaim or disallowance
of any sort arising from any failure to receive the purchase price payable
upon issuance of the Tranche 1 Notes and Tranche 2 Notes exchanged for such
Restructuring Notes pursuant to such Section 4.10(b).
SECTION 4.13 AMENDMENTS. In addition to the requirements of Section 902
of the Original Indenture and Section 9.11 of the First Supplemental
Indenture, no supplemental indenture shall, without the consent of the Holder
of each Outstanding Note affected thereby, change the obligations of the
Company to redeem or repurchase Notes pursuant to Section 6.01 of the First
Supplemental Indenture or Article Seven of the First Supplemental Indenture
or reduce the Redemption Price, in each case after giving effect to the
amendments provided for in this Supplemental Indenture.
SECTION 4.14 TRANSFERS OF NOTES. Unless a Holder shall have obtained the
prior written consent of the Company, such Holder may not sell, assign or
otherwise transfer any Restructuring Note of such Holder other than (1) to a
Permitted Transferee or (2) in connection with a bona fide pledge to a
financial institution.
40.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
CYGNUS, INC.
By: /s/ John Hodgman
----------------------------------
John Hodgman
President and Chief Executive
Officer
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.,
AS TRUSTEE
By: /s/ Joni D'Amico
----------------------------------
Joni D'Amico
Assistant Vice President
October 28, 1998
41.
<PAGE>
State of )
-----------
) ss.:
County of )
----------
On the _______ day of ______________, 1998, before me personally came
two credible witnesses, being by me duly sworn, did depose and say that
_____________________ resides at _____________________________________, that
he is the ____________________________ of CYGNUS, INC., one of the
corporations described in and which executed the above instrument; that she
or he knows the corporate seal of said corporation; that the seal affixed to
said instrument is said seal of said corporation; that the seal affixed to
said instrument is said corporate seal; that it was so affixed by the
authority of the Board of Directors of said corporation; and that she or he
signed her or his name thereto by like authority.
[Notary Signature and Stamp]
42.
<PAGE>
ANNEX I
TO SECOND SUPPLEMENTAL INDENTURE
FORM OF CONVERSION AGENT AGREEMENT AMENDMENT
CONVERSION AGENT AGREEMENT AMENDMENT
This Conversion Agent Agreement Amendment (the "Amendment") is entered
into as of October __, 1998, by and among CYGNUS, INC., a Delaware corporation
(the "Company"), CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Conversion Agent
(the "Conversion Agent"), and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company and the Trustee are executing and delivering, one
to the other, a Second Supplemental Indenture, a form of which is attached
hereto as Exhibit A, (the "Second Supplemental Indenture"), dated as of the date
hereof amending the Indenture dated February 3, 1998 (the "Original Indenture")
as amended by the First Supplemental Indenture, dated as February 3, 1998 (the
"First Supplemental Indenture"), providing for the issuance by the Company of
$43,000,000 aggregate principal amount of 4% Senior Subordinated Convertible
Notes due 2005 (the "Notes");
WHEREAS, the Company, the Conversion Agent and the Trustee have
entered into that certain Conversion Agent Agreement dated as of February 3,
1998 (the "Conversion Agent Agreement");
WHEREAS, Section 6(f) of the Conversion Agent Agreement provides that
the Conversion Agent Agreement may be amended provided such amendment is in
writing signed by the Company, the Conversion Agent and the Trustee with the
prior written consent of the Majority Holders (as defined in the First
Supplemental Indenture);
WHEREAS, the Majority of Holders have agreed, by prior written
consent, to the amendment of the Conversion Agent Agreement to reflect the terms
of the Second Supplemental Indenture;
WHEREAS, the Trustee has agreed in accordance with the Original
Indenture, as amended by the First Supplemental Indenture and the Second
Supplemental Indenture, to maintain the register of Holders and the records of
transfer of Notes;
<PAGE>
NOW THEREFORE, the Company, the Conversion Agent and the Trustee, for
the benefit of the Holders, hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Conversion Agent
Agreement, and the rules of construction set forth in the Conversion Agent
Agreement shall likewise govern this Amendment.
2. AMENDMENT OF REFERENCES TO AND PROVISIONS RELATING TO THE
ORIGINAL INDENTURE AND THE FIRST SUPPLEMENTAL INDENTURE AND PROVISIONS THEREOF.
The Conversion Agreement is hereby amended such that all references in the
Conversion Agent Agreement to, and provisions of the Conversion Agent Agreement
relating to, the Original Indenture and the First Supplemental Indenture and the
respective provisions thereof shall be deemed to be references to, and
provisions relating to, the Original Indenture and First Supplemental Indenture
and their respective provisions in each case, as amended by the Second
Supplemental Indenture.
3. FORM OF CONVERSION NOTICE. From and after the effectiveness of
the Second Supplemental Indenture, the form of conversion notice for the Notes
shall be the form of Notice of Conversion of 5.5% Senior Subordinated
Convertible Notes due 2000 as set forth in Section 2.04 of the Second
Supplemental Indenture.
4. MISCELLANEOUS.
(a) This Amendment shall be governed by and interpreted in
accordance with the laws of the State of New York.
(b) This Amendment may be executed in counterparts and by the
parties hereto on separate counterparts, all of which together shall constitute
one and the same instrument. A facsimile transmission of this Amendment bearing
a signature on behalf of a party hereto shall be legal and binding on such
party.
(c) On and after the date hereof, each reference in the Conversion
Agent Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of
like import referring to the Conversion Agent Agreement, and each reference to
the Conversion Agent Agreement in the Original Indenture, First Supplemental
Indenture and Second Supplemental Indenture and documents delivered in
connection therewith, shall mean and be a reference to the Conversion Agent
Agreement as amended hereby.
2.
<PAGE>
IN WITNESS WHEREOF, this Conversion Agent Agreement Amendment has been
duly executed by the parties hereto by their respective officers or other
representatives thereunto duly authorized as of the date first set forth above.
CYGNUS, INC.
By
--------------------------------------
Name:
Title:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as Conversion Agent
By
--------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.,
as Trustee
By
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
SECOND SUPPLEMENTAL INDENTURE
<PAGE>
ANNEX II
TO SECOND SUPPLEMENTAL INDENTURE
FORM OF LETTER OF CONSENT
LETTER OF CONSENT
TO CONSENT TO CERTAIN INDENTURE AMENDMENTS
WITH RESPECT TO THE
4 % SENIOR SUBORDINATED CONVERTIBLE NOTES DUE 2005
OF
CYGNUS, INC.
PURSUANT TO THE
CONSENT SOLICITATION STATEMENT
DATED OCTOBER 26, 1998
TO CYGNUS, INC.:
BY HAND DELIVERY OR
OVERNIGHT COURIER: FACSIMILE TRANSMISSION
C/O BROBECK, PHLEGER & HARRISON LLP (415) 442-1010
ONE MARKET, SPEAR STREET TOWER
SAN FRANCISCO, CA 94105
ATTENTION: LAURA DE PETRA/DOUGLAS YOUNG
CONFIRM BY TELEPHONE: (415) 442-1265
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS LETTER VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF CONSENT SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF CONSENT IS
COMPLETED.
- --------------------------------------------------------------------------------
DESCRIPTION OF NOTES AS TO WHICH CONSENT IS GIVEN
- --------------------------------------------------------------------------------
(1) (2) (3)
Name(s) and Address(es) Note Aggregate Principal
of Holder Certificate No(s). Amount of Notes Held
- --------------------------------------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
TOTAL:
- --------------------------------------------------------------------------------
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF CONSENT CAREFULLY BEFORE SIGNING BELOW.
Holders who wish to consent to the Proposed Amendments must complete the
box on the preceding page entitled "DESCRIPTION OF NOTES AS TO WHICH CONSENT IS
GIVEN" and sign below.
PLEASE READ THE INFORMATION REGARDING CONSENT AND THE INSTRUCTIONS INCLUDED
HEREIN CAREFULLY
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Consent Solicitation Statement
dated October 26, 1998 (the "Consent Solicitation Statement") of Cygnus, Inc.
(the "Company") and the forms of Second Supplemental Indenture and Conversion
Agent Agreement Amendment delivered to the undersigned along with this Letter of
Consent. The proposed amendments to the Indenture and Conversion Agent Agreement
described in the Consent Solicitation Statement to be effected by the Second
Supplemental Indenture and the Conversion Agent Agreement Amendment are herein
referred to as the "Proposed Amendments." Capitalized terms used herein and not
otherwise defined herein (including in the Information Regarding Consent and in
the Instructions) will have the meanings ascribed thereto in the Consent
Solicitation Statement.
Upon the terms and subject to the conditions of the Consent Solicitation
Statement and this Letter of Consent, the undersigned hereby consents to the
Proposed Amendments in respect of the Notes indicated above. The undersigned
hereby appoints the Company to deliver the Consent contained herein to State
Street Bank and Trust, N.A. (the "Trustee").
The undersigned Registered Holder hereby represents and warrants to, and
covenants and agrees with, the Company as follows:
(a) ACCREDITED INVESTOR. The undersigned Registered Holder is an
"accredited investor" as that term is defined in Rule 501 of Regulation D under
the Securities Act of 1933, as amended.
(b) DOCUMENTS AND INFORMATION. The undersigned Registered Holder has
received the Registration Statement and the Prospectus, as such terms are
defined in the Indenture, and the SEC Reports, as such term is defined in the
Second Supplemental Indenture, and has had an opportunity to review and to ask
questions of the Company regarding the Registration Statement, the Prospectus
and the SEC Reports.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
The undersigned recognizes that, under certain circumstances set forth in
this Letter of Consent and the Consent Solicitation Statement, the Company is
not required to accept any of the Consents delivered. Consents with respect to
any Note will not be counted if such Holder's Consent is defective, unless the
Company waives such defect.
The undersigned understands that delivery of Consents pursuant to the
procedures described herein will constitute a binding agreement between the
undersigned and the Company in accordance with the terms and subject to the
conditions of this Letter of Consent.
2.
<PAGE>
This Letter of Consent must be signed by the Registered Holder of the Notes
as its name appears on the certificates for the Notes, or by Nominees authorized
to sign by the Registered Holder as evidenced by an executed proxy. If there are
two or more Nominees, each should sign. If a signatory is a corporation, please
give full corporate names and have a duly authorized officer sign, stating
title. If a signatory is a partnership or trust, please sign in partnership or
trust name by a duly authorized person. If a signatory is a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, please set forth the full title. See
Instruction 3.
PLEASE SIGN ON NEXT PAGE WHERE INDICATED
3.
<PAGE>
PLEASE SIGN BELOW
(SEE INSTRUCTIONS 1 AND 3)
- --------------------------------------------------------------------------------
X_________________________________________________________________________
X_________________________________________________________________________
Signature(s) of Registered Holder Date
PLEASE TYPE OR PRINT INFORMATION BELOW
Name(s)__________________________________________________________________
(Please Type or Print)
Capacity: _______________________________________________________________
Address:_________________________________________________________________
(Including Zip Code)
- --------------------------------------------------------------------------------
4.
<PAGE>
INFORMATION REGARDING CONSENT
Reference is hereby made to (i) the Indenture, dated as of February 3, 1998
(the "Original Indenture") by and between the Company and the Trustee, as
amended by the First Supplemental Indenture dated as of February 3, 1998, by and
between the Company and the Trustee (the "First Supplemental Indenture"; the
Original Indenture, as amended by the First Supplemental Indenture being the
"Indenture"), (ii) the outstanding 4% Senior Subordinated Convertible Notes due
2005 issued pursuant to the Indenture (the "Notes"), (iii) the proposed Second
Supplemental Indenture (the "Second Supplemental Indenture") between the Company
and the Trustee relating to the Indenture and the proposed Conversion Agent
Agreement Amendment (the "Conversion Agent Agreement Amendment") among the
Company, ChaseMellon Shareholder Services, L.L.C. (the "Conversion Agent") and
the Trustee relating to the Conversion Agent Agreement, and (iv) the Consent
Solicitation Statement, relating to the solicitation (the "Consent
Solicitation") of consents (the "Consents"), upon the terms and subject to the
conditions set forth in the Second Supplemental Indenture and in this Letter of
Consent and the instructions included herewith. Terms defined in the Indenture
and used without other definition herein shall have the respective meanings
assigned to such terms in the Indenture.
Adoption of the Proposed Amendments requires the consents of all of the
Holders of the outstanding Notes as of the date of the Consent Solicitation
Statement (the "Requisite Consents"). If, as of the Expiration Date (as defined
below), the Company has received the Requisite Consents, certain other
conditions set forth herein have been satisfied or waived and the Company has
not determined as of such date to extend the Expiration Date or terminate the
Consent Solicitation, then the Company and the Trustee will execute and deliver
the Second Supplemental Indenture and the Company, the Trustee and the
Conversion Agent will execute and deliver the Conversion Agent Agreement
Amendment thereby providing for the Proposed Amendments to be effected.
Only (i) those persons in whose name the Notes are registered in the
Security Register (as defined in the Indenture) maintained pursuant to the
Indenture as of the date of the Consent Solicitation Statement (referred to
herein as "Registered Holders"); or (ii) persons who hold valid proxies which
authorize such persons (or any persons claiming title by or through such
persons) to give consent with respect to the Consent Solicitation (collectively,
the "Nominees"), will be eligible to consent to the Proposed Amendments.
THE CONSENT SOLICITATION IS NOT BEING MADE TO (NOR WILL THE DELIVERY OF
CONSENTS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH
THE MAKING OF THE CONSENT SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS
OF SUCH JURISDICTION.
This Letter of Consent is being furnished to the Registered Holders on or
about October 26, 1998. Nominees as of the close of business on the date of the
Consent Solicitation Statement (October 26, 1998) authorized by the proxy
referred to above will be entitled to notice of and will be entitled to execute
and deliver Letters of Consent relating to Consents to the Proposed Amendments.
The Consent Solicitation will expire at 5:00 p.m., New York City time, on
October 28, 1998 unless extended by the Company (the "Expiration Date"). The
Company reserves the right to extend the Expiration Date at any time and from
time to time, whether or not the Requisite Consents have been received. Any
such extension will be followed as promptly as practicable by notice thereof.
5.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE LETTER OF CONSENT
1. DELIVERY OF LETTER OF CONSENT. A properly completed Letter of Consent,
or facsimile(s) thereof duly executed by the Registered Holder and any other
documents required by this Letter of Consent, must be received by the Company,
care of its counsel, at its address set forth herein on or prior to the
Expiration Date.
The method of delivery of this Letter of Consent and any other required
document is at the election and risk of the consenting Holder, and except as
otherwise provided below, the delivery will be deemed made when actually
received by the Company, care of its counsel. If such delivery is by mail, it is
recommended that Holders use registered mail, properly insured, with return
receipt requested. In all cases, sufficient time should be allowed to assure
timely delivery.
If the person signing the Letter of Consent is not the Registered Holder of
the Notes pursuant to which a Consent is being delivered, then such person must
obtain from the Registered Holder, and submit to the Company, a proxy acceptable
to the Company.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Consents will be determined by the Company, in
its sole discretion, which determination will be final and binding on all
parties. The Company reserves the right to reject any and all Consents not
validly given or any Consents, the Company's acceptance of which would, in the
opinion of the Company or its counsel, be unlawful. The Company also reserves
the right to waive any defects, irregularities or conditions of the Consent
Solicitation (including this Letter of Consent and the instructions hereto). Any
such determinations by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with deliveries of
Letters of Consent must be cured within such time as the Company shall
determine. None of the Company, the Trustee or any other person shall be under
any duty to give notification of defects or irregularities with respect to
deliveries of Letters of Consent, nor shall any of them incur any liability for
failure to give such notification.
2. CONSENT TO PROPOSED AMENDMENTS. Only (i) Registered Holders or (ii)
Nominees will be eligible to consent to the Proposed Amendments.
If, as of the Expiration Date, the Company has received the Requisite
Consents and certain other conditions set forth herein have been satisfied or
waived in a manner acceptable to the Company, in its sole discretion, and the
Company has not determined as of such date to extend the Expiration Date or
terminate the Consent Solicitation, then the Company and the Trustee will
execute and deliver the Second Supplemental Indenture and the Company, the
Trustee and the Conversion Agent will execute and deliver the Conversion Agent
Agreement Amendment thereby providing for the Proposed Amendments to be
effected. The provisions of the Indenture to be modified by the Proposed
Amendments will remain in effect in their existing form until such time as the
Proposed Amendments become operative. Upon the execution and delivery of the
Second Supplemental Indenture by the Company and the Trustee, the Second
Supplemental Indenture will be binding upon each Holder.
3. SIGNATURES ON THIS LETTER OF CONSENT AND ENDORSEMENTS. Consents by
Nominee(s) should be executed in exactly the same manner as the name(s)
appear(s) on the Notes. If the Notes to which a Consent relates are held of
record by two or more joint holders, all such holders must sign the Letter of
Consent. If a signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other registered holder acting in
a fiduciary or representative capacity, such person should so indicate when
signing. If Notes are registered in different names, separate Letters of Consent
must be executed with respect to each such registered name.
4. WAIVER OF CONDITIONS. The Company expressly reserves the right to
modify or waive, at any time or from time to time, the terms of the Consent
Solicitation and the Proposed Amendments, in any manner it deems necessary or
advisable.
5. EXPIRATION DATE; EXTENSIONS. The term "Expiration Date" means 5:00
p.m., New York City time, on October 28, 1998, unless the Company, in its sole
discretion, extends the period during which the Consent
6.
<PAGE>
Solicitation is open, in which event the term "Expiration Date" means the
latest time and date to which the Consent Solicitation is so extended. The
Company reserves the right to extend the Consent Solicitation at any time and
from time to time, whether or not the Requisite Consents have been received.
The Company reserves the right (i) to decline to accept the Consents for
any reason, (ii) to delay accepting any Consents, to extend the Consent
Solicitation or to terminate the Consent Solicitation, and to accept Letters of
Consent not previously accepted or (iii) to amend or modify the terms of the
Consent Solicitation in any manner.
If the Company makes a material change in the terms of, or information
concerning, the Consent Solicitation or the Proposed Amendments, or waives any
condition related thereto that results in a material change to the circumstances
of the Consent Solicitation, then the Company will disseminate additional
solicitation materials to the extent necessary and will extend the Consent
Solicitation to the extent necessary in order to permit the Holders of the Notes
adequate time to consider such materials and, if they so choose, to revoke their
Consents. The minimum period that the Expiration Date will be extended will
depend upon the specific facts and circumstances, including the relative
materiality of the terms and information.
6. TAX INFORMATION. All Registered Holders are urged to consult with
their tax advisors to determine what, if any, effect the Proposed Amendments
will have on their tax obligations.
7. PROCEDURES FOR CLOSING DATE REDEMPTION; DELIVERY OF RESTRUCTURING
TRANCHE NOTE. On the Second Supplement Effective Date, Outstanding Notes in the
aggregate principal amount of $18,500,000 shall become redeemable and shall
become due and payable at an aggregate Redemption Price of $18,500,000 (the
"Closing Redemption Payment"), and from and after the Second Supplement
Effective Date, the principal amount of Notes so redeemable shall cease to bear
interest. Each Holder shall be paid such Holder's ratable share (based on the
proportion that the aggregate principal amount of the Outstanding Notes held by
such Holder on the Second Supplement Effective Date bears to the aggregate
principal amount of all of the Outstanding Notes on the Second Supplement
Effective Date) of such aggregate Redemption Price upon such Holder's surrender
to the Trustee of all Outstanding Tranche 1 Notes and Tranche 2 Notes held by
such Holder on the Second Supplement Effective Date (in each case duly endorsed
by such Holder or its attorney duly authorized in writing). In order to receive
payment of its full ratable share of the Closing Redemption Payment, each Holder
must surrender all Outstanding Notes hold by such Holder to the Trustee at the
Corporate Trust Office, which is the following:
State Street Bank and Trust Company of California, N.A.
Library Tower
633 West 5th Street, 12th Floor
Los Angeles, CA 90071
No portion of the unpaid interest accrued on the portion of the Notes
so redeemed shall be paid upon such redemption. Such unpaid accrued interest
shall be payable in the manner provided in Section 4.11 of the Second
Supplemental Indenture.
Upon surrender as specified above by any Holder of the Tranche 1 Notes
and Tranche 2 Notes held by such Holder on the Second Supplement Effective Date,
the Company shall execute, and the Trustee shall authenticate and deliver to
such Holder without service charge, new Notes in an aggregate principal amount
equal to the aggregate principal amount of the Notes so surrendered by such
Holder remaining Outstanding (such amount being such Holder's "Second Supplement
Post-Redemption Outstanding Amount") after giving effect to the redemption
described above, such Notes to be comprised of the following:
(i) a Closing Conversion Tranche Note, in a principal amount
equal to 24.4897959% of such Holder's Second Supplement Post-
Redemption Outstanding Amount MINUS such principal amount, if any, of
Notes of such Holder as has been specified for conversion in a
Conversion Notice pertaining to the Closing Conversion Tranche Notes a
copy of which has been delivered to the Trustee concurrently with or
prior to such surrender;
(ii) a Gated Conversion Tranche Note, in a principal amount
equal to 24.4897959% of such Holder's Second Supplement Post-
Redemption Outstanding Amount; and
7.
<PAGE>
(iii) a Redemption-Gated Conversion Tranche Note, in a
principal amount equal to the remainder of such Holder's Second
Supplement Post-Redemption Outstanding Amount.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for consenting, as well as requests for additional copies of the
Consent Solicitation and this Letter of Consent, may be directed to Brobeck,
Phleger & Harrison LLP, One Market Plaza, Spear Street Tower, San Francisco, CA,
Attention: Laura M. de Petra, (415) 442-0900.
8.
<PAGE>
ANNEX III
to
Second Supplemental Indenture
FORM OF OPINION
OF
BROBECK, PHLEGER & HARRISON LLP
October 28, 1998
To the Parties Listed on Schedule A hereto (the "Holders")
Re: CYGNUS, INC.
Ladies and Gentlemen:
This opinion letter is furnished to you pursuant to Section 3.01(f) of
the Second Supplemental Indenture, dated as of October 28, 1998 (the "Second
Supplemental Indenture"), by and between Cygnus, Inc., a Delaware corporation
(the "Company"), and State Street Bank and Trust Company of California, N.A., as
trustee (the "Trustee"), relating to the Notes (as defined herein). We have
acted as counsel for the Company in connection with the Company's entry into the
Second Supplemental Indenture, which, among other things, provides for a partial
redemption of and certain modifications of the terms of the Company's 4% Senior
Subordinated Convertible Notes due 2005 (collectively, the "Notes" and, as
amended pursuant to the Second Supplemental Indenture, the "Restructured
Notes"). Unless otherwise defined herein, terms used herein shall have the
meanings assigned to them in the Second Supplemental Indenture.
In connection with the opinions expressed herein we have made such
examination of matters of law and fact as we considered appropriate or advisable
for purposes hereof. We have also examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates, including certificates of public of officials, and other
instruments as we have deemed necessary or advisable for purposes of this
opinion letter. In addition, we have examined the following documents (the
items referred to in subclauses (i) through (iii) below herein referred to as
the "Transaction Documents"):
(i) an executed copy of the Second Supplemental Indenture;
(ii) the Restructuring Tranche Notes executed by the Company and
payable to the several Holders;
<PAGE>
To the Parties Listed on Schedule A October 28, 1998
hereto Page 2
(iii) an executed copy of the Conversion Agent Agreement Amendment;
(iv) the Letters of Consent relating to the Second Supplemental
Indenture executed by each of the Holders (the "Holder Consents");
(v) the Certificate of Incorporation of the Company, including all
amendments thereto, as in effect on the date hereof;
(vi) the Bylaws of the Company, including all amendments thereto,
as in effect on the date hereof;
(vii) resolutions of the Board of Directors of the Company adopted
at a duly called regular meeting on September 23, 1998, authorizing the
execution, delivery and performance of the Transaction Documents and the
transactions contemplated thereby;
(viii) the certificate, dated the date hereof, of the Chief Executive
Officer of the Company, delivered pursuant to Section 3.01(d) of the Second
Supplemental Indenture;
(ix) the certificate, dated the date hereof, of the Secretary of
the Company, delivered pursuant to Section 3.01(e) of the Second
Supplemental Indenture, certifying: (A) the Certificate of Incorporation
and Bylaws of the Company as in effect on such date, and (B) a true copy of
the resolutions of the Board of Directors of the Company referred to above;
(x) correspondence dated February 2, 1998 from the Nasdaq Stock
Market, Inc. concerning the application of Section 4460(i)(1)(D) to the
issuance of the Notes (the "NASD letter") and the letters of this firm
relating thereto; and
(xi) such other documents as we have deemed necessary or
appropriate as a basis for the opinions hereinafter expressed.
We have also examined photostatic or facsimile copies of the
agreements (the "Material Agreements") identified as such to us in a certificate
executed by the Chief Executive Officer of the Company (a copy of which has been
provided to the Trustee) and any consents executed in connection with the
Material Agreements. In addition, we have obtained from public officials and
from officers and other representatives of the Company such other certificates
and assurances as we consider necessary for purposes of this opinion. In our
examination and review we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of the documents submitted
to us as originals, the conformity to the original documents of all documents
submitted to us as certified, facsimile or photostatic copies, and the
authenticity of the originals of such copies. As to any facts material to the
opinions hereinafter expressed which we did not independently establish or
verify, we have relied without
<PAGE>
To the Parties Listed on Schedule A October 28, 1998
hereto Page 3
investigation upon the representations and warranties as to factual matters
contained in and made by the Company pursuant to the Second Supplemental
Indenture and upon certificates and statements and of government officials
and representatives of the Company.
We have also assumed: (A) with respect to documents executed by
parties other than the Company, (i) that each such other party had the power to
enter into and perform all its obligations thereunder, (ii) the due
authorization, execution and delivery of such documents by each such party and
(iii) that such documents constitute the legal, valid and binding obligations of
each such party; (B) that the representations and warranties made in the Holder
Consents by the Holders are true and correct; and (C) that each Holder has filed
any required state franchise, income or similar tax returns and have paid any
required state franchise, income or similar taxes.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware with the
corporate power and authority (i) to own, lease and operate its properties and
to carry on its business as, to our knowledge, it is now being conducted, (ii)
to execute, deliver and perform its obligations under the Transaction Documents
and (iii) to consummate the transactions contemplated by the Transaction
Documents.
2. The Transaction Documents (i) have been duly and validly
authorized and duly executed and delivered by the Company and (ii) constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms.
3. The Shares have been duly authorized and, when issued upon
conversion of the Restructured Notes or in payment of interest on the
Restructured Notes in accordance with the terms of the Restructured Notes, will
be validly issued, fully paid and non-assessable.
4. The authorized capital stock of the Company is (i) 40,000,000
shares of Common Stock, and (ii) 5,000,000 shares of preferred stock (the
"Preferred Stock"). To our knowledge, based solely upon information received
from the transfer agent for the Common Stock, 20,317,313 shares of Common Stock
were outstanding on October 26, 1998, and no shares of Preferred Stock are
outstanding. There are no preemptive or, to our knowledge, similar rights
outstanding of any stockholder of the Company that would entitle such
stockholder to acquire the Restructured Notes or the Shares. The Common Stock
is (as of the date hereof) listed for trading on the Nasdaq National Market
("Nasdaq") and, to our knowledge, no suspension of trading in the Common Stock
is in effect. The Shares have been duly listed for trading on Nasdaq.
<PAGE>
To the Parties Listed on Schedule A October 28, 1998
hereto Page 4
5. In reliance on the NASD letter, the Company is not required to
obtain the consents, approvals or authorizations of, or to make any filing with,
any governmental authority or agency under the Delaware General Corporation Law
or the laws of the State of New York, as presently in effect and interpreted, or
of the stockholders of the Company, in connection with the amendment of the
Notes or the issuance of the Shares, as each is contemplated by the Transaction
Documents, other than such as may be required under any applicable state
securities or "blue sky" laws, as to which we express no opinion, and such as
have been obtained or made.
6. Except for those matters disclosed in the SEC Reports, we are
not aware that there is any action, suit, proceeding, inquiry or investigation
before or by any court, public board or governmental body pending, or threatened
in writing, against the Company, wherein an unfavorable decision, ruling or
finding would have a material adverse effect on the business, properties,
operations, financial condition or results of operations of the Company or the
transactions contemplated by the Transaction Documents or which, if determined
adversely to the Company, would be likely to have a material adverse effect on
the validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, the Transaction Documents.
7. The execution, delivery and performance by the Company of the
Transaction Documents and the amendment of the Notes as provided in the Second
Supplemental Indenture, the issuance of the Shares upon conversions of the
Restructured Notes or in payment of interest on the Restructured Notes, and the
fulfillment of and the compliance with the terms of the Transaction Documents by
the Company, will not (i) violate or be in conflict with any provision of the
Certificate of Incorporation or Bylaws of the Company, (ii) violate or be in
conflict with any federal or New York law, statute, rule or regulation which to
our knowledge are applicable to the Company or the Delaware General Corporation
Law, as presently in effect and interpreted, or (iii) constitute a material
breach of, or result in a material default under, any term or provision of any
Material Agreement.
8. No registration or filing by the Company with the SEC under
the Securities Act of 1933, as amended (the "1933 Act"), or the Trust Indenture
Act of 1939, as amended, is required in connection with the execution, delivery
and performance of the Transaction Documents. The offer and sale of the Shares
by the Company to the Holders upon conversion of the Restructured Notes or in
payment of interest on the Restructured Notes, as the case may be, is covered by
the registration statement filed by the Company on Form S-3 (Registration No.
333-39275) and no further registration of such Shares under the 1933 Act is
required due to the amendment of the Notes as provided in the Transaction
Documents to permit resale of such Shares by the Holders that are not affiliates
(as defined in Rule 144(a) promulgated under the 1933 Act) of the Company. The
Notes may be amended pursuant to the terms of the Transaction Documents without
registration under the 1933 Act because either (i) the Restructured Notes do not
constitute new securities for purposes of the 1933 Act or (ii) if the
Restructured Notes do constitute new securities for purposes of the 1933 Act,
such new
<PAGE>
To the Parties Listed on Schedule A October 28, 1998
hereto Page 5
securities may be exchanged for the Notes as provided in the Second
Supplemental Indenture without registration under the 1933 Act pursuant to
Section 3(a)(9) of the 1933 Act.
9. Based solely upon the NASD Letter, the amendment of the Notes
as provided in the Second Supplemental Indenture and the issuance of the Shares
upon conversion of the Restructured Notes or in payment of interest on the
Restructured Notes are not subject to a requirement of Nasdaq for Stockholder
Approval under Rule 4460(i) of Nasdaq.
Whenever a statement herein is qualified by the expressions "known to
us," "to our knowledge," "we are not aware" or a similar phrase or expression
with respect to our knowledge of matters of fact, it is intended to mean that
our knowledge is based upon the records, documents, instruments and certificates
described above and the current actual knowledge of the attorneys in this firm
who have devoted substantive attention to the transactions contemplated by the
Transaction Documents or who are presently involved in substantive legal
representation of the Company (but not including any constructive or imputed
notice of any information) and that we have not otherwise undertaken any
independent investigations for the purpose of rendering this opinion.
This opinion is limited to the laws of the State of New York, the
General Corporation Law of the State of Delaware and applicable federal laws of
the United States, and we express no opinion herein with respect to the effect
or applicability of the laws of other jurisdictions.
Our opinions in paragraph 5 above are limited to laws and regulations
normally applicable to transactions of the type contemplated in the Transaction
Documents and do not extend to licenses, permits and approvals necessary for the
conduct of the Company's business. In addition and without limiting the
previous sentence, we express no opinion herein with respect to the effect of
any land use, environmental or similar law, any state or federal antitrust law,
state securities laws or any local law. Further, we express no opinion as to
compliance or noncompliance by the Holders with any federal, state or other law
(i) requiring the Holders to be licensed as a bank, finance company or other
type of financial institution, (ii) pertaining to matters regulating the assets
held by the Holders on the basis of portfolio requirements or the Holders'
capitalization, such as loan limits and capital adequacy requirements, and (iii)
otherwise applicable to the Holders and relating to its legal or regulatory
status or the nature of its business.
The opinions set forth above are subject to the following
qualifications, assumptions, limitations and exceptions:
(a) The validity, binding nature and enforceability of the
Company's obligations under the Transaction Documents may be subject to or
limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent transfer and other similar laws affecting the rights of creditors
generally; (ii) general principles of equity (whether relief is
<PAGE>
To the Parties Listed on Schedule A October 28, 1998
hereto Page 6
sought in a proceeding at law or in equity), including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, and the
discretion of any court of competent juries-diction in awarding specific
performance or injunctive relief and other equitable remedies; and (iii),
without limiting the generality of the foregoing, the effect of court
decisions and statutes which indicate that provisions of the Transaction
Documents which permit the Holders or any other person or entity ("Person")
to take action or make determinations may be subject to a requirement that
such action be taken or such determinations be made on a reasonable basis in
good faith or that it be shown that such action is reasonably necessary for
the protection of the Holders or such other Person.
(b) We express no opinion as to:
(1) the enforceability of provisions of the Transaction
Documents pursuant to which the Company agrees to make payments without set-off,
defense or counterclaim;
(2) under certain circumstances, provisions to the effect
that rights or remedies are not exclusive, that every right or remedy is
cumulative and may be exercised in addition to or with any other right or
remedy, that the election of some particular remedy or remedies does not
preclude recourse to one or another remedy or that failure to exercise or delay
in exercising rights or remedies will not operate as a waiver of any such right
or remedy;
(3) provisions prohibiting waivers of any terms or
provisions of any of the Transaction Documents other than in writing, or
prohibiting oral modifications thereof or modification by course of dealing to
the extent such provisions are inconsistent with applicable law;
(4) the enforceability under certain circumstances of
provisions indemnifying a party against, or requiring contributions toward, that
party's liability for its own wrongful or negligent acts or where such
indemnification or contribution is contrary to public policy or prohibited by
law;
(5) any provision providing for the exclusive jurisdiction
of a particular court or purporting to waive rights to trial by jury, service of
process or objections to the laying of venue or to forum on the basis of forum
NON CONVENIENS, in connection with any litigation arising out of or pertaining
to the Transaction Documents;
(6) provisions providing for an increase in the rate of
interest or imposing a late charge or penalty in the event of delinquency or
default;
<PAGE>
To the Parties Listed on Schedule A October 28, 1998
hereto Page 7
(7) provisions imposing a prepayment charge, fee or penalty
based upon a percentage or fraction of the amount prepaid or the amount
outstanding under the Notes except in the case of a voluntary prepayment by the
Company;
(8) provisions purporting to waive any applicable statutes
of limitation;
(9) provisions authorizing the Holders to set off and apply
any deposits at any time held, and any other indebtedness at any time owing, by
the Holders to or for the account of the Company;
(10) provisions of the Transaction Documents to the extent
that they purport to exclude conflict of law principles under New York law;
(11) the enforceability under certain circumstances of
provisions expressly or by implication waiving broadly or vaguely stated rights,
unknown future rights, or defenses to obligations or rights granted by law, when
such waivers are against public policy or prohibited by law;
(12) remedial provisions which purport to permit the Holders
or other persons to exercise remedies with respect to the Company otherwise than
in accordance with applicable laws; and
(13) provisions purporting to waive illegality as a defense
to the performance of contractual obligations or other defenses to performance
which cannot as a matter of law be effectively waived.
(c) Our opinions set forth in paragraphs 4 and 6 above are
qualified by the matters referred to in Section 4.01(c) of the Second
Supplemental Indenture.
(d) We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
(e) We express no opinion concerning the past, present or future
fair market value of any securities.
(f) We express no opinion with respect to the Purchasable Shares
(as defined in the Note Purchase Agreements).
(g) We express no opinion as to your compliance with any Federal
or state law relating to your legal or regulatory status or the nature of any
Holder's business.
<PAGE>
To the Parties Listed on Schedule A October __, 1998
hereto Page 8
(h) Our opinions are subject to the effect of judicial decisions
that may permit the introduction of extrinsic evidence to interpret the terms of
written contracts.
(i) We express no opinion as to provisions of the Transaction
Documents purporting to establish an evidentiary standard or to authorize
conclusive determinations by any party thereto r any other person allowing any
party thereto or any other person to make determinations in its sole discretion.
The opinions expressed herein are solely for your benefit in
connection with the above transactions, and such opinions may not be relied on
in any manner or for any purpose by any other Person, except the opinions
expressed in paragraphs 3 and 8 may be relied upon by ChaseMellon Shareholder
Services L.L.C., as transfer agent and registrar for the Common Stock. In
addition, this opinion is rendered as of the date hereof, and we do not
undertake to advise you of matters which occur subsequent to the date hereof and
which affect the opinions expressed herein.
Very truly yours,
<PAGE>
SCHEDULE A
Delta Opportunity Fund, Ltd.
ACI/DA Investors I, LLC
Hudson Partnership, L.P.
OTATO Limited Partnership
Olympus Securities, Ltd.
Nelson Partners
CCG Capital Ltd.
CCG International Fund Ltd.
Advantage Fund II, Ltd.
Omicron Partners, L.P.
Aristeia Trading, LLC
Aristeia International, Limited
Koch Industries, Inc.
<PAGE>
ANNEX IV
TO SECOND SUPPLEMENTAL INDENTURE
FORM OF INTEREST NOTE
INTEREST PROMISSORY NOTE
$___________________ October __, 1998
FOR VALUE RECEIVED, the undersigned, CYGNUS, INC. a Delaware
corporation (the "Company"), HEREBY UNCONDITIONALLY PROMISES TO PAY to the order
of _______________ (the "Holder"), the sum of _______________ DOLLARS
($__________) representing the interest due on the Notes redeemed on the Second
Supplement Effective Date upon and subject to surrender of this Interest
Promissory Note to the Trustee at the Corporate Trust Office. Terms used herein
but not defined herein shall have the meanings assigned to them in the Second
Supplemental Indenture (defined below).
Such interest is payable in accordance with the terms applicable to
the payment of interest on the Notes provided for in the Indenture, the First
Supplemental Indenture and the Second Supplemental Indenture (including, without
limitation, terms providing for payment pursuant to the Stock Payment Option).
Any amount not paid when due hereunder shall bear Default Interest as provided
in the First Supplemental Indenture.
This promissory note is one of the Interest Notes referred to in, and
is subject to and entitled to the benefits of, the Second Supplemental Indenture
dated as of October ___, 1998 (as amended or modified from time to time, the
"Second Supplemental Indenture") among the Company and State Street Bank and
Trust Company of California, N.A., as trustee (the "Trustee").
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
CYGNUS, INC.
By
---------------------------
Name: John Hodgman
Title: President and Chief
Executive Officer
<PAGE>
FOR ADDITIONAL INFORMATION:
Craig Carlson/Sr. VP, Cygnus
(650) 369-4300 www.cygn.com
Lisa Burns/Burns McClellan
(212) 213-0006
FOR IMMEDIATE RELEASE
CYGNUS RESTRUCTURES $43 MILLION CONVERTIBLE NOTES;
PRINCIPAL REDUCED TO $24.5 MILLION.
Redwood City, Ca. - October 30, 1998 - Cygnus, Inc. (Nasdaq: CYGN) announced the
restructuring of the 4% Senior Subordinated Convertible Notes due 2005. Key
provisions in the restructured notes include the reduction of principal from $43
million to $24.5 million, a delay in the convertibility of the majority of the
notes to June 30, 1999, modification of conversion prices of the notes and the
ability of the Company to redeem at par at any time all or part of the new
principal amount of the notes.
"We believe restructuring the Convertible Notes is in the best interests of our
shareholders. Our objectives were to limit potential dilution of our common
stock and to provide increased predictability in our capital structure. We
believe that by substantially reducing the principal and delaying the
convertibility of the majority of the notes until June 30, 1999, we have
addressed these objectives," stated John C. Hodgman, President and Chief
Executive Officer of Cygnus. "We would not have been able to restructure the
notes without the willingness of the Note Holders to work toward an acceptable
solution. In addition, we appreciate the on-going support of our shareholders
as we position Cygnus for the future," Mr. Hodgman concluded.
Cygnus will redeem $18.5 million of the original principal amount of the notes.
All of the remaining $24.5 million principal amount of the notes are redeemable
by the Company at par with accrued interest. In addition, $18.5 million of the
notes will not be able to be converted into Common Stock by the Note Holders
until June 30, 1999 and after, effectively a five-month delay from the original
agreement. The restructured notes are divided into three tranches. One tranche
has an original principal amount of $6 million and is convertible in whole or in
part into Common Stock at any time, at a price that is fixed until June 30,
1999, subject to a potential upward adjustment on February 1, 1999, in each case
based on certain market formulas. Thereafter, the conversion price will reflect
market prices. The second tranche also has an original principal amount of $6
million but cannot be converted into Common Stock until June 30, 1999, at which
time the second tranche becomes convertible in whole or in part on June 30, 1999
at a price determined on such date based on certain market formulas. The third
tranche of the restructured notes has an original principal amount of $12.5
million and cannot be converted into Common Stock until July 1, 1999. Beginning
July 1, 1999, no more than 15% of the second and third tranches may be converted
per calendar month at
-- MORE --
<PAGE>
conversion prices which reflect market prices. Any portions of the 15% monthly
amounts of the second and third tranches that are not converted in the relevant
month may be rolled over for conversion in future months. If the Company calls
the second tranche of Notes ($6 million) for redemption before February 1,
1999, the Note Holders will be entitled to convert not more than 50% of such
notes called before the redemption occurs. If the Company calls the third
tranche of Notes ($12.5 million) for redemption before July 1, 1999, the Note
Holders will not be entitled to convert any portion of such tranche so called.
The Note Holders will otherwise be entitled to convert Notes called for
redemption before the redemption occurs, at conversion prices based on market
formulas. Interest on the new principal balance will be paid at the annual rate
of 5.5%. The final maturity of the notes is October 1, 2000. The Company refers
you to its SEC Form 8-K, which will be filed relating to the restructuring and
will include copies of definitive documentation for the restructuring, for
specific conversion pricing formulas and other provisions.
Petkevich and Partners provided financial advice to Cygnus.
Cygnus is engaged in the development and manufacture of diagnostic and drug
delivery systems utilizing its proprietary technologies to satisfy unmet medical
needs cost effectively. Cygnus' current efforts are primarily focused on two
core areas: an automatic and continuous glucose monitoring device (the
GlucoWatch-Registered Trademark- monitor) and transdermal drug delivery systems.
The Company currently has two products in the market and a number of other
products in different stages of clinical trials
This news release contains forward-looking statements regarding future events
and the future performance of the Company that involve risks and uncertainties
that may cause the Company's actual results to differ materially. Such factors
include the timely development, government approvals, the signing of marketing
alliances, commercial introduction and market acceptance of the GlucoWatch
monitor and the Company's other products in development, and the potential
impact of changes in the price of the Company's stock. The Company refers you
to the documents the Company files from time to time with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which contain
descriptions of certain factors that could cause the Company's actual results to
differ from the Company's current expectations and any forward-looking
statements contained in this news release.
END
