<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-19809
DURA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3645543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7475 LUSK BLVD., SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (619) 457-2553
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
The number of shares of the Registrant's Common Stock outstanding as of October
1, 1997 was 43,897,053.
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DURA PHARMACEUTICALS, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997. . . . . . . . . . . 3
Consolidated Statements of Operations -
Three and nine months ended September 30, 1996 and 1997 . . . 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1997 . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 8-13
Risks and Uncertainties . . . . . . . . . . . . . . . . . . . 13-18
PART II - OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 131,101 $ 166,583
Short-term investments . . . . . . . . . . . . . . . . . . . . . 109,244 288,127
Accounts and other receivables . . . . . . . . . . . . . . . . . 24,092 27,849
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,544 15,858
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . 271,981 498,417
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,500 44,148
LICENSE AGREEMENTS AND PRODUCT RIGHTS . . . . . . . . . . . . . . . 186,750 248,743
GOODWILL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,630 8,468
OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,809 21,329
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 504,670 $ 821,105
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities . . . . . . . . . . . . $ 25,819 $ 38,193
Current portion of long-term obligations . . . . . . . . . . . . 26,298 2,948
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . 52,117 41,141
CONVERTIBLE SUBORDINATED NOTES. . . . . . . . . . . . . . . . . . . - 287,500
LONG-TERM OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 6,670 7,035
OTHER NON-CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . 2,306 3,132
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 61,093 338,808
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, shares authorized - 5,000,000;
no shares issued or outstanding. . . . . . . . . . . . . . . . -- --
Common stock, par value $.001, shares authorized - 100,000,000;
issued and outstanding - 43,183,591 and 43,890,806,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . 525,350 44
Additional paid-in capital . . . . . . . . . . . . . . . . . . . - 533,003
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . (78,992) (49,597)
Unrealized gain (loss) on investments. . . . . . . . . . . . . . (38) 195
Warrant subscriptions receivable . . . . . . . . . . . . . . . . (2,743) (1,348)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . . . 443,577 482,297
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 504,670 $ 821,105
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Sales . . . . . . . . . . . . . . . . . . . . $ 18,940 $ 36,098 $ 45,900 $ 105,437
Contract. . . . . . . . . . . . . . . . . . . 6,980 7,245 17,407 22,430
--------- --------- --------- ---------
Total revenues . . . . . . . . . . . . 25,920 43,343 63,307 127,867
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . 5,129 7,426 12,553 23,373
Clinical, development and regulatory. . . . . 5,001 5,807 12,121 18,160
Selling, general and administrative . . . . . 11,188 16,733 26,460 49,485
--------- --------- --------- ---------
Total operating costs and expenses . . 21,318 29,966 51,134 91,018
--------- --------- --------- ---------
OPERATING INCOME . . . . . . . . . . . . . . . . 4,602 13,377 12,173 36,849
--------- --------- --------- ---------
OTHER:
Interest income . . . . . . . . . . . . . . . 2,253 5,044 4,662 11,434
Interest expense. . . . . . . . . . . . . . . (87) (2,242) (602) (2,531)
--------- --------- --------- ---------
Total other. . . . . . . . . . . . . . 2,166 2,802 4,060 8,903
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 6,768 16,179 16,233 45,752
PROVISION FOR INCOME TAXES . . . . . . . . . . . 962 4,854 1,762 16,357
--------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 5,806 $ 11,325 $ 14,471 $ 29,395
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME PER SHARE . . . . . . . . . . . . . . $ 0.14 $ 0.24 $ 0.37 $ 0.62
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES . . . . . . . . . . . . . . 42,266 47,606 38,890 47,392
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1997
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . $ 17,270 $ 44,504
--------- ---------
INVESTING ACTIVITIES:
Purchases of short-term investments. . . . . . . . . . . . . . (103,902) (335,983)
Sales and maturities of short-term investments . . . . . . . . 92,697 157,334
Purchases of long-term investments . . . . . . . . . . . . . . (5,000) -
Company/product acquisitions, net of cash received . . . . . . (128,600) (71,973)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (5,477) (18,757)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (526) 842
--------- ---------
Net cash used for investing activities . . . . . . . . . . . (150,808) (268,537)
--------- ---------
FINANCING ACTIVITIES:
Issuance of common stock and warrants. . . . . . . . . . . . . 154,389 4,840
Issuance of convertible subordinated notes, net. . . . . . . . - 278,175
Principal payments on notes payable. . . . . . . . . . . . . . (7,056) -
Principal payments on long-term obligations. . . . . . . . . . (5,500) (23,500)
--------- ---------
Net cash provided by financing activities. . . . . . . . . . 141,833 259,515
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . 8,295 35,482
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . 25,554 131,101
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . $ 33,849 $ 166,583
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized). . . . . . . . . . . . $ - $ 206
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 51 $ 1,215
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Dura Pharmaceuticals, Inc. ("Dura" or the "Company") in accordance with the
instructions to Form 10-Q. The consolidated financial statements reflect all
adjustments, consisting of only normal recurring accruals, which are, in the
opinion of management, necessary for a fair statement of the results of the
interim periods presented. These consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto included in the Company's 1996 Annual Report to Shareholders,
which statements and notes are incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. The results of
operations for the interim periods are not necessarily indicative of results to
be expected for any other interim period or for the year as a whole.
The consolidated financial statements include the accounts of Dura and its
wholly owned subsidiaries, Health Script Pharmacy Services, Inc. ("Health
Script") and Dura Delivery Systems, Inc. ("DDSI"). All intercompany
transactions and balances are eliminated in consolidation.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the consolidated financial statements and related
notes. Changes in the estimates may affect amounts reported in future periods.
Certain reclassifications have been made to amounts included in the prior year's
financial statements to conform with the financial statement presentation for
the quarter ended September 30, 1997.
2. CONVERTIBLE SUBORDINATED NOTES
In the third quarter of 1997, the Company issued $287.5 million principal amount
of 3 1/2% Convertible Subordinated Notes (the "Notes") due July 15, 2002 with
interest payable semiannually January 15 and July 15, commencing January 15,
1998. The Notes are convertible, at the option of the holder, into shares of
Common Stock at any time prior to maturity or redemption at a conversion price
of $50.635 per share, subject to adjustment under certain conditions. The
Company cannot redeem the Notes prior to July 15, 2000. Thereafter, the Company
can redeem the Notes from time to time, in whole or in part, at specified
redemption prices. The Notes are unsecured and subordinated to all existing and
future senior indebtedness of the Company. The indenture governing the Notes
does not restrict the incurrence of senior indebtedeness or other indebtedeness
by the Company.
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3. LICENSE AGREEMENTS AND PRODUCT RIGHTS
On May 7, 1997, the Company acquired from Syntex (USA), Inc. and other
members of the Roche Group (collectively, "Syntex") exclusive U.S. rights to
the intranasal steroid products Nasarel-Registered Trademark- and
Nasalide-Registered Trademark- for $70 million, which was paid at closing.
Additional future contingent payments totaling $15 million are due through
December 1998, subject to the products remaining without a competing nasal
formulation of flunisolide.
4. LOAN AGREEMENT
In April 1997, the Company entered into a loan agreement with a bank which
provides for the borrowing of up to $50 million on an unsecured basis through
May 1, 1999. Borrowings under the agreement bear interest at the bank's
reference rate or an offshore rate plus 1.5% as selected by the Company. The
agreement places restrictions on the payment of cash dividends and on the
incurrence of additional indebtedness by the Company. As of September 30, 1997,
no borrowings were outstanding under this loan.
5. COMMON STOCK
Effective July 2, 1997, the Company changed its state of incorporation from
California to Delaware. In connection with this change, the outstanding shares
of the Company's no par value common stock were automatically converted into and
exchanged for an equal number of shares of $.001 par value common stock of the
Delaware entity.
6. INCOME TAXES
The provision for income taxes for the periods ended September 30, 1996 and 1997
reflect management's estimate of the effective tax rate expected to be
applicable for the full fiscal year. During the quarter ended September 30,
1997, the Company reduced its estimate of the combined effective tax rate for
fiscal 1997 from 39 percent to 36 percent, resulting in an effective tax rate of
30 percent for the third quarter.
The effective tax rates for the periods ended September 30, 1996 were
significantly less than the combined statutory tax rates due primarily to the
utilization of net operating loss carryforwards. For the periods ended
September 30, 1997, substantially all of the benefit from available net
operating loss carryforwards relates to tax deductions from the exercise of
previously granted stock options and, as such, has been credited directly to
shareholders' equity.
7. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of common
and common equivalent shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128
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requires the presentation of basic and diluted earnings per share amounts.
Basic earnings per share is calculated based on the weighted average number of
common shares outstanding during the period while diluted earnings per share
also gives effect to all potential dilutive common shares outstanding during the
period such as options, warrants, convertible securities, and contingently
issuable shares. SFAS No. 128 is effective for periods ending after December
15, 1997. If SFAS No. 128 had been applied for the three and nine month periods
ended September 30, 1996 and 1997, basic and diluted net income per share would
have been as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1997 1996 1997
----- ----- ----- -----
Net income per share - basic $0.15 $0.26 $0.42 $0.67
Net income per share - diluted $0.14 $0.24 $0.37 $0.62
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information should be read in conjunction with the consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and
the audited financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1996 contained in the Company's 1996 Annual Report to Shareholders,
which is incorporated by reference in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. See "Risks and Uncertainties" for trends
and uncertainties known to the Company that could cause reported financial
information not to be necessarily indicative of the future, including discussion
of the effects of seasonality on the Company.
OVERVIEW
During the second half of 1996 and the first half of 1997, the Company made
significant acquisitions of product rights and licenses. In July 1996, the
Company acquired the worldwide rights to the Entex-Registered Trademark-
products, consisting of four prescription upper respiratory drugs. In September
1996, the Company acquired the U.S. marketing rights to the patented antibiotics
Ceclor-Registered Trademark- CD and Keftab-Registered Trademark-. In May 1997,
the Company acquired the U.S. rights to the intranasal steroid products
Nasarel-Registered Trademark- and Nasalide-Registered Trademark-. The
acquisition of these products has had a material impact on the Company's
financial position and results of operations.
In the third quarter 1997, the Company issued $287.5 million principal amount of
3 1/2% Convertible Subordinated Notes (the "Notes") due July 15, 2002 with
interest payable semiannually January 15 and July 15. The Notes are convertible,
at the option of the holder, into shares of Common Stock at any time prior to
maturity or redemption at a conversion price of $50.635 per share, subject to
adjustment under certain conditions. The Notes are unsecured and subordinated
to all existing and future senior indebtedness of the Company.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Total revenues for the three months ended September 30, 1997 were $43.3 million,
an increase of $17.4 million, or 67%, over the same period in 1996. Net income
for the three months ended September 30, 1997 was $11.3 million, an increase of
$5.5 million, or $0.10 per share, over the same period in 1996. The principal
factors causing these increases are discussed below.
Pharmaceutical sales for the three months ended September 30, 1997 were $36.1
million, an increase of 91% over the same period in 1996. This increase is
due primarily to new product acquisitions of Ceclor CD, Keftab, Nasarel and
Nasalide and the expansion of the Company's sales force.
Gross profit (pharmaceutical sales less cost of sales) for the three months
ended September 30, 1997 was $28.7 million, an increase of $14.9 million as
compared to the same period in 1996. Gross profit as a percentage of sales for
the three months ended September 30, 1997 was 79%, compared to 73% for the same
period in 1996. This increase is due primarily to higher average gross margins
earned on sales of Ceclor CD, Keftab, Nasarel and Nasalide as compared to the
average gross margins earned on the Company's other products.
Contract revenues for the three months ended September 30, 1997 were $7.2
million, an increase of $265,000, or 4%, as compared to the same period in
1996. The Company, under agreements with several companies, conducts
feasibility testing and development work on various compounds for use with
Spiros-TM-, a pulmonary drug delivery system ("Spiros"). Contract revenues
from Spiros-related development and feasibility agreements for the three
months ended September 30, 1997 were $6.7 million, including $6.1 million
from Spiros Development Corporation ("Spiros Corp."), as compared to $5.7
million, including $5.0 million from Spiros Corp., for the same period in
1996. The Company also earns contract revenues under various agreements for
the co-promotion of pharmaceutical products. Contract revenues from such
agreements were $536,000 for the three months ended September 30, 1997 as
compared to $1.3 million for the same period in 1996.
Clinical, development and regulatory expenses for the three months ended
September 30, 1997 were $5.8 million, an increase of $806,000 over the same
period in 1996. The increase reflects additional expenses incurred by the
Company under feasibility and development agreements covering the use of various
compounds with Spiros.
Selling, general and administrative expenses for three months ended September
30, 1997 were $16.7 million, an increase of $5.5 million as compared to the same
period in 1996, but decreased as a percentage of total revenues to 39% as
compared to 43% for the same period in 1996. The dollar increase is primarily
due to increased costs incurred to support the Company's sales and contract
revenue growth, including costs associated with expanding the Company's sales
force, higher marketing costs relating to the newly-acquired products, and
amortization of newly-
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acquired product rights. The decrease as a percentage of revenues reflects the
growth of pharmaceutical sales due primarily to new product acquisitions.
Interest income for the three months ended September 30, 1997 was $5.0 million,
an increase of $2.8 million as compared to the same period in 1996. The
increase is due primarily to higher balances of cash and short-term investments
resulting from public stock and the Notes offerings completed in November 1996
and July 1997, as well as cash generated from operations.
Interest expense for the three months ended September 30, 1997 was $2.2 million
compared to $87,000 for the same period in 1996. The increase in interest
expense is primarily due to interest accrued on the Notes issued by the Company
in the third quarter of 1997.
The Company's effective tax rate for the three months ended September 30, 1997
was 30 percent, compared to 14 percent for the same period in 1996. This
increase is primarily due to the utilization of available net operating loss
carryforwards in 1996. Net operating loss carryforwards available in 1997
relate primarily to tax deductions for previously exercised stock options and,
as such, the benefit from their utilization has been credited directly to
shareholders' equity.
The Company records interim provisions for income taxes based on the estimated
effective combined tax rate to be applicable for the fiscal year. This estimate
is reevaluated by management each quarter based on forecasts of income before
income taxes for the year as well as anticipated modifications to statutory
federal and state tax rates. During the three months ended September 30, 1997,
the Company reduced its estimate of the combined effective tax rate expected to
be applicable for fiscal 1997 from 39 percent to 36 percent, resulting in a 30
percent effective tax rate for the third quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Total revenues for the nine months ended September 30, 1997 were $127.9 million,
an increase of $64.6 million, as compared to the same period in 1996. Net
income for the nine months ended September 30, 1997 was $29.4 million, an
increase of $14.9 million, or $0.25 per share, over the same period in 1996.
The principal factors causing these increases are discussed below.
Pharmaceutical sales for the nine months ended September 30, 1997 were $105.4
million, an increase of 130%, over the same period in 1996. This increase is
due primarily to the acquisition of the Entex products, Ceclor CD, Keftab,
Nasarel and Nasalide and the expansion of the Company's sales force.
Gross profit for the nine months ended September 30, 1997 was $82.1 million,
an increase of $48.7 million as compared to the same period in 1996. Gross
profit as a percentage of sales for the nine month period ended September 30,
1997 was 78%, as compared to 73% for the same period in 1996. This increase
is due primarily to higher average gross margins earned on sales of the Entex
products, Ceclor CD, Keftab, Nasarel and Nasalide as compared to the average
gross margins earned on the Company's other products.
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Contract revenues for the nine months ended September 30, 1997 were $22.4
million, an increase of $5.0 million, or 29%, as compared to the same period in
1996. The Company, under agreements with several companies, conducts
feasibility testing and development work on various compounds for use with
Spiros. Contract revenues from Spiros-related development and feasibility
agreements for the nine months ended September 30, 1997 were $21.2 million,
including $18.3 million from Spiros Corp., as compared to $14.4 million,
including $12.8 million from Spiros Corp., for the same period in 1996. The
Company also earns contract revenues under various agreements for the
co-promotion of pharmaceutical products. Contract revenues from such agreements
were $1.2 million for the nine months ended September 30, 1997 compared to $3.0
million for the same period in 1996.
Clinical, development and regulatory expenses for the nine months ended
September 30, 1997 were $18.2 million, an increase of $6.0 million over the same
period in 1996. The increase reflects additional expenses incurred by the
Company under feasibility and development agreements covering the use of various
compounds with Spiros.
Selling, general and administrative expenses for the nine months ended September
30, 1997 were $49.5 million, an increase of $23.0 million as compared to the
same period in 1996, but decreased as a percentage of total revenues to 39% as
compared to 42% for the same period in 1996. The dollar increase is primarily
due to increased costs incurred to support the Company's sales and contract
revenue growth, including costs associated with expanding the Company's sales
force, higher marketing costs relating to the newly-acquired products, and
amortization of newly-acquired product rights. The decrease as a percentage of
revenues reflects the growth of pharmaceutical sales due to new product
acquisitions and the growth of contract revenues.
Interest income for the nine months ended September 30, 1997 was $11.4 million,
an increase of $6.8 million as compared to the same period in 1996. The increase
is due primarily to higher balances of cash and short-term investments resulting
from public stock and the Notes offerings completed in May and November 1996 and
July 1997, as well as cash generated from operations.
Interest expense for the nine months ended September 30, 1997 was $2.5 million
compared to $602,000 for the same period in 1996. The increase in interest
expense is primarily due to interest accrued on the Notes issued by the Company
in the third quarter of 1997.
The Company's effective tax rate was 36 percent for the nine month period ended
September 30, 1997 compared to 11 percent for the same period in 1996. This
increase is primarily due to the utilization of net operating loss carryforwards
in 1996. Net operating loss carryforwards available in 1997 relate primarily to
tax deductions for previously exercised stock options and, as such, the related
benefit from their utilization has been credited directly to shareholders'
equity.
The Company records interim provisions for income taxes based on the
estimated effective combined tax rate to be applicable for the fiscal year.
This estimate is reevaluated by management each quarter based on forecasts of
income before income taxes for the year as well as anticipated modifications
to statutory federal and state tax rates. During the three months
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ended September 30, 1997, the Company reduced its estimate of the combined
effective tax rate expected to be applicable for fiscal 1997 from 39 percent
to 36 percent.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments increased by $214.4 million to
$454.7 million at September 30, 1997 from $240.3 million at December 31, 1996.
The increase resulted primarily from the net proceeds of the offering of the
Notes as well as from cash generated from operations, partially offset by the
acquisition of the intranasal steroid products Nasarel and Nasalide for $70
million in May 1997 and capital expenditures of $18.8 million. Working capital
increased by $237.4 million to $457.3 million at September 30, 1997 from $219.9
million at December 31, 1996.
At September 30, 1997, the Company had an aggregate of $297.7 million in
long-term obligations, of which $2.9 million is to be paid during the next 12
months. As of September 30, 1997, additional future contingent obligations
totaling $97.9 million relating to product acquisitions are due through 2004.
In April 1997, the Company entered into a loan agreement which provides for the
borrowing of up to $50 million on an unsecured basis through May 1, 1999. As of
September 30, 1997, no borrowings were outstanding under this loan.
The Company provides development and management services to Spiros Corp.
pursuant to various agreements for the development of Spiros for use with
certain respiratory drugs. Dura records contract revenues from Spiros Corp.
equal to amounts due for such services, less a pro rata amount allocated to
warrant subscriptions receivable. On October 10, 1997, the Company announced
its intention to exercise, prior to the completion of a proposed offering of
securities by Spiros Development Corporation II, Inc. ("Spiros Corp. II") as
discussed below and subject to providing formal notice of exercise, its
option to acquire all of the callable common stock of Spiros Corp. for an
aggregate purchase price estimated to be $45.7 million payable in cash,
shares of the Company's common stock, or any combination thereof.
Also on October 10, 1997, the Company and Spiros Corp. II filed a combined
registration statement (the "Registration Statement") with the Securities and
Exchange Commission with respect to a proposed public offering of units, each
unit consisting of one share of callable common stock of Spiros Corp. II and
one warrant to purchase one-fourth of one share of Dura common stock. Spiros
Corp. II was formed to continue to fund the development of Spiros for use
with certain respiratory drugs. Immediately prior to the consummation of the
proposed offering, Dura will contribute $75 million in cash to Spiros Corp.
II. Dura expects to record charges to its earnings for this contribution and
for substantially all of the Spiros Corp. purchase price in the respective
periods in which these transactions occur. The foregoing information
regarding the proposed public offering of units should be read in conjunction
with, and is qualified in its entirety by, the more detailed information set
forth in the Registration Statement and underlying Prospectus, including
without limitation the "Risk Factors" section of such Registration Statement
and Prospectus.
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The Company anticipates that its existing capital resources, together with cash
expected to be generated from operations and available bank borrowings, should
be sufficient to finance the transactions discussed above and its operations
through at least the next 12 months. Significant additional resources, however,
may be required in connection with product or company acquisitions or
in-licensing opportunities. At present, the Company is actively pursuing the
acquisition of rights to several products and/or companies which may require the
use of substantial capital resources; however, there are no present agreements
or commitments with respect to such acquisitions.
RISKS AND UNCERTAINTIES
FORWARD-LOOKING STATEMENTS
The Company cautions readers that the statements in this quarterly report that
are not descriptions of historical facts may be forward-looking statements that
are subject to risks and uncertainties. Actual results could differ materially
from those currently anticipated due to a number of factors, including those
identified below. The Company undertakes no obligation to release publicly the
results of any revisions to these forward-looking statements to reflect events
and circumstances arising after the dates hereof.
REDUCTION IN GROSS MARGINS
There is no proprietary protection for most of the products sold by the
Company and substitutes for such products are sold by other pharmaceutical
companies. The Company expects average selling prices for many of its
products to decline over time due to competitive and reimbursement pressures.
While the Company will seek to mitigate the effect of this decline in
average selling prices, there can be no assurance that the Company will be
successful in these efforts.
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES
The Company's commercial success will depend in part on the availability of
adequate reimbursement from third-party health care payers, such as
government and private health insurers and managed care organizations.
Third-party payers are increasingly challenging the pricing of medical
products and services. There can be no assurance that reimbursement will be
available to enable the Company to achieve market acceptance of its products
or to maintain price levels sufficient to realize an appropriate return on
the Company's investment in product acquisition, in-licensing and
development. The market for the Company's products may be limited by actions
of third-party payers. For example, many managed health care organizations
are now controlling the pharmaceuticals that are on their formulary lists.
The resulting competition among pharmaceutical companies to place their
products on these formulary lists has created a trend of downward pricing
pressure in the industry. In addition, many managed care organizations are
pursuing various ways to reduce pharmaceutical costs and are considering
formulary contracts primarily with those pharmaceutical companies that can
offer a full line of products for a given therapy sector or disease state.
There can be no assurance that the Company's products will be included on the
formulary lists of managed care organizations or that downward pricing
pressure in the industry generally will not negatively impact the Company's
operations.
DEPENDENCE ON ACQUISITION OF RIGHTS TO PHARMACEUTICAL PRODUCTS
The Company's strategy for growth is dependent, in part, upon acquiring,
in-licensing and co-promoting pharmaceuticals targeted primarily at
allergists, ear, nose and throat specialists, pulmonologists and a selected
subset of pediatricians and generalist physicians. Other companies, including
those with substantially greater resources, are competing with the Company
for the rights to such products. There can be no assurance that the Company
will be able to acquire, in-license or co-promote additional pharmaceuticals
on acceptable terms, if at all. The failure of the Company to acquire,
in-license, co-promote, develop or market commercially successful
pharmaceuticals would have a material adverse effect on the Company.
Furthermore, there can be no assurance that the Company, once it has obtained
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rights to a pharmaceutical product and committed to payment terms,
will be able to generate sales sufficient to create a profit or otherwise avoid
a loss.
DEVELOPMENT RISKS ASSOCIATED WITH SPIROS
Spiros will require significant additional clinical studies and product
development. There can be no assurance that development of Spiros will be
completed successfully, that Spiros will not encounter problems in clinical
trials that will cause the delay or suspension of such trials, that current
or future testing will show Spiros to be safe or efficacious or that Spiros
will receive regulatory approval. In addition, regulatory approvals will
have to be obtained for each drug to be delivered through the use of Spiros
prior to commercialization. Moreover, even if Spiros does receive regulatory
approval, there can be no assurance that Spiros will be commercially
successful, have all of the patent and other protections necessary to prevent
competitors from producing similar products and not infringe on patent or
other proprietary rights of third parties. The failure of Spiros to receive
timely regulatory approval and achieve commercial success would have a
material adverse effect on the Company.
RISKS ASSOCIATED WITH RECENT ACQUISITIONS OF PRODUCTS
In September 1996, the Company acquired from Lilly the exclusive U.S. rights
to market and distribute Keftab and Ceclor CD and entered into a
manufacturing agreement with Lilly which terminates in certain circumstances.
In May 1997, the Company acquired from Syntex the exclusive U.S. rights to
the intranasal steroid products Nasarel and Nasalide. Any interruption in
the supply of these products due to regulatory or other causes could result
in the inability of the Company to meet demand and could have a material
adverse impact on the Company.
The Company has limited experience in marketing antibiotic products, such as
Keftab and Ceclor CD, and steroid products, such as Nasarel and Nasalide.
Ceclor CD was not previously marketed to physicians prior to its October 1996
launch by the Company, and no assurance can be given that the Company will be
able to continue to successfully compete with currently available products.
Failure to successfully market and sell Keftab, Ceclor CD, Nasarel or
Nasalide would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is currently considering transferring a substantial portion of
its recently acquired product rights to foreign subsidiaries. Risks inherent
in having assets in foreign subsidiaries include those relating to political
and economic instability and the burden of complying with a wide variety of
complex foreign laws and treaties.
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK
The distribution network for pharmaceutical products has in recent years been
subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market and the number of
independent drug stores and small chains has decreased. Further
consolidation among, or any financial difficulties of, distributors or
retailers could result in the combination or elimination of warehouses
thereby stimulating product returns to the Company. Further consolidation or
financial difficulties could also cause customers to reduce their inventory
levels, or otherwise reduce purchases of the Company's products which could
result in a material adverse effect on the Company's business, financial
condition or results of operations.
The Company's principal customers are wholesale drug distributors and major
drug store chains. For the first nine months of 1997, three wholesale
customers individually accounted for 11%, 11%, and 10% of sales. For 1996,
three wholesale customers individually accounted for 17%, 14% and 13% of
sales. Two wholesale customers individually accounted for 16% and 11% of
1995 sales, and three wholesale customers individually accounted for 21%, 14%
and 12% of 1994 sales. The loss of any of these customers could have a
material adverse effect upon the Company's business, financial condition or
results of operations.
SEASONALITY AND FLUCTUATING QUARTERLY RESULTS
Historically, as a result of the winter cold and flu season, industry-wide
demand for respiratory products has been stronger in the first and fourth
quarters than in the second and third quarters of the year. In addition,
variations in the timing and severity of the winter cold and flu season have
influenced the Company's results of operations in the past. While the growth
and productivity of the Company's sales force and the introduction by the
Company of new products have historically mitigated the impact of seasonality
on the Company's results of operations, recent
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product acquisitions by the Company, especially Keftab and Ceclor CD, which
are used to treat respiratory infections, are likely to increase the impact
of seasonality on the Company's results of operations. No assurances can be
given that the Company's results of operations will not be materially
adversely affected by the seasonality of product sales.
COMPETITION
Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
those of the Company, are engaged in developing, marketing and selling
products that compete with those offered or planned to be offered by the
Company. The selling prices of such products typically decline as
competition increases. Further, other products now in use or under
development by others may be more effective than the Company's current or
future products. The industry is characterized by rapid technological
change, and competitors may develop their products more rapidly than the
Company. Competitors may also be able to complete the regulatory process
sooner, and therefore, may begin to market their products in advance of the
Company's products. The Company believes that competition among both
prescription pharmaceuticals and pulmonary drug delivery systems aimed at the
respiratory infection, allergy, cough and cold, and asthma and chronic
obstructive pulmonary disease markets will be based on, among other things,
product efficacy, safety, reliability, availability and price.
There are at least 25 other companies in the U.S. that are currently engaged
in developing, marketing and selling respiratory pharmaceuticals.
Additionally, there are at least 10 companies currently involved in the
development, marketing or sales of dry powder pulmonary drug delivery
systems. There are two types of dry powder inhalers ("DPIs") currently in
commercial use worldwide. In the U.S., only individual dose DPIs currently
are marketed, including the Rotohaler-TM- (developed and marketed by Glaxo
Wellcome, Inc.) and the Spinhaler-R- (developed and marketed by Fisons
Limited). The Turbuhaler-R- (developed and marketed by Astra
Pharmaceuticals), a multiple dose DPI, is the leading DPI in worldwide sales.
In June 1997, the United States Food and Drug Administration ("FDA") approved
the first Turbuhaler product, the Pulmicort Turbuhaler, for marketing in the
United States.
DEPENDENCE ON THIRD PARTIES
The Company's strategy for development and commercialization of certain of
its products is dependent upon entering into various arrangements with
corporate partners, licensors and others and upon the subsequent success of
these partners, licensors and others in performing their obligations. There
can be no assurance that the Company will be able to negotiate acceptable
arrangements in the future or that such arrangements or its existing
arrangements will be successful. In addition, partners, licensors and others
may pursue alternative technologies or develop alternative compounds or drug
delivery systems either on their own or in collaboration with others,
including the Company's competitors. The Company has limited experience
manufacturing products for commercial purposes and currently does not have
the capability to manufacture its pharmaceutical products and therefore is
dependent on contract manufacturers for the production of such products for
development and commercial purposes. The manufacture of the Company's
products is subject to current Good Manufacturing Practice ("cGMP")
regulations prescribed by the FDA. The Company relies on a single
manufacturer for each of its products. In the event that the Company is
unable to obtain or retain third-party manufacturing, it may not be able to
commercialize its products as planned. There can be no assurance that the
Company will be able to continue to obtain adequate supplies of such products
in a timely fashion at acceptable quality and prices. Also, there can be no
assurance that the Company will be able to enter into agreements for the
manufacture of future products with manufacturers whose facilities and
procedures comply with cGMP and other regulatory requirements. The Company's
current dependence upon others for the manufacture of its products may
adversely affect future profit margins, if any, on the sale of those products
and the Company's ability to develop and deliver products on a timely and
competitive basis.
LIMITED MANUFACTURING EXPERIENCE AND RELIANCE ON THIRD PARTIES
The Company's principal manufacturing facility is intended to be used to
formulate, mill, blend and manufacture drugs to be used with Spiros, pending
regulatory approval. The Company's manufacturing facility must be registered
with and licensed by various regulatory authorities and
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must comply with cGMP requirements prescribed by the FDA and the State of
California. The Company is currently expanding its facilities to provide
additional manufacturing capabilities. The Company will need to
significantly scale up its current manufacturing operations and comply with
cGMPs and other regulations prescribed by various regulatory agencies in the
United States and other countries to achieve the prescribed quality and
required levels of production of such products and to obtain marketing
approval. Any failure or significant delay in the validation of or obtaining
a satisfactory regulatory inspection of the new facility or failure to
successfully scale up could have a material adverse effect on the Company's
ability to manufacture products in connection with Spiros. Dura intends to
utilize third parties to produce components of and assemble the Spiros
aerosol generator. Such third parties have only produced limited quantities
of components and assembled generators and will be required to significantly
scale up their activities. There can be no assurance that such third parties
will be successful in completing these activities in a timely manner or can
meet cGMP requirements. Any failure or delay in the scale up of aerosol
generator manufacturing would have a material adverse effect on the ability
of the Company to manufacture Spiros products.
MANAGING GROWTH OF BUSINESS
The Company has experienced significant growth as total revenues increased
58% in fiscal 1995, 102% in fiscal 1996, and 102% for the first nine months
of 1997, as compared to prior periods, primarily as a result of the
acquisition or in-licensing of additional respiratory pharmaceutical
products. During fiscal 1997, the Company executed an agreement relating to
the acquisition of the rights to the Nasarel and Nasalide products. During
fiscal 1996, the Company executed agreements relating to the acquisition of
the rights to the Entex, Ceclor CD and Keftab products. During fiscal 1995,
the Company executed three agreements relating to the acquisition,
in-licensing and co-promotion of products and acquired Health Script. Due to
the Company's emphasis on acquiring and in-licensing respiratory
pharmaceutical products, the Company anticipates that the integration of the
recently acquired businesses and products, as well as any future
acquisitions, will require significant management attention and expansion of
its sales force. The Company's ability to achieve and maintain profitability
is based on management's ability to manage its changing business effectively.
UNCERTAINTY OF PROFITABILITY; NEED FOR ADDITIONAL FUNDS
The Company has experienced significant operating losses in the past, and, at
September 30, 1997, the Company's accumulated deficit was $49.6 million.
Although the Company achieved profitability on an annual basis in 1996 and in
the first nine months of 1997, there can be no assurance that revenue growth
or profitability will continue on an annual or quarterly basis in the future.
In addition, any exercise of the Company's option to acquire the common stock
of Spiros Corp. ("Purchase Option") and the currently proposed $75.0 million
contribution to Spiros Corp. II will result in significant, non-recurring
charges to earnings in the periods in which such transactions are completed.
The acquisition and in-licensing of products, the expansion of the Company's
sales force in response to acquisition and in-licensing of products, the
maintenance of the Company's existing sales force, the upgrade and expansion
of its facilities, continued pricing pressure and the exercise of the
Purchase Option, as well as funds that the Company, at its option, may
provide for Spiros development or to acquire Spiros technology, both
internally and through Spiros Corp. II, will require the commitment of
substantial capital resources and may also result in significant losses.
Depending upon, among other things, the acquisition and in-licensing
opportunities available, the Company may need to raise additional funds for
these purposes. The Company may seek such additional funding through public
and private financing, including equity or debt financing. Adequate funds
for these purposes, whether through financial markets or from other sources,
may not be available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company to delay, scale back or suspend
some or all of its product acquisition and in-licensing programs, the upgrade
and expansion of its facilities and further development of Spiros. The
Company anticipates that its existing capital resources, together with cash
expected to be generated from operations and available bank borrowings,
should be sufficient to finance its current operations and working capital
requirements through at least 12 months following the date of this prospectus.
GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL
Development, testing, manufacturing and marketing of pharmaceutical products,
including drug delivery systems, are subject to extensive regulation by
numerous governmental authorities in the U.S. and other countries. The
process of obtaining FDA approval of pharmaceutical products and drug
delivery systems is costly and time-consuming. Any new pharmaceutical
product must undergo rigorous preclinical and clinical testing and an
extensive regulatory approval process mandated by the FDA. Such regulatory
review includes the determination of manufacturing capability and product
performance. Marketing of drug delivery systems also requires FDA approval,
which can be costly and time consuming to obtain. The Company will need to
obtain a separate regulatory approval for each Spiros drug delivery system.
The Company expects to submit an abbreviated NDA called a 505(b)(2)
application for the use of albuterol and other drugs with the Spiros system.
No assurances can be given that all of the Company's drugs identified for
development with Spiros will be suitable for, or approved under, abbreviated
application procedures. Certain abbreviated application procedures have been
the subject of petitions filed by brand name manufacturers which seek changes
in the FDA's approval process for such abbreviated applications. These
requested changes include, among other things, disallowance of the use by an
applicant of an abbreviated application with data considered proprietary by
the original manufacturer that was submitted to the FDA as part of an
original NDA. The Company is unable to predict at this time whether the FDA
will make any changes to its abbreviated application procedures as a result
of such petitions or the effect that such changes or challenges may have on
the Company. There can be no assurance that the pharmaceutical products
currently in development, or those products acquired or in-licensed by the
Company, will be approved by the FDA. In addition,
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there can be no assurance that all necessary approvals will be granted for
future products or that FDA review or actions will not involve delays caused
by the FDA's request for additional information or testing that could
adversely affect the time to market and sale of the products. For both
currently marketed and future products, failure to comply with applicable
regulatory requirements can, among other things, result in the suspension of
regulatory approval, as well as possible civil and criminal sanctions.
The Company, on behalf of Spiros Corp. II, plans to submit an NDA for an
albuterol based product (the "Albuterol Product"), in November 1997. The FDA
may determine to reject the Company's NDA at any time within 60 days of
submission based on a determination that the NDA is incomplete or that
additional information is required prior to consideration of the NDA. Prior
to the FDA's approval of an Albuterol Product the Company will be required to
complete an ongoing open label study with respect to the Albuterol Product.
Since completion of the pivotal trials, the Company has made, and is
proposing to make, a number of additional modifications to the Spiros system,
some of which address problems encountered with the mechanical features of
the Spiros delivery system during the pivotal trials. These changes are
intended to improve the reliability, performance, manufacturability, and
customer acceptance of the mechanical features of the Spiros delivery system.
The Company expects that it will be required to complete testing and
validation pursuant to cGMP requirements of the Spiros system as modified for
commercial distribution, which could be costly and time-consuming. There can
be no assurance that the FDA will not require the Company to undertake
further laboratory testing, field testing and/or clinical studies in order to
ensure the safety and effectiveness of the Albuterol Product intended to be
commercialized by the Company and to ensure that it can be reliably
manfactured. If a proposed change is deemed to be a major modification by the
FDA, the Company could be required to repeat one or more of the clinical
studies. Moreover, because of the time necessary to validate the changes to
the Spiros system, there can be no assurance that the Company will be
prepared for any FDA preapproval inspection of the Company's manufacturing
facilities in a timely manner. If the Company is required to undertake
additional laboratory testing and/or clinical studies or to postpone the
preapproval inspection, or if the Company fails to complete the open label
study in a timely manner, the Company could receive a non-approval letter
and, in any event, there could be a substantial delay in completion of the
approval process. FDA approval to market the Albuterol Product could take
several months to several years, or approval may ultimately be denied.
The FDA is required to conduct biennial inspections of drug manufacturing
establishments. Since the planned NDA submission for the Albuterol Product
will be the Company's first for a Spiros product, the FDA will inspect the
Company's manufacturing facility as part of the review process. The Company
may also be subject to State of California inspection. There can be no
assurance that the Company will be able to satisfy such inspections in a
timely manner, if at all.
In addition, changes in regulations could have a material adverse effect on
the Company. The FDA is continuing an evaluation of the effectiveness of all
drug products containing ingredients marketed prior to 1962 (the year of
enactment of the "Drug Amendments of 1962" to the Federal Food, Drug and
Cosmetic Act) as part of its Drug Efficacy Study Implementation ("DESI")
program and will determine which drugs are considered "new drugs" requiring
approval through a New Drug Application ("NDA") for marketing. A Policy
Guide (CPG 440.100) issued by the FDA indicates that the FDA will implement
procedures to determine whether the new drug provisions are applicable to
existing products. This Policy Guide requires that products covered by
paragraph B not be similar or related to any drug included in the DESI
program, or have a different formulation or conditions for use than products
marketed before November 13, 1984. If a final determination is made that a
particular drug requires an approved NDA, such approval will be required for
marketing to continue. If such a determination is made, the FDA might impose
various requirements; for example, it might require that the current product
be the subject of an approved NDA, that the product be reformulated and an
NDA approval be obtained, that the product must be sold on an
over-the-counter basis rather than as a prescription drug or that the product
must be removed from the market. The Company believes that nine of its
prescription pharmaceutical products may be covered by paragraph B of the
Policy Guide and is aware that one of its products may be considered to be
similar or related to a DESI drug. Also, it is not aware of evidence to
substantiate that three of its products have the same formulation or
conditions for use as products marketed before November 13, 1984. There can
be no assurance as to which regulatory course the FDA will follow, if any,
with respect to many of the Company's pharmaceutical products or whether the
Company will be able to obtain any approvals that the FDA may deem necessary.
If any negative actions are taken by the FDA, such actions could have a
material adverse effect on the Company's business. Health Script is subject
to regulation by state regulatory authorities, principally state boards of
pharmacy. In addition, Health Script is subject to regulation by other state
and federal agencies with respect to reimbursement for prescription drug
benefits provided to individuals covered primarily by publicly-funded
programs.
PATENTS AND PROPRIETARY RIGHTS; UNPREDICTABILITY OF PATENT PROTECTION
The Company's success will depend in part on its ability to obtain patents on
current or future products or formulations, defend its patents, maintain
trade secrets and operate without infringing upon the proprietary rights of
others, both in the U.S. and abroad. However, only six of the
pharmaceuticals currently marketed by the Company are covered by patents.
The Company also has licenses or license rights to certain other U.S. and
foreign patent and patent applications. There can be no assurance that
patents, U.S. or foreign, will be obtained, or that, if issued or licensed to
the Company, they will be enforceable or will provide substantial protection
from competition or be of commercial benefit to the Company or that the
Company will possess the financial resources necessary to enforce or defend
any of its patent rights. Federal court decisions establishing legal
standards for determining the validity and scope of patents in the field are
in transition. There can be no assurance that the historical legal standards
surrounding questions of validity and scope will continue to be applied or
that current defenses as to issued patents in the field will offer protection
in the future. The commercial success of the Company will also depend upon
avoiding the infringement of patents issued to competitors and upon
maintaining the technology licenses upon which certain of the Company's
current products are, or any future products under development might be,
based. Litigation, which could result in substantial cost to the Company,
may be necessary to enforce the Company's patent and license rights or to
determine the scope and validity of proprietary rights of third parties. If
any of the Company's products are found to infringe upon patents or other
rights owned by third parties, the Company could be required to obtain a
license to continue to manufacture or market such products. There can be no
assurance that licenses to such patent rights would be made available to the
Company on commercially reasonable terms, if at all. If the Company does not
obtain such licenses, it could encounter delays in marketing affected
products while it attempts to design around such patents or it could find
that the development, manufacture or sale of products requiring such licenses
is not possible. The Company currently has certain licenses from third
parties and in the future may require additional licenses from other parties
to develop, manufacture and market commercially viable products effectively.
There can be no assurance that such licenses will be obtainable on
commercially reasonable terms, if at all, or that the patents underlying such
licenses will be valid and enforceable.
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PRODUCT LIABILITY AND RECALL
The Company faces an inherent business risk of exposure to product liability
claims in the event that the testing, manufacturing, marketing or use of its
technologies or products is alleged to have resulted in adverse effects.
Such risks will exist even with respect to those products that receive
regulatory approval for commercial sale. While the Company has taken, and
will continue to take, what it believes are appropriate precautions, there
can be no assurance that it will avoid significant product liability
exposure. The Company currently has limited product liability insurance;
however, there can be no assurance that the Company will be able to maintain
such insurance, that such insurance can be maintained on acceptable terms or
that the level or breadth of any insurance coverage will be sufficient to
fully cover potential claims. There can be no assurance that adequate
insurance coverage will be available in the future at acceptable costs, if at
all, or that a product liability claim or recall would not materially and
adversely affect the business or financial condition of the Company.
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might impede the achievement
of development objectives. Recruiting and retaining management and
operational personnel and qualified scientific personnel to perform research
and development work will also be critical to the Company's success. Although
the Company believes that it is adequately staffed in key positions and that
it will be successful in attracting and retaining skilled and experienced
management, operational and scientific personnel, there can be no assurance
that the Company will be able to attract and retain such personnel on
acceptable terms given the competition among numerous pharmaceutical
companies, universities and research institutions for such personnel. The
loss of the services of key scientific, technical and management personnel
could have a material adverse effect on the Company, especially in light of
the Company's recent significant growth.
ABILITY TO SERVICE INDEBTEDNESS
In the third quarter of 1997, the Company issued $287.5 million principal
amount of 3-1/2% Convertible Subordinated Notes due 2002. There can be no
assurance that the Company will have the necessary funds available to pay the
interest on the principal of the Notes or that the Notes will be able to be
refinanced. Any inability to service the obligation in respect to the Notes
could have a material adverse effect on the Company and the market value of
its common stock.
CHANGE IN CONTROL
Certain provisions of the Company's charter documents and terms relating to
the acceleration of the exercisability of certain warrants and options
relating to the purchase of such securities by the Company in the event of a
change in control may have the effect of delaying, deferring or preventing a
change in control of the Company, thereby possibly depriving stockholders of
receiving a premium for their shares of the Company's common stock. In
addition, upon certain circumstances resulting in a change in control under
the terms of the Notes ("Change of Control"), the Company will be required to
offer to purchase for cash all of the outstanding Notes at a purchase price
of 100% of the principal amount thereof, plus accrued but unpaid interest
through a date that is 30 business days after the Company's notice of the
occurrence of such Change of Control. This Change in Control purchase
feature of the Notes may in certain circumstances have an anti-takeover
effect. If a Change in Control were to occur, there can be no assurance that
the Company would have sufficient funds to repurchase all Notes tendered by
the holders thereof and to repay other indebtedness that may become due as a
result of any Change in Control.
VOLATILITY OF COMPANY STOCK PRICE
The market prices for securities of emerging companies, including the
Company, have historically been highly volatile. Future announcements
concerning the Company or its competitors may have a significant impact on
the market price of the Company's common stock. Such announcements might
include financial results, the results of testing, technological innovations,
new commercial products, changes to government regulations, government
decisions on commercialization of products, developments concerning
proprietary rights, litigation or public concern as to safety of the
Company's products.
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends on its common stock. In
accordance with a bank loan agreement, the Company is prohibited from paying
cash dividends without prior bank approval. The Company currently anticipates
that it will retain all available funds for use in its business and does not
expect to pay any cash dividends in the foreseeable future.
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PART II - OTHER INFORMATION
Item 2. Changes in Securities
The Company reincorporated in Delaware through the merger of Dura
Pharmaceuticals, Inc., a California corporation, with and into a
wholly-owned Delaware subsidiary of Dura Pharmaceuticals, Inc. In
connection with this change, the outstanding shares of the Company's
no par value common stock were automatically converted into and
exchanged for an equal number of shares of common stock, $.001 par
value per share, of the Delaware entity.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number
------
1.1 Purchase Agreement, dated July 24, 1997 in connection with
the offering of Notes.
2.1 Agreement and Plan of Merger of Dura Pharmaceuticals, Inc.
(a Delaware corporation) and Dura Pharmaceuticals, Inc. (a
California corporation) incorporated by reference from
Exhibit 2.1 to the Form 10-Q for the quarterly period ended
June 30, 1997.
3.1 Bylaws incorporated by reference from Exhibit 3.1 to the
Form 10-Q for the quarterly period ended June 30, 1997.
3.2 Certificate of Incorporation incorporated by reference
from Exhibit 3.2 to the Form 10-Q for the quarterly period
ended June 30, 1997.
4.1 Indenture, including form of Note, dated July 30, 1997,
between the Company and Chase Trust Company of California,
with respect to 3 1/2% Convertible Subordinated Notes due
2002.
4.2(1) Form of 3 1/2 % Convertible Subordinated Note.
10.1 Amendment No. 1 to Business Loan Agreement dated May 8, 1997
between the Company and Bank of America National Trust and
Savings Association.
10.2 Amendment No. 2 to Business Loan Agreement dated July 30,
1997 between the Company and Bank of America National Trust
and Savings Association.
10.3 1992 Stock Option Plan, as amended.
10.4(2) Form of Notice of Grant of Stock Option.
10.5(2) Form of Stock Option Agreement.
10.6 Form of Indemnification Agreement between the Company and
each of its directors.
10.7 Form of Indemnification Agreement between the Company and
each of its officers.
11 Statements re: Computations of Net Income Per Share.
27 Financial Data Schedule.
(1) Incorporated by reference to Exhibit 4.1 contained herein.
(2) Incorporated by reference to exhibits to Form S-8 Registration Statement
(No.333-34551) filed 8-28-97.
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1997.
-19-
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DURA PHARMACEUTICALS, INC.
DATE: OCTOBER 21, 1997 /S/ JAMES W. NEWMAN
- ------------------------ --------------------
(JAMES W. NEWMAN)
Senior Vice President, Finance & Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-20-
<PAGE>
EXHIBIT INDEX
TO
FORM 10-Q
DURA PHARMACEUTICALS, INC.
Exhibit No. Description
- ------------ -----------
1.1 Purchase Agreement, dated July 24, 1997 in connection with
the offering of Notes.
2.1 Agreement and Plan of Merger of Dura Pharmaceuticals, Inc.
(a Delaware corporation) and Dura Pharmaceuticals, Inc. (a
California corporation) incorporated by reference from
Exhibit 2.1 to the Form 10-Q for the quarterly period ended
June 30, 1997.
3.1 Bylaws incorporated by reference from Exhibit 3.1 to the
Form 10-Q for the quarterly period ended June 30, 1997.
3.2 Certificate of Incorporation incorporated by reference
from Exhibit 3.2 to the Form 10-Q for the quarterly period
ended June 30, 1997.
4.1 Indenture, including form of Note, dated July 30, 1997, between
the Company and Chase Trust Company of California, with respect
to 3 1/2% Convertible Subordinated Notes due 2002.
4.2(1) Form of 3 1/2 % Convertible Subordinated Note.
10.1 Amendment No. 1 to Business Loan Agreement dated May 8, 1997
between the Company and Bank of America National Trust and
Savings Association.
10.2 Amendment No. 2 to Business Loan Agreement dated July 30, 1997
between the Company and Bank of America National Trust and
Savings Association.
10.3 1992 Stock Option Plan, as amended.
10.4(2) Form of Notice of Grant of Stock Option.
10.5(2) Form of Stock Option Agreement.
10.6 Form of Indemnification Agreement between the Company and each of
its directors.
10.7 Form of Indemnification Agreement between the Company and each of
its officers.
11 Statements re: Computations of Net Income Per Share.
27 Financial Data Schedule.
(1) Incorporated by reference to Exhibit 4.1 contained herein.
(2) Incorporated by reference to exhibits to Form S-8 Registration Statement
(No.333-34551) filed 8-28-97.
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1997.
-21-
<PAGE>
DURA PHARMACEUTICALS, INC.
(a Delaware corporation)
Convertible Subordinated Notes due 2002
PURCHASE AGREEMENT
Dated: July 24, 1997
<PAGE>
TABLE OF CONTENTS
Pages(s)
--------
PURCHASE AGREEMENT....................................................... 1
SECTION 1. REPRESENTATIONS AND WARRANTIES......................... 3
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY................... 3
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS.............. 3
(ii) INCORPORATED DOCUMENTS................................. 4
(iii) INDEPENDENT ACCOUNTANTS................................ 4
(iv) FINANCIAL STATEMENTS................................... 4
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS................. 5
(vi) GOOD STANDING OF THE COMPANY........................... 5
(vii) GOOD STANDING OF SUBSIDIARIES.......................... 5
(viii) CAPITALIZATION......................................... 6
(ix) AUTHORIZATION OF AGREEMENT............................. 6
(x) AUTHORIZATION OF THE INDENTURE......................... 6
(xi) AUTHORIZATION OF THE SECURITIES........................ 6
(xii) DESCRIPTION OF THE SECURITIES AND THE INDENTURE........ 6
(xiii) AUTHORIZATION AND DESCRIPTION OF COMMON STOCK.......... 7
(xiv) REGISTRATION OR SIMILAR RIGHTS WAIVED.................. 7
(xv) ABSENCE OF DEFAULTS AND CONFLICTS...................... 7
(xvi) COMPLIANCE WITH LAWS................................... 8
(xvii) ABSENCE OF LABOR DISPUTE............................... 8
(xviii) ABSENCE OF PROCEEDINGS................................. 8
(xix) ACCURACY OF EXHIBITS................................... 8
(xx) POSSESSION OF INTELLECTUAL PROPERTY.................... 8
(xxi) ABSENCE OF FURTHER REQUIREMENTS........................ 9
(xxii) POSSESSION OF LICENSES AND PERMITS..................... 9
(xxiii) TITLE TO PROPERTY...................................... 9
(xxiv) COMPLIANCE WITH CUBA ACT............................... 9
(xxv) INVESTMENT COMPANY ACT................................. 10
(xxvi) ENVIRONMENTAL LAWS..................................... 10
(xxvii) TAXES.................................................. 10
(xxviii) INSURANCE.............................................. 10
(xxix) ACCOUNTING CONTROLS.................................... 10
(xxx) MARKET STABILIZATION................................... 11
(xxxi) LOCK-UP AGREEMENTS..................................... 11
(xxxii) AFFILIATE TRANSACTIONS................................. 11
(xxxiii) DISTRIBUTION OF PROSPECTUS............................. 11
(b) OFFICER'S CERTIFICATES.......................................... 11
i
<PAGE>
Pages(s)
--------
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING................... 12
(a) INITIAL SECURITIES........................................... 12
(b) OPTION SECURITIES............................................ 12
(c) PAYMENT...................................................... 12
(d) DENOMINATIONS; REGISTRATION.................................. 13
SECTION 3. COVENANTS OF THE COMPANY..................................... 13
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS................................................... 13
(b) FILING OF AMENDMENTS......................................... 13
(c) DELIVERY OF REGISTRATION STATEMENTS.......................... 14
(d) DELIVERY OF PROSPECTUSES..................................... 14
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS.................... 14
(f) BLUE SKY QUALIFICATIONS...................................... 15
(g) RULE 158..................................................... 15
(h) USE OF PROCEEDS.............................................. 15
(i) LISTING...................................................... 15
(j) RESTRICTION ON SALE OF DEBT SECURITIES....................... 15
(k) RESTRICTION ON SALE OF CERTAIN SECURITIES.................... 15
(l) REPORTING REQUIREMENTS....................................... 16
SECTION 4. PAYMENT OF EXPENSES.......................................... 16
(a) EXPENSES..................................................... 16
(b) TERMINATION OF AGREEMENT..................................... 17
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS...................... 17
(a) EFFECTIVENESS OF REGISTRATION STATEMENT...................... 17
(b) OPINION OF COUNSEL FOR COMPANY............................... 17
(c) OPINION OF PATENT COUNSEL FOR COMPANY........................ 17
(d) OPINION OF REGULATORY COUNSEL FOR COMPANY.................... 17
(e) OPINION OF COUNSEL FOR UNDERWRITERS.......................... 17
(f) OFFICERS' CERTIFICATE........................................ 18
(g) ACCOUNTANT'S COMFORT LETTER.................................. 18
(h) BRING-DOWN COMFORT LETTER.................................... 18
(i) MAINTENANCE OF RATING........................................ 18
(j) APPROVAL OF LISTING.......................................... 19
(k) NO OBJECTION................................................. 19
(l) LOCK-UP AGREEMENTS........................................... 19
(m) CONDITIONS TO PURCHASE OF OPTION SECURITIES.................. 19
(i) OFFICERS' CERTIFICATE.................................. 19
(ii) OPINION OF COUNSEL FOR COMPANY......................... 19
(iii) OPINION OF PATENT COUNSEL FOR COMPANY.................. 19
ii
<PAGE>
Pages(s)
--------
(iv) OPINION OF REGULATORY COUNSEL FOR COMPANY.............. 19
(v) OPINION OF COUNSEL FOR UNDERWRITERS.................... 19
(vi) BRING-DOWN COMFORT LETTER.............................. 20
(vii) NO DOWNGRADING......................................... 20
(n) ADDITIONAL DOCUMENTS......................................... 20
(o) TERMINATION OF AGREEMENT..................................... 20
(p) CONSENT OF BANK OF AMERICA................................... 20
SECTION 6. INDEMNIFICATION.............................................. 20
(a) INDEMNIFICATION OF UNDERWRITERS.............................. 20
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS........... 21
(c) ACTIONS AGAINST PARTIES; NOTIFICATION........................ 22
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE........... 22
SECTION 7. CONTRIBUTION................................................. 22
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY............................................................ 24
SECTION 9. TERMINATION OF AGREEMENT..................................... 24
(a) TERMINATION; GENERAL......................................... 24
(b) LIABILITIES...................................................24
SECTION 10. NOTICES...................................................... 25
SECTION 11. PARTIES...................................................... 25
SECTION 12. GOVERNING LAW AND TIME....................................... 26
SECTION 13. EFFECT OF HEADINGS......................................... 26
SCHEDULES
Schedule A - List of Underwriters................................Sch A-1
Schedule B - Pricing Information.................................Sch B-1
Schedule C - List of Persons and Entities Subject to Lock-Up.....Sch C-1
EXHIBITS
Exhibit A - Form of Lock-up Letter...................................A-1
Exhibit B - Form of Opinion of Company's Counsel.....................B-1
Exhibit C - Form of Opinion of Patent Counsel........................C-1
Exhibit D - Form of Opinion of Regulatory Counsel....................D-1
iii
<PAGE>
DURA PHARMACEUTICALS, INC.
(a Delaware corporation)
$250,000,000
Convertible Subordinated Notes due 2002
PURCHASE AGREEMENT
July 24, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Goldman, Sachs & Co.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Dura Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Goldman, Sachs & Co.
(collectively, the "Underwriters"), with respect to the issue and sale by the
Company and the purchase by the Underwriters, acting severally and not
jointly, of the respective principal amounts set forth in said Schedule A of
$250,000,000 aggregate principal amount of the Company's Convertible
Subordinated Notes due 2002 (the "Notes"), and with respect to the grant by
the Company to the Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of an
additional $37,500,000 aggregate principal amount of Notes to cover
over-allotments, if any. The aforesaid $250,000,000 aggregate principal
amount of Notes (the "Initial Securities") to be purchased by the
Underwriters and all or any part of the $37,500,000 aggregate principal
amount of Notes subject to the option described in Section 2(b) hereof (the
"Option Securities") are hereinafter called, collectively, the "Securities."
The Securities are to be issued pursuant to an indenture, dated as of July
30, 1997 (the "Indenture"), between the Company and Chase Trust Company of
California, as trustee (the "Trustee").
The Securities are convertible into shares of common stock, par value
$.001 per share, of the Company (the "Common Stock") in accordance with the
terms of the Securities and the Indenture, at the initial conversion price
specified in Schedule B hereto.
1
<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as they deem advisable after this
Agreement has been executed and delivered and the Indenture has been
qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-30851) covering
the registration of the Securities under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the
Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). The information included in
such prospectus or in such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to
as "Rule 434 Information." Each prospectus used before such registration
statement became effective, and any prospectus that omitted, as applicable,
the Rule 430A Information or the Rule 434 Information, that was used after
such effectiveness and prior to the execution and delivery of this Agreement,
is herein called a "preliminary prospectus." Such registration statement,
including the exhibits thereto, schedules thereto, if any, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus, including the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first
furnished to the Underwriters for use in connection with the offering of the
Securities is herein called the "Prospectus." If Rule 434 is relied on, the
term "Prospectus" shall refer to the preliminary prospectus, dated July 15,
1997, together with the Term Sheet and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is
incorporated by reference in the Registration Statement, any preliminary
prospectus or the Prospectus, as the case may be; and
2
<PAGE>
all references in this Agreement to amendments or supplements to the
Registration Statement, any preliminary prospectus or the Prospectus shall be
deemed to mean and include the filing of any document under the Securities
Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in
the Registration Statement, such preliminary prospectus or the Prospectus, as
the case may be.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has become
effective under the 1933 Act and no stop order suspending the effectiveness
of the Registration Statement or any Rule 462(b) Registration Statement has
been issued under the 1933 Act and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of the Company, are
contemplated by the Commission, and any request on the part of the Commission
for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and the 1939 Act and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act
Regulations"), and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. Neither the
Prospectus nor any amendments or supplements thereto, at the time the
Prospectus or any such amendment or supplement was issued and at the Closing
Time (and, if any Option Securities are purchased, at the Date of Delivery),
included or will include an untrue statement of a material fact or omitted or
will omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in conformity
with information furnished to the Company in writing by any Underwriter
through Merrill Lynch expressly for use in the Registration Statement or
Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under
3
<PAGE>
the 1933 Act, complied when so filed in all material respects with the 1933
Act Regulations and each preliminary prospectus and the Prospectus delivered
to the Underwriters for use in connection with this offering was identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) INCORPORATED DOCUMENTS. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement and the
Prospectus, when they became effective or at the time they were or hereafter
are filed with the Commission, complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations
or the 1934 Act and the rules and regulations of the Commission thereunder
(the "1934 Act Regulations"), as applicable, and, when read together with the
other information in the Prospectus, at the time the Registration Statement
became effective, at the time the Prospectus was issued and at the Closing
Time (and if any Option Securities are purchased, at the Date of Delivery),
did not and will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act and
the 1933 Act Regulations.
(iv) FINANCIAL STATEMENTS. The financial statements included in
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
(and, for relevant periods consistent with the Commission's rules and
regulations, the Company's Subsidiaries (as defined in clause (vii) below))
at the dates indicated and the statements of operations, shareholders' equity
and cash flows of the Company (and, for relevant periods consistent with the
Commission's rules and regulations, each of the Subsidiaries) for the periods
specified; except as otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP the information
required to be stated therein. The selected financial data and the summary
financial information included in the Prospectus present fairly in accordance
with GAAP the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement. The pro forma financial statements and the related
notes thereto included in the Registration Statement and the Prospectus
present fairly in accordance with GAAP the information shown therein, have
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled on
the bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
4
<PAGE>
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A) there
has been no material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company and
the Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any Subsidiary, other
than those in the ordinary course of business, which are material with
respect to the Company and its Subsidiaries considered as one enterprise, and
(C) there has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under the
laws of the State of Delaware and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the Prospectus and to enter into and perform its obligations under this
Agreement, the Indenture and the Notes; and the Company is duly qualified as
a foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result in
a Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. Dura Delivery Systems,
Inc., a Delaware corporation ("DDSI"), Health Script Pharmacy Services, Inc.,
a Colorado corporation ("Health Script"), Healthco Solutions, Inc., a
Colorado corporation ("Healthco"), HS Wholesaler, Inc., a Colorado
corporation ("HS Wholesaler") and DCI, Ltd., a corporation organized under
the laws of the Cayman Islands ("DCI") (DDSI, Health Script, Healthco, HS
Wholesaler and DCI are hereinafter referred to as the "Subsidiaries") are the
only subsidiaries of the Company. Except for the Subsidiaries, neither the
Company nor any Subsidiary owns any shares of stock or any other equity
securities of any corporation or has any equity interests in any firm,
partnership, association or other entity. Each Subsidiary has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect; all of the issued and outstanding capital stock of each such
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned solely by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity; none
of the outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of such
Subsidiary arising by operation of law, under the charter or by-laws of such
Subsidiary or under any agreement to which the Company or such Subsidiary is
a party.
(viii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the column
entitled "Actual" under the caption
5
<PAGE>
"Capitalization" (except for subsequent issuances, if any, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or incorporated by reference therein or pursuant to the exercise
of convertible securities, warrants or options referred to in the
Prospectus). The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of
any securityholder of the Company arising by operation of law, under the
charter or by-laws of the Company or under any agreement to which the Company
is a party. Except as disclosed in the Prospectus or incorporated by
reference therein, there are no outstanding options, warrants or other rights
calling for the issuance of, and no commitments, plans or arrangements to
issue, any shares of capital stock of the Company or any Subsidiary or any
security convertible into or exchangeable for capital stock of the Company or
any Subsidiary.
(ix) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) AUTHORIZATION OF THE INDENTURE. The Indenture has been
duly authorized by the Company and duly qualified under the 1939 Act and,
when duly executed and delivered by the Company and the Trustee, will
constitute a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(xi) AUTHORIZATION OF THE SECURITIES. The Securities have been
duly authorized and, at the Closing Time, will have been duly executed by the
Company and, when authenticated, issued and delivered in the manner provided
for in the Indenture and delivered against payment of the purchase price
therefor as provided in this Agreement, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement thereof
is subject to general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law), and will be in the form
contemplated by, and entitled to the benefits of, the Indenture.
(xii) DESCRIPTION OF THE SECURITIES AND THE INDENTURE. The
Securities and the Indenture will conform in all material respects to the
respective statements relating thereto contained in the Prospectus and will
be in substantially the respective forms filed or incorporated by reference,
as the case may be, as exhibits to the Registration Statement.
(xiii) AUTHORIZATION AND DESCRIPTION OF COMMON STOCK. The Common
Stock conforms to all statements relating thereto contained or incorporated
by reference in the Prospectus
6
<PAGE>
and such description conforms to the rights set forth in the instruments
defining the same. Upon issuance and delivery of the Securities in
accordance with this Agreement and the Indenture, the Securities will be
convertible at the option of the holder thereof for shares of Common Stock in
accordance with the terms of the Securities and the Indenture; the shares of
Common Stock issuable upon conversion of the Securities have been duly
authorized and reserved for issuance upon such conversion by all necessary
corporate action and such shares, when issued upon such conversion, will be
validly issued and will be fully paid and non-assessable; no holder of such
shares will be subject to personal liability by reason of being such a
holder; and the issuance of such shares upon such conversion will not be
subject to the preemptive or other similar rights of any securityholder of
the Company.
(xiv) REGISTRATION OR SIMILAR RIGHTS WAIVED. There are no
persons with registration or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by
the Company under the 1933 Act who have not waived such rights.
(xv) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor
any Subsidiary is in violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company
or any Subsidiary is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any Subsidiary is
subject (collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement, the Indenture and the Securities
and the consummation of the transactions contemplated herein, therein and in
the Registration Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described in
the Prospectus under the caption "Use of Proceeds" and the issuance of the
shares of Common Stock issuable upon conversion of the Securities) and
compliance by the Company with its obligations hereunder and under the
Indenture and the Securities have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any Subsidiary pursuant to, the Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in a Material Adverse Effect),
nor will such action result in any violation of the provisions of the charter
or by-laws of the Company or any Subsidiary or any applicable material law,
statute, rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their assets, properties or
operations. As used herein, a "Repayment Event" means any event or condition
which gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any Subsidiary.
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(xvi) COMPLIANCE WITH LAWS. Except as set forth in the
Prospectus, the Company and the Subsidiaries are in compliance in all
material respects with all applicable laws, statutes, ordinances, rules or
regulations, the enforcement of which, individually or in the aggregate,
would be reasonably expected to have a Material Adverse Effect.
(xvii) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any Subsidiary exists or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any Subsidiary's
principal suppliers, manufacturers, customers or contractors, which, in
either case, may reasonably be expected to result in a Material Adverse
Effect.
(xviii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any
Subsidiary, which is required to be disclosed in the Prospectus (other than
as disclosed therein), or which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially
and adversely affect the properties or assets thereof or the consummation of
the transactions contemplated in this Agreement or the performance by the
Company of its obligations hereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a party or
of which any of their respective property or assets is the subject which are
not described in the Prospectus, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result in a
Material Adverse Effect.
(xix) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be filed
as exhibits thereto which have not been so described and filed as required.
(xx) POSSESSION OF INTELLECTUAL PROPERTY. Except as set forth
in the Prospectus, the Company and its Subsidiaries own or possess adequate
licenses or other rights to use the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
(collectively, "patent and proprietary rights") presently employed by them in
connection with the business now operated by them and neither the Company nor
any Subsidiary has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any patent and proprietary rights or of any facts or circumstances that would
render any patent and proprietary rights invalid or inadequate to protect the
interest of the Company or the affected Subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision, ruling
or finding) or invalidity or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect.
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(xxi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration, qualification
or decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities hereunder,
the issuance of shares of Common Stock upon conversion of Securities or the
consummation of the transactions contemplated by this Agreement or for the
due execution, delivery or performance of the Indenture by the Company,
except such as have been already obtained or as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws and except for
the qualification of the Indenture under the 1939 Act.
(xxii) POSSESSION OF LICENSES AND PERMITS. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
material to the conduct of the business now operated by them; the Company and
its Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not have a Material Adverse
Effect; and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(xxiii) TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title to all material properties owned by the Company and
its Subsidiaries and good title to all other properties owned by them, in
each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such as
(a) are described or incorporated by reference in the Prospectus or (b) do
not, singly or in the aggregate, materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company or the affected Subsidiaries; and all properties held
under lease by the Company or any Subsidiary are held under valid, subsisting
and enforceable leases.
(xxiv) COMPLIANCE WITH CUBA ACT. The Company has complied with,
and is and will be in compliance with, the provisions of that certain Florida
act relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xxv) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus will
not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
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(xxvi) ENVIRONMENTAL LAWS. Except as described in the Prospectus
or except as would not, singly or in the aggregate, result in a Material
Adverse Effect, (A) neither the Company nor any Subsidiary is in material
violation of any federal, state, local or foreign law, rule, regulation,
ordinance or any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment relating to
pollution or protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its Subsidiaries have all permits, authorizations
and approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation, investigation
or proceedings relating to any Environmental Law against the Company or any
Subsidiary and (D) to the best of the Company's knowledge, there are no
events or circumstances that could form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any
Subsidiary relating to Hazardous Materials or any Environmental Laws.
(xxvii) TAXES. The Company and the Subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be filed
or have duly requested extensions thereof and have paid all taxes required to
be paid by any of them and any related assessments, fines or penalties,
except for any such tax, assessment, fine or penalty that is being contested
in good faith and by appropriate proceedings; and adequate charges, accruals
and reserves have been provided for in the financial statements referred to
in Section 1(a)(iv) above in respect of all federal, state, local and foreign
taxes for all periods as to which the tax liability of the Company or any
Subsidiary has not been finally determined or remains open to examination by
applicable taxing authorities.
(xxviii) INSURANCE. The Company and the Subsidiaries carry or are
entitled to the benefits of insurance in such amounts and covering such risks
as is generally maintained by companies of established repute engaged in the
same or similar business and all such insurance is in full force and effect.
(xxix) ACCOUNTING CONTROLS. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general and specific authorizations; (B) transactions are
recorded as necessary to permit preparations of financial statements in
conformity with GAAP and to maintain accountability for assets; (C) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (D) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
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(xxx) MARKET STABILIZATION. The Company and the Subsidiaries
have not (A) taken, directly or indirectly, any action designed to cause or
to result in, or that has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities or (B)
since the initial filing of the Registration Statement (1) sold, bid for,
purchased, or attempted to induce any person to bid for or purchase, or paid
anyone any compensation for soliciting purchases of, the Securities, (2) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company, or (3) engaged, directly or
indirectly, in any other transaction in violation of Regulation M under the
1934 Act.
(xxxi) LOCK-UP AGREEMENTS. The Company has obtained and delivered
to the Underwriters the agreements, in the form of Exhibit A hereto, of the
persons and entities named in Schedule C annexed hereto to the effect that
each such person will not, for a period of 90 days from the date of this
Agreement and except as otherwise provided in their respective agreement,
without the prior written consent of Merrill Lynch, directly or indirectly,
offer to sell, grant any option for the sale of, or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable for
Common Stock owned by such person or entity or with respect to which such
person has the power of disposition.
(xxxii) AFFILIATE TRANSACTIONS. No relationship, direct or
indirect, exists between or among any of the Company or any affiliate of the
Company, on the one hand, and any director, officer, shareholder, customer or
supplier of any of them, on the other hand, which is required by the 1933 Act
or by the 1933 Act Regulations to be described in the Registration Statement
or the Prospectus and which is not so described or is not described as
required.
(xxxiii) DISTRIBUTION OF PROSPECTUS. The Company has not
distributed and, prior to the later to occur of (A) Closing Time and (B)
completion of the distribution of the Securities, will not distribute any
prospectus (as such term is defined in the 1933 Act and the 1933 Act
Regulations) in connection with the offering and sale of the Securities other
than the Registration Statement, any preliminary prospectus, the Prospectus
or other materials, if any, permitted by the 1933 Act or by the 1933 Act
Regulations and approved by the Underwriters.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
the Company or any of its Subsidiaries delivered to the Underwriters or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to
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purchase from the Company, at the price set forth in Schedule B, the
aggregate principal amount of Initial Securities set forth in Schedule A
opposite the name of such Underwriter.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the Underwriters,
severally and not jointly, to purchase up to an additional $37,500,000
aggregate principal amount of Securities at the same price per share set
forth in Schedule B for the Initial Securities, plus accrued interest, if
any, from the Closing Date to the Date of Delivery (as defined below). The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the offering
and distribution of the Initial Securities upon notice by the Underwriters to
the Company setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Underwriters, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined.
If the option is exercised as to all or any portion of the Option Securities,
each of the Underwriters, acting severally and not jointly, will purchase
that proportion of the total number of Option Securities then being purchased
which the number of Initial Securities set forth in Schedule A opposite the
name of such Underwriter bears to the total number of Initial Securities.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Brobeck, Phleger & Harrison LLP, 550 West C Street, San Diego, California
92101 or at such other place as shall be agreed upon by the Underwriters and
the Company, at 7:00 A.M. (California time) on the third (fourth, if the
pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date hereof, or such other time not later than ten business days
after such date as shall be agreed upon by the Underwriters and the Company
(such time and date of payment and delivery being herein called "Closing
Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and
delivery of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by
the Underwriters and the Company, on each Date of Delivery as specified in
the notice from the Underwriters to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery
to the Underwriters of certificates for the Securities to be purchased by
them. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial Securities or the Option Securities, if any,
to be purchased by any Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations hereunder.
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(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
($1,000 or integral multiples thereof) and registered in such names as the
Underwriters may request in writing at least one full business day before the
Closing Time or the relevant Date of Delivery, as the case may be. The
certificates, which may be in temporary form, for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Underwriters in The City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The
Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the Underwriters
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been filed,
(ii) of the receipt of any comments from the Commission, (iii) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, or
of the initiation or threatening of any proceedings for any of such purposes.
The Company will promptly effect the filings necessary pursuant to Rule
424(b) and will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b) was
received for filing by the Commission and, in the event that it was not, it
will promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Underwriters notice
of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
Underwriters with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file
or use any such document to which the Underwriters or counsel for the
Underwriters shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Underwriters and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and
of each amendment thereto (including exhibits filed therewith or incorporated
by reference therein and documents incorporated or deemed to be incorporated
by
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reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Underwriters, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits). The copies of the Registration
Statement and each amendment thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
such number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply
with the 1933 Act and the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations and the 1939 Act and the 1939 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or for
the Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectus in order to
comply with the requirements of the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission, subject to
Section 3(b), such amendment or supplement as may be necessary to correct
such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities and the shares
of Common Stock issuable upon conversion of Securities for offering and sale
under the applicable securities laws of such states and other jurisdictions
as the Underwriters may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the effective
date of the Registration Statement and any Rule 462(b) Registration
Statement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to
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taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have been
so qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement. The
Company will also supply the Underwriters with such information as is
necessary for the determination of the legality of the Securities for
investment under the laws of such jurisdictions as the Underwriters may
reasonably request.
(g) RULE 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."
(i) LISTING. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq SmallCap Market and
the Common Stock issuable upon conversion thereof on the Nasdaq National
Market and will file with the Nasdaq SmallCap and National Markets all
documents and notices required thereby of companies that have securities that
are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq SmallCap and National Markets.
(j) RESTRICTION ON SALE OF DEBT SECURITIES. During a period of ninety
(90) days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, directly or indirectly, issue, sell,
offer or contract to sell, grant any option for the sale of, or otherwise
transfer or dispose of, any debt securities of the Company.
(k) RESTRICTION ON SALE OF CERTAIN SECURITIES. During a period of
ninety (90) days from the date of the Prospectus, the Company will not,
without the prior written consent of Merrill Lynch, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the
1933 Act with respect to any of the foregoing or (ii) enter into any swap or
any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities,
in cash or otherwise. The foregoing sentence shall not apply to (A) the
Securities to be sold hereunder, (B) any shares of Common Stock issued by the
Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus or
(C) any shares of
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Common Stock issued or options to purchase Common Stock granted pursuant to
existing employee benefit plans of the Company referred to in the Prospectus.
(l) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to
the 1934 Act within the time periods required by the 1934 Act and the 1934
Act Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of
this Agreement, any Agreement among Underwriters, the Indenture and such
other documents as may be required in connection with the offering, purchase,
sale, issuance or delivery of the Securities or the issuance or delivery of
the Common Stock issuable upon conversion thereof, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the
Underwriters and the certificates for the Common Stock issuable upon
conversion thereof, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities and
the Common Stock under securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any
amendments or supplements thereto, (vii) the preparation, printing and
delivery to the Underwriters of copies of the Blue Sky Survey and any
supplement thereto, (viii) the fees and expenses of the Trustee, including
the fees and disbursements of counsel for the Trustee in connection with the
Indenture and the Securities, (ix) the fees and expenses of any transfer
agent or registrar for the Common Stock, (x) any fees payable in connection
with the rating of the Securities, (xi) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. (the "NASD") of the terms of the sale of the Securities and
(xii) the fees and expenses incurred in connection with the inclusion of the
Securities in the Nasdaq SmallCap Market and the Common Stock issuable upon
conversion thereof in the Nasdaq National Market.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations
of the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof
or in certificates of any officer of the Company or any
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Subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder,
and to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if
the Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the Underwriters
shall have received the favorable opinions, dated as of Closing Time, of
Brobeck, Phleger & Harrison LLP, counsel for the Company, and, to the extent
provided in Exhibit B hereto, Mitchell R. Woodbury, General Counsel of the
Company, in form and substance satisfactory to counsel for the Underwriters,
to the effect set forth in Exhibit B hereto.
(c) OPINION OF PATENT COUNSEL FOR COMPANY. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of Closing
Time, of Lyon & Lyon LLP (solely with respect to patents concerning the
Spiros product), counsel for the Company, in form and substance satisfactory
to counsel for the Underwriters, to the effect set forth in Exhibit C hereto.
(d) OPINION OF REGULATORY COUNSEL FOR COMPANY. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of Closing
Time, of Kleinfeld, Kaplan and Becker, regulatory counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters, to the
effect set forth in Exhibit D hereto.
(e) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the
Underwriters shall have received the favorable opinion, dated as of Closing
Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, with respect to such matters as the Underwriters may reasonably
request. In giving such opinion such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the States of New
York and California and the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Underwriters. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied upon certificates
of officers and other representatives of the Company and its Subsidiaries and
certificates of public officials.
(f) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or
17
<PAGE>
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Underwriters shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting
officer of the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same force
and effect as though expressly made at and as of Closing Time, (iii) the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or are contemplated by the Commission.
(g) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Underwriters shall have received from Deloitte & Touche LLP a
letter dated such date, in form and substance satisfactory to the
Underwriters, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the Underwriters shall
have received from Deloitte & Touche LLP a letter, dated as of Closing Time,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (g) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to
Closing Time.
(i) MAINTENANCE OF RATING. At Closing Time, the Securities shall be
rated at least "B-1" by Moody's Investor's Service Inc. and "B" by Standard &
Poor's Ratings Group, a division of McGraw-Hill, Inc., and the Company shall
have delivered to the Underwriters a letter dated the Closing Time, from each
such rating agency, or other evidence satisfactory to the Underwriters,
confirming that the Securities have such ratings; and since the date of this
Agreement, there shall not have occurred a downgrading in the rating assigned
to the Securities or any of the Company's other debt securities by any
"nationally recognized statistical rating agency," as that term is defined by
the Commission for purposes of Rule 436(g)(2) under the 1933 Act, and no such
organization shall have publicly announced that it has under surveillance or
review its rating of the Securities or any of the Company's other debt
securities.
(j) APPROVAL OF LISTING. At Closing Time, the Securities and the Common
Stock issuable on conversion thereof shall have been approved for inclusion
in the Nasdaq SmallCap and National Markets, respectively, subject only to
official notice of issuance.
(k) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
18
<PAGE>
(l) LOCK-UP AGREEMENTS. At the date of this Agreement, the Underwriters
shall have received an agreement substantially in the form of Exhibit A
hereto signed by the persons listed on Schedule C hereto.
(m) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any Subsidiary of the Company
hereunder shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Underwriters shall have received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(f) hereof
remains true and correct as of such Date of Delivery.
(ii) OPINION OF COUNSEL FOR COMPANY. The favorable opinion of
Brobeck, Phleger & Harrison LLP, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by Section
5(b) hereof.
(iii) OPINION OF PATENT COUNSEL FOR COMPANY. The favorable opinion
of Lyon & Lyon LLP, patent counsel for the Company, dated such Date of
Delivery, to the same effect as the opinion required by Section 5(c) hereof.
(iv) OPINION OF REGULATORY COUNSEL FOR COMPANY. The favorable
opinion of Kleinfeld, Kaplan and Becker, regulatory counsel for the Company,
dated such Date of Delivery, to the same effect as the opinion required by
Section 5(d) hereof.
(v) OPINION OF COUNSEL FOR UNDERWRITERS. The favorable opinion
of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(e) hereof.
(vi) BRING-DOWN COMFORT LETTER. A letter from Deloitte & Touche
LLP, in form and substance satisfactory to the Underwriters and dated such
Date of Delivery, substantially in the same form and substance as the letter
furnished to the Underwriters pursuant to Section 5(h) hereof, except that
the "specified date" in the letter furnished pursuant to this paragraph shall
be a date not more than five days prior to such Date of Delivery.
(vii) NO DOWNGRADING. Subsequent to the date of this Agreement, no
downgrading shall have occurred in the rating accorded the Securities or of
any of the Company's other securities by any "nationally recognized
statistical rating organization," as that term is defined by the
19
<PAGE>
Commission for purposes of Rule 436(g)(2) under the 1933 Act, and no such
organization shall have publicly announced that it has under surveillance or
review its ratings of any of the Company's securities.
(n) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents
and opinions as they may require for the purpose of enabling them to pass
upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties,
or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and sale of
the Securities as herein contemplated shall be reasonably satisfactory in
form and substance to the Underwriters and counsel for the Underwriters.
(o) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Underwriters by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the case
may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1, 6, 7
and 8 shall survive any such termination and remain in full force and effect.
(p) CONSENT OF BANK OF AMERICA. The Company shall have received from
the Bank of America National Trust & Savings Association (the "Bank"), in
connection with that certain Business Loan Agreement, dated April 14, 1997,
between the Company and the Bank (the "Loan Agreement"), a consent to the
sale of the Securities, or shall have provided evidence to the Underwriters
of termination of the Loan Agreement, in either case, in form and substance
reasonably satisfactory to the Underwriters and their counsel.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
20
<PAGE>
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 6(d)
below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in
the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Merrill Lynch expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party
of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to
Section 6(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section
6(b) above, counsel to the
21
<PAGE>
indemnified parties shall be selected by the Company. An indemnifying party
may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except
with the consent of the indemnified party) also be counsel to the indemnified
party. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be
sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as
to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least 30 days
prior to such settlement being entered into and (iii) such indemnifying party
shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute
to the aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
22
<PAGE>
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the principal amount of Initial Securities set
forth opposite their respective names in Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers
23
<PAGE>
of the Company or any of its Subsidiaries submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person,
or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Underwriters may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or
economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Underwriters, impracticable to market the Securities
or to enforce contracts for the sale of the Securities, or (iii) if trading
in any securities of the Company has been suspended or materially limited by
the Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq
National Market has been suspended or materially limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York or California authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full
force and effect.
SECTION 10. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to them at:
c/o Merrill Lynch & Co.
World Financial Center
North Tower
New York, New York 10281-1201
Attn: John B. Kiernan, Jr.
with a copy to:
24
<PAGE>
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attn: Thomas C. Janson, Jr.
Notices to the Company shall be directed to it at:
Dura Pharmaceuticals, Inc.
5880 Pacific Center Boulevard
San Diego, California 92121-4204
Attn: Mitchell R. Woodbury
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, California 92101
Attn: Faye H. Russell
SECTION 11. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and
7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriters and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of
such purchase.
SECTION 12. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT
AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 13. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
25
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
DURA PHARMACEUTICALS, INC.
By: /s/ CAM L. GARNER
--------------------------------
Cam L. Garner
Chairman, President and
Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GOLDMAN, SACHS & CO.
By: MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ JAMES G. JACKSON
--------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
Principal
Amount of
Name of Underwriter Securities
- ------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................... $ 150,000,000
Goldman, Sachs & Co.......................................... 100,000,000
Total........................................................ $ 250,000,000
-------------
-------------
Sch A - 1
<PAGE>
SCHEDULE B
DURA PHARMACEUTICALS, INC.
$250,000,000 Convertible Subordinated Notes due 2002
1. The initial public offering price of the Securities shall be 100% of
the principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Underwriters for the Initial
Securities shall be 97% of the principal amount thereof.
3. The interest rate on the Securities shall be 3 1/2% per annum.
4. The Securities shall be convertible into shares of common stock, par
value $.001 per share, of the Company at an initial conversion price of
$50.635 per share.
5. The Securities may be redeemed at the option of the Company at any
time after July 15, 2000, in whole or from time to time in part, upon not
less than 15 nor more than 60 days' notice given to the Holders. The
redemption prices (including accrued and unpaid interest up to but not
including the date of redemption), expressed as a percentage of the principal
amount, for the 12-month periods beginning July 15, 2000 and July 15, 2001
are 101.40% and 100.70%, respectively.
Sch B - 1
<PAGE>
SCHEDULE C
List of Persons and Entities
Subject to Lock-Up
<TABLE>
<CAPTION>
Name of Holder Shares
- -------------- ------
<S> <C>
All directors and officers of the Company All shares of Common Stock beneficially
owned by each such person
</TABLE>
Sch C - 1
<PAGE>
Form of Lock-Up Pursuant to Section 5(l)
Exhibit A
July ___, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Goldman, Sachs & Co.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: PROPOSED PUBLIC OFFERING BY DURA PHARMACEUTICALS, INC.
------------------------------------------------------
Ladies and Gentlemen:
The undersigned, a shareholder and/or officer and/or director of
Dura Pharmaceuticals, Inc, a Delaware corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and Goldman, Sachs & Co.
("Goldman, Sachs") propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public
offering of convertible notes (the "Securities") of the Company and
related Pricing Agreement (the "Pricing Agreement"), which will set
forth, among other things, the public offering price of the
Securities. In recognition of the benefit that such an offering will
confer upon the undersigned as a shareholder and/or officer and/or
director of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named
in the Purchase Agreement that, during a period of ninety (90) days
from the date of the Purchase Agreement, the undersigned will not,
without the prior written consent of Merrill Lynch, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of or transfer, any shares of the Company's Common
Stock, par value $.001 per share (the "Common Stock"), or any
securities convertible into or exchangeable or exercisable for Common
Stock, whether now
A-1
<PAGE>
owned or hereafter acquired by the undersigned, or with respect to which the
undersigned has or hereafter acquires the power of disposition, or file,
participate in, or request the filing of any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing.
Very truly yours,
Signature:
------------------------------
Print Name:
------------------------------
A-2
<PAGE>
Exhibit B
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has full corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement and Prospectus and to enter into and perform its
obligations under the Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect
(which opinion may be given by the General Counsel of the Company).
(iv) The authorized capital stock of the Company conforms as to legal
matters in all material respects to the description thereof contained in the
Registration Statement and Prospectus. The outstanding shares of capital
stock of the Company have been duly and validly authorized and issued, are,
to our knowledge, fully paid and non-assessable, and are not subject to any
preemptive rights (the opinion called for by the last sentence of this
paragraph (iv) may be given by the General Counsel of the Company).
(v) To our knowledge, the Subsidiaries are the Company's sole
subsidiaries. Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect; all
of the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to the
best of our knowledge and information, is owned by the Company free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; the Company, through its ownership of the stock of each Subsidiary is
not subject to liability by reason of being such a holder; and none of the
shares of any Subsidiary was issued in violation of the preemptive rights of
any stockholder or warrantholder of such Subsidiary (the opinion called for
by the last sentence of this paragraph (v) may be given by the General
Counsel of the Company).
B-1
<PAGE>
(vi) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The Indenture has been duly authorized, executed and delivered by
the Company and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law).
(viii) The Securities are in the form contemplated by the Indenture,
have been duly authorized by the Company and, assuming that the Securities
have been duly authenticated by the Trustee in the manner described in its
certificate delivered to you today (which fact such counsel need not
determine by an inspection of the Securities), the Securities have been duly
executed, issued and delivered by the Company and constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
will be entitled to the benefits of the Indenture.
(ix) Upon issuance and delivery of the Securities in accordance with
the Purchase Agreement and the Indenture, the Securities shall be convertible
at the option of the holder thereof for shares of Common Stock in accordance
with the terms of the Securities and the Indenture; the shares of Common
Stock issuable upon conversion of the Securities have been duly authorized
and reserved for issuance upon such conversion by all necessary corporate
action; such shares, when issued upon such conversion, will be validly issued
and will be fully paid and non-assessable and no holder of such Common Stock
is or will be subject to personal liability by reason of being such a holder.
(x) The issuance of the shares of Common Stock upon conversion of the
Securities is not subject to the preemptive or other similar rights of any
securityholder of the Company.
(xi) Except as disclosed in or specifically contemplated by the
Registration Statement and Prospectus, there are no options, warrants,
conversion privileges, preemptive rights or other rights presently
outstanding calling for the issuance of, or to purchase from the Company, any
of the authorized but unissued capital stock of the Company. The outstanding
stock options relating to the Company's Common Stock have been duly
authorized and validly issued and the description thereof contained in the
Prospectus is accurate in all material respects (the opinion called for by
this paragraph (xi) may be given by the General Counsel of the Company).
B-2
<PAGE>
(xii) The Indenture has been duly qualified under the 1939 Act.
(xiii) The Securities and the Indenture conform as to legal matters in
all material respects to the descriptions thereof contained in the Prospectus.
(xiv) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; and,
to our knowledge, no stop order proceedings suspending the effectiveness of
the Registration Statement have been instituted or threatened or are pending
under the 1933 Act.
(xv) The form of certificate used to evidence the Common Stock is in
due and proper legal form.
(xvi) To our knowledge, there is no legal or governmental proceeding
pending or threatened to which the Company is or may become a party or to
which any of the properties of the Company is or may become subject that is
required to be described in the Registration Statement or the Prospectus and
is not so described, or of any statute or regulation that is required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement that is not described or filed as
required.
(xvii) The statements in the Prospectus under the caption "Description
of Capital Stock," to the extent that such statements constitute a summary of
documents referred to therein or matters of law, have been prepared by or
reviewed by us and are correct in all material respects.
(xviii) All descriptions in the Prospectus of agreements and other
instruments to which the Company or its Subsidiaries are a party are accurate
in all material respects. To our knowledge, no breach or default exists
under any agreement or instrument to which the Company or any Subsidiary is a
party and which is filed as an Exhibit to the Registration Statement or
incorporated by reference therein (the opinion called for by the last
sentence of this paragraph (xviii) may be given by the General Counsel of the
Company).
(xix) Neither the Company nor any Subsidiary is in violation of its
charter or by-laws; to the best of our knowledge, the Company and its
Subsidiaries are in compliance with all laws, rules, regulations, judgments,
decrees, orders and statutes in the jurisdictions in which they are
conducting their business, except where the failure to so comply would not
have a Material Adverse Effect (which opinion may be given by the General
Counsel of the Company).
(xx) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Purchase Agreement, the
Indenture and the Securities will not contravene any provision of applicable
law or the articles of incorporation or bylaws of the Company, or, to our
knowledge, any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any of its property, or, to our
knowledge, constitute a breach of or default or Repayment Event (as defined
in Section 1(a)(xv) of the Purchase Agreement) under any
B-3
<PAGE>
agreement or other instrument filed as an exhibit to the Registration
Statement or incorporated by reference therein to which the Company is a
party, and no consent, approval, authorization or order of or qualification
with any governmental body or agency is required for the due authorization,
execution and delivery of the Purchase Agreement or the due execution,
delivery or performance of the Indenture by the Company or for the offering,
issuance, sale or delivery of the Securities and the issuance of shares of
Common Stock upon conversion of Securities, except such as may be required by
the securities or blue sky laws of the various states (on which we need
express no opinion) in connection with the purchase and distribution of the
Securities by the Underwriters.
(xxi) To our knowledge, no holders of securities of the Company have
rights against the Company which have not been waived to the registration of
shares of Common Stock or other securities, because of the filing of the
Registration Statement by the Company or the offering contemplated thereby.
(xxii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
In addition to the foregoing, (i) the documents incorporated by reference
in the Prospectus (other than the financial statements and supporting
schedules included therein or omitted therefrom, as to which we need express
no opinion), when they became effective or were filed with the Commission, as
the case may be, complied as to form in all material respects with the
requirements of the 1933 Act or the 1934 Act, as applicable, and the rules
and regulations of the Commission thereunder; and (ii) the Registration
Statement, the Prospectus, and each amendment or supplement to the
Registration Statement and Prospectus, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein or omitted therefrom, and the Trustee's Statement of
Eligibility on Form T-1 (the "Form T-1"), as to which we need express no
opinion) complied as to form in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations. Nothing has come to our
attention that would lead us to believe that the Registration Statement or
the Prospectus (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom and the Form T-1, as to which we need make no statement), at the
time the Registration Statement became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading
or that the Prospectus (except for financial statements and schedules and
other financial data included or incorporated by reference therein or omitted
therefrom and the Form T-1, as to which we need make no statement), at the
time the Prospectus was issued, or at the Closing Time, included or includes
an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) upon the opinions of
Lyon & Lyon LLP and Kleinfeld, Kaplan & Becker and Mitchell R. Woodbury, Esq.
with respect to the matters opined upon by each, and (B), as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
Such
B-4
<PAGE>
opinion shall not state that it is to be governed or qualified by, or that it
is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
B-5
<PAGE>
Exhibit C
FORM OF OPINION OF COMPANY'S PATENT COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) The Company owns or possesses licenses to patents which are
directed to the Spiros and to certain uses of the Spiros. With regard
to the business presently and as proposed to be conducted by the
Company relating to the Spiros as described in the Registration
Statement and the Prospectus, and, except as described therein, we
have not received any notice of infringement of or conflict with, and
does not otherwise know of any basis for notice of any such
infringement of or conflict with, asserted rights of others with
respect to any patents, trademarks, service marks, trade names,
copyrights, technology or know-how.
(ii) To the extent that the statements relating to the Spiros
product contained in the Prospectus under the subheadings "Risk
Factors--Patents and Proprietary Rights" and the first paragraph of
"Business--Patents and Proprietary Rights" refer to opinions of
counsel or matters of law, patents or patent applications or purport
to summarize the status of litigation or the provisions of statutes,
regulations, contracts, agreements or other documents, such statements
(A) have been prepared or reviewed by us and accurately reflect the
status of any such patents or patent applications, litigation, the
provisions purported to be summarized and any of our opinions and (B)
do not contain any untrue statements of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
C-1
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Exhibit D
FORM OF OPINION OF COMPANY'S REGULATORY COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(d)
(i) We represent the Company in certain matters relating to
regulatory compliance under the Federal Food, Drug and Cosmetic Act
and the obtaining of federal regulatory approvals with respect to the
development, testing, manufacturing, safety, labeling, storage, record
keeping or marketing of the company's products.
(ii) We have read the portion of the Registration Statement and
the Prospectus entitled "Risk Factors-Government Regulation; No
Assurance of FDA Approval"; "Business-Government Regulation" and such
other portions which reference federal food and drug regulatory
matters as shall have been agreed upon between us and counsel for the
Underwriters (the "Regulatory Portion").
(iii) While we have not conducted an audit of the Company and are
relying as to matters of fact on the accuracy of the Prospectus, and
subject to the description of the status of the Company's products in
the section of the Prospectus entitled "Business--Government
Regulation," we have no reason to believe that the Company's current
business is not being conducted in material compliance with currently
applicable requirements under the Federal Food, Drug and Cosmetic Act.
(iv) We have no reason to believe that the information contained
in the Regulatory Portion of the Registration Statement or the
Prospectus at the time they became effective contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, at Closing Time, the information
contained in the Regulatory Portion of the Prospectus or any amendment
or supplement to the Regulatory Portion of the Prospectus contained
any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
D-1
<PAGE>
- --------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.,
Issuer,
AND
CHASE TRUST COMPANY OF CALIFORNIA,
Trustee
INDENTURE
Dated as of July 30, 1997
$250,000,000
3 1/2% Convertible Subordinated Notes due 2002
- --------------------------------------------------------------------------------
<PAGE>
This INDENTURE, dated as of July 30, 1997, is made between Dura
Pharmaceuticals, Inc., a Delaware corporation (the "Company," as more fully set
forth in Section 1.1), and Chase Trust Company of California, a California
corporation, as Trustee.
W I T N E S S E T H:
WHEREAS, the Company has duly authorized the issue of its 31/2%
Convertible Subordinated Notes due 2002 (the "NOTES"), in an aggregate principal
amount specified herein, and has duly authorized the execution and delivery of
this Indenture.
NOW, THEREFORE:
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the respective holders from time to time of
the Notes:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. The terms defined in this Section 1.1
(except as otherwise expressly provided herein or in any indenture supplemental
hereto) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings set forth in this Section 1.1.
"AFFILIATE" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purpose of this
definition, "control," when used with respect to any specified Person, means the
power to direct or cause the direction of the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"BOARD OF DIRECTORS" or "BOARD" means, with respect to any Person, the
Board of Directors of such Person or a committee thereof duly authorized, with
respect to any particular matter, to exercise the power of the Board.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday on which banking institutions in New York, New York or San Francisco,
California are not authorized or obligated by law or executive order to close.
<PAGE>
"CASH" or "CASH" means such coin or currency of The United States of
America as at any time of payment is legal tender for the payment of public and
private debts.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Common Stock, par value $.001 per share, of
the Company as it exists on the date of this Indenture or any other shares of
capital stock of the Company into which such Common Stock shall be reclassified
or changed.
"COMPANY" means Dura Pharmaceuticals, Inc., a Delaware corporation,
until a successor replaces it pursuant to the provisions of Article XI and,
thereafter, shall mean such successor. The foregoing sentence shall likewise
apply to any subsequent successor or successors.
"COMPANY ORDER" means a written order signed in the name and on behalf
of the Company by (a) its Chairman of the Board, Chief Executive Officer,
President or any Vice President, and (b) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office is, at the date hereof, located at 101 California
Street, Suite 2725, San Francisco, California, 94111.
"CREDIT AGREEMENT" means that certain Business Loan Agreement dated as
of April 14, 1997, between the Company and Bank of America National Trust and
Savings Association, as the same may be amended, renewed, extended, replaced,
increased or refinanced from time to time.
"DEFAULT" means any event that is, or after notice or passage of time,
or both, would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means the Credit Agreement and any
particular Senior Indebtedness in which the instrument creating or evidencing
the same or the assumption or guarantee thereof (or related agreements or
documents to which the Company is a party) expressly provides that such Senior
Indebtedness shall be "Designated Senior Indebtedness" for purposes of the
Indenture (provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to exercise
the rights of Designated Senior Indebtedness under this Indenture).
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<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
and the rules and regulations of the Commission promulgated thereunder, as in
effect from time to time.
"EVENT OF DEFAULT" means any event specified in Section 6.1(a), (b),
(c), (d), (e) or (f).
"GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board ("FASB") or in such
other statements by such other entity as approved by a significant segment of
the accounting profession which are from time to time in effect in the United
States; PROVIDED, HOWEVER, that for purposes of determining compliance with
covenants in the Indenture, "GAAP" means such generally accepted accounting
principles which are in effect as of the date of any such determination.
"INDENTURE" means this instrument, as originally executed or, if
amended or supplemented in accordance with the terms hereof, as so amended or
supplemented.
"NOTE" means any Note authenticated and delivered under this
Indenture.
"NOTEHOLDER" or "HOLDER" means, as applied to any Note, any Person in
whose name such Note is registered on the Registrar's books.
"OFFICER" means the Chairman of the Board, Chief Executive Officer,
President, any Vice President, the Treasurer, the Secretary, any Assistant
Treasurer or Assistant Secretary of the Company.
"OFFICERS' CERTIFICATE" means, when used with respect to the Company,
a written certificate containing the information required to be contained
therein pursuant to this Indenture, including Sections 16.5 and 16.6, signed by
both (a) the Chief Executive Officer, President, any Vice President and (b) the
Treasurer or any Assistant Treasurer or Secretary or any Assistant Secretary of
the Company.
"OPINION OF COUNSEL" means a written opinion, containing the
information required to be contained therein pursuant to this Indenture,
including Sections 16.5 and 16.6, of counsel who is an employee of or counsel to
the Company.
"OVER-ALLOTMENT OPTION" means the option of the Underwriters to
purchase additional Notes in the aggregate principal amount of up to $37,500,000
as provided in the Purchase Agreement referred to in Section 2.2 hereof.
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<PAGE>
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREDECESSOR NOTE" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Notes; and, for the purposes of this definition, any Note
authenticated and delivered pursuant to Section 2.7 in lieu of a lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the lost, destroyed
or stolen Note that it replaces.
"REDEMPTION DATE" means the date specified for redemption of any of
the Notes in accordance with the terms of the Notes and this Indenture.
"REDEMPTION PRICE" shall have the meaning set forth in the Notes.
"RESPONSIBLE OFFICER" means, with respect to the Trustee, any officer
within the Corporate Trust Office, including any Vice President, Managing
Director, Assistant Vice President, Secretary, Assistant Secretary or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge and familiarity with the particular subject.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"SENIOR INDEBTEDNESS" means, whether outstanding upon issuance of the
Notes or thereafter incurred or created: (i) the principal and premium, if any,
and interest (including post-petition interest) on and fees, costs (including
legal fees, which shall include, without limitation, the reasonable allocable
cost of in-house legal counsel), enforcement expenses, collateral protection
expenses, and other reimbursement or indemnity obligations in respect of all
indebtedness or obligations of the Company to any Person, including but not
limited to banks and lending institutions, for money borrowed (other than that
evidenced by the Notes) or in respect of credit or other banking facilities
evidenced by a note, bond, debenture, loan agreement, a lease intended as
security or similar instrument or agreement (including purchase money
obligations with original maturities in excess of one year and noncontingent
reimbursement obligations in respect of the amounts paid under letters of
credit), or cash management operating agreements which involve short term
automated clearing house credit risk of no more than five days; (ii)
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<PAGE>
commitment or standby fees due and payable to lending institutions with respect
to credit facilities available to the Company; (iii) all obligations of the
Company (a) for the reimbursement of any obligor on any letter of credit,
banker's acceptance, or similar credit transaction, (b) under interest rate
swaps, caps, collars, options, and similar arrangements and (c) under any
foreign exchange contract, currency swap agreement, futures contract, currency
option contract, or other foreign currency hedge; (iv) purchase money
obligations, including contingent payment obligations, with respect to the
acquisition by the Company of products or businesses; (v) all obligations and
liabilities (contingent or otherwise) in respect of leases of the Company
required, in conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on the balance sheet of the
Company and all obligations and liabilities (contingent or otherwise) under any
lease or related document (including a purchase agreement) in connection with
the lease of real property which provides that the Company is contractually
obligated to purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to the lessor
and the obligations of the Company under such lease or related document to
purchase or to cause a third party to purchase such leased property; (vi) any
liabilities of others described in the preceding clauses that the Company has
guaranteed or which are otherwise its legal liability; and (vii) renewals,
extensions, refundings, refinancings, restructurings, amendments, and
modifications of any such indebtedness or guarantee. Notwithstanding anything
to the contrary in the Indenture or the Notes, "Senior Indebtedness" does not
include any indebtedness of the Company (a) to any person under any employee
benefit plan or to any employee or affiliates of the Company, or (b) any
indebtedness or other obligation of the Company that by its terms of the
instrument creating or evidencing it is stated to be pari passu or junior in
right of payment of the Notes.
"SUBSIDIARY" means (i) a corporation, a majority of whose capital
stock with voting power, under ordinary circumstances, to elect directors is, at
the date of determination, directly or indirectly owned by the Company, by one
or more Subsidiaries of the Company, or by the Company and one or more
Subsidiaries of the Company, or (ii) a partnership in which the Company or a
Subsidiary of the Company, at the date of determination is a general partner or
holds in excess of 50% of the profits or voting interests, or (iii) any other
Person (other than a corporation or a partnership) in which the Company, a
Subsidiary of the Company or the Company and one or more Subsidiaries of the
Company, directly or indirectly, at the date of determination, has (x) at least
a majority ownership interest or (y) the power to elect or direct the election
of a majority of the directors or other governing body of such person; PROVIDED,
HOWEVER, that Spiros Development Corporation ("Spiros"), or any
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<PAGE>
substantially equivalent "off-balance sheet" entity initially organized by the
Company or a Subsidiary, shall not be deemed a Subsidiary unless and until, with
respect to Spiros or such substantially equivalent entity if a corporation, a
majority of the outstanding capital stock with voting power of Spiros or such
entity, as the case may be, is owned directly by the Company, by one or more
Subsidiaries, or by the Company and one or more Subsidiaries, or, with respect
to any substantially equivalent entity, unless and until it meets the
requirements of clause (ii) above if a partnership or clause (iii) above if a
Person other than a corporation or partnership.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended, as it was in force at the date of execution of this Indenture.
"TRUSTEE" means Chase Trust Company of California and its successors
and any entity resulting from or surviving any consolidation or merger to which
it or its successors may be a party and any successor trustee at the time
serving as successor trustee hereunder.
"UNDERWRITERS" means Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Goldman, Sachs & Co.
Section 1.2 OTHER DEFINITIONS:
Defined in
Term Section
---- ----------
"Beneficial Owner" . . . . . . . . . . . . . . . . . . 15.3(1)
"Change in Control". . . . . . . . . . . . . . . . . . 15.4
"Closing Price". . . . . . . . . . . . . . . . . . . .14.5(f)(1)
"Company Notice" . . . . . . . . . . . . . . . . . . . 15.2(a)
"Conversion Agent" . . . . . . . . . . . . . . . . . . 2.3
"Conversion Price" . . . . . . . . . . . . . . . . . . 14.4
"Current Market Price" . . . . . . . . . . . . . . . .14.5(f)(2)
"Defaulted Interest" . . . . . . . . . . . . . . . . . 2.11
"Interest Payment Date". . . . . . . . . . . . . . . . 5.1
"Legal Holiday". . . . . . . . . . . . . . . . . . . . 16.7
"Paying Agent" . . . . . . . . . . . . . . . . . . . . 2.3
"Purchase Agreement" . . . . . . . . . . . . . . . . . 2.2
"Record Date". . . . . . . . . . . . . . . . . . . . . 5.1
"Registrar". . . . . . . . . . . . . . . . . . . . . . 2.3
"Repurchase Date". . . . . . . . . . . . . . . . . . . 15.1
"Repurchase Price" . . . . . . . . . . . . . . . . . . 15.1
"Senior Indebtedness Default". . . . . . . . . . . . . 4.3
"Trading Day". . . . . . . . . . . . . . . . . . . . .14.5(f)(5)
"Trigger Event". . . . . . . . . . . . . . . . . . . . 14.5(d)
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<PAGE>
Section 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act, such
provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms used in this Indenture have the
following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company.
All other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act or defined by Trust Indenture Act reference
to another statute or regulation have the meanings assigned to them by such
definitions.
Section 1.4 RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including, without limitation;
(5) words in the singular include the plural, and words in the
plural include the singular;
(6) provisions apply to successive events and transactions;
(7) the words "herein," "hereof," "hereunder," and words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other Subdivision; and
(8) references to Sections or Articles mean references to such
Section or Article in this Indenture, unless stated otherwise.
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<PAGE>
ARTICLE II
THE NOTES
Section 2.1 FORM AND DATING. The Notes and the Trustee's certificate
of authentication in respect thereof, shall be substantially in the form of
Exhibit A, which is a part of this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage (provided
that any such notation, legend or endorsement required by usage is in a form
acceptable to the Company and the Trustee). Any such notations, legends or
endorsements not contained in the form of Note attached as Exhibit A shall be
delivered to the Trustee in writing. Each Note shall be dated the date of its
authentication.
The terms and provisions contained in the form of Note shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Section 2.2 EXECUTION AND AUTHENTICATION. The Notes shall be
executed by the Company by its Chairman of the Board, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon, and attested
by its Secretary or one of its Assistant Secretaries. The signature of any of
these Officers on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were the proper Officers of the Company shall bind the Company, notwithstanding
that such individuals or any of them have ceased to hold such offices prior to
the authentication and delivery of such Notes or did not hold such offices at
the time of issuance of such Notes.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
The Trustee shall authenticate and make available for delivery Notes
for original issue in an aggregate principal amount of up to $250,000,000 upon a
Company Order without any further action by the Company; PROVIDED, HOWEVER, that
in the event that the Company sells any Notes pursuant to the Over-
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Allotment Option granted pursuant to Section 2(b) of the Purchase Agreement,
dated July 24, 1997, between the Company and the Underwriters (the "PURCHASE
AGREEMENT"), then the Trustee shall authenticate and deliver Notes for original
issue in an aggregate principal amount of up to $250,000,000 plus up to
$37,500,000 aggregate principal amount of the Notes sold pursuant to the
Over-Allotment Option upon a Company Order without any further action by the
Company. Such Company Orders shall specify the amount of Notes to be
authenticated and the date on which the Notes are to be authenticated. The
aggregate principal amount of the Notes outstanding at any time may not exceed
the amount set forth in the foregoing sentence, subject to the proviso set forth
therein, except as provided in Section 2.7.
The Notes shall be issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof.
Section 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT. The
Company shall maintain an office or agency where the Notes may be presented for
registration of transfer or for exchange ("REGISTRAR"), an office or agency
where the Notes may be presented for repurchase or payment ("PAYING AGENT") and
an office or agency where the Notes may be presented for conversion ("CONVERSION
AGENT"). The Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may have one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents. The term
Paying Agent includes any additional paying agents. The term Conversion Agent
includes any additional conversion agent. The Company initially appoints the
Trustee as Registrar, Conversion Agent, and Paying Agent in connection with the
Notes.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent, Conversion Agent or co-registrar other than the
Trustee. The agreement shall implement the provisions of this Indenture that
relate to such agent. The Company shall notify the Trustee and the Holders of
the name and address of any such agent and of any change in the office or agency
referred to in Section 5.2. If the Company fails to maintain a Registrar,
Paying Agent or Conversion Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any Subsidiary or an Affiliate of either of them may act as Paying
Agent, Registrar, Conversion Agent or co-registrar.
Section 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST. Except as
otherwise provided herein, prior to or on each due date of payments in respect
of any Note, the Company shall deposit with the Paying Agent cash or, if
expressly permitted by the terms hereof, securities sufficient to make such
payments when so
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becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Noteholders or the Trustee all assets held by the Paying Agent for
the making of payments in respect of the Notes and shall notify the Trustee, in
writing, of any default by the Company in making any such payment. At any time
during the continuance of any such default, the Paying Agent shall, upon the
written request of the Trustee, forthwith pay to the Trustee all assets so held
in trust. If the Company, a Subsidiary or an Affiliate of either of them acts
as Paying Agent, it shall segregate the assets held by it as Paying Agent and
hold it as a separate trust fund. The Company at any time may require a Paying
Agent to pay all assets held by it to the Trustee and to account for any assets
disbursed by it. Upon doing so, the Paying Agent shall have no further
liability for the money and securities.
Section 2.5 NOTEHOLDER LISTS. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Noteholders. If the Trustee is not the Registrar,
the Company shall furnish or cause to be furnished to the Trustee (i) at least
semiannually on January 1 and July 1 of each year a list of the names and
addresses of Noteholders dated within 15 days of the date on which the list is
furnished and (ii) at such other times as the Trustee may request in writing a
list, in such form and as of such date as the Trustee may reasonable require, of
the names and addresses of Noteholders.
Section 2.6 TRANSFER AND EXCHANGE. Upon surrender for registration
of transfer of any Note, together with a written instrument of transfer
satisfactory to the Registrar duly executed by the Noteholder or such
Noteholder's attorney duly authorized in writing, at the office or agency of the
Registrar or co-registrar pursuant to Section 2.3 or at the office or agency
referred to in Section 5.2, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denomination or
denominations, of a like aggregate principal amount. The Company shall not
charge a service charge for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges that may be imposed in connection with the transfer
or exchange of the Notes from the Noteholder requesting such transfer or
exchange (other than any exchange of a temporary Note for a definitive Note not
involving any change in ownership).
Transfers of Notes may be effected only by surrender of the Notes to
the Company for registration and the issuance by the Company of one or more new
Notes. As provided in Section 8.3, until such surrender and registration, the
Company may treat the
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Holders appearing on the Note register as the absolute owners of such Notes.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination or denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged, together with a written
instrument of transfer satisfactory to the Registrar duly executed by the
Noteholder or such Noteholder's attorney duly authorized in writing, at such
office or agency. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the Notes
which the Holder making the exchange is entitled to receive.
The Company shall not be required to make, and the Registrar need not
register, transfers or exchanges of (a) Notes selected for redemption (except,
in the case of Notes to be redeemed in part, the portion thereof not to be
redeemed), (b) any Notes in respect of which a repurchase notice has been given
and not withdrawn by the Holder thereof in accordance with Section 15.2 (except,
in the case of Notes to be purchased in part, the portion thereof not to be
purchased) or (c) any Notes for a period of 15 days before a selection of the
Notes to be redeemed.
Section 2.7 REPLACEMENT NOTES. If (a) any mutilated Note is
surrendered to the Company or the Trustee, or (b) the Company and the Trustee
receive evidence to their satisfaction of the destruction, loss or theft of any
Note, and there is delivered to the Company and the Trustee such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Company or the Trustee that such Note has been acquired
by a BONA FIDE purchaser, the Company shall execute, and upon its written
request the Trustee shall authenticate and deliver, in exchange for any such
mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, or is about to be redeemed by the Company
pursuant to Article III hereof, the Company in its discretion may, instead of
issuing a new Note, pay or redeem such Note, as the case may be.
Upon the issuance of any new Notes under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) in connection therewith.
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Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 2.8 OUTSTANDING NOTES; DETERMINATIONS OF HOLDERS' ACTION.
Notes outstanding at any time are all the Notes authenticated by the Trustee
except for those cancelled by it, those delivered to it for cancellation,
mutilated, destroyed, lost or stolen Notes for which the Trustee has
authenticated and made available for delivery a new Note in lieu therefor
pursuant to Section 2.7 and those described in this Section 2.8 as not
outstanding. A Note does not cease to be outstanding because the Company or an
Affiliate thereof holds the Note; PROVIDED, HOWEVER, that in determining
whether the Holders of the requisite principal amount of Notes have given or
concurred in any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which a Responsible Officer of
the Trustee knows to be so owned shall be so disregarded. Subject to the
foregoing, only Notes outstanding at the time of such determination shall be
considered in any such determination (including, without limitation,
determinations pursuant to Articles VI and X).
If a Note is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a BONA FIDE purchaser.
If the Paying Agent holds, in accordance with this Indenture, on a
Redemption Date or on a Repurchase Date, or on the stated maturity date, cash
or, if expressly permitted by the terms hereof, securities sufficient to pay the
Notes payable on that date, then on and after that date such Notes shall cease
to be outstanding and interest, if any, on such Notes shall cease to accrue and
all other rights of the Holder shall terminate (other than the right to receive
the applicable Redemption Price or Repurchase Price, upon delivery of the Note
in accordance with the terms of this Indenture); PROVIDED, that if such Notes
are to
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be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made.
If a Note is converted in accordance with Article XIV then from and
after such conversion the Note shall cease to be outstanding and interest, if
any, shall cease to accrue on such Note.
Section 2.9 TEMPORARY NOTES. Pending the preparation of definitive
Notes, the Company may execute, and upon Company Order the Trustee shall
authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the Officers executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 2.3 or 5.2, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary Notes
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
Section 2.10 CANCELLATION. All Notes surrendered for payment,
redemption by the Company pursuant to Article III, conversion pursuant to
Article XIV, repurchase by the Company pursuant to Article XV, registration of
transfer or exchange shall, if surrendered to any person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Trustee. The Company may not issue new Notes to replace Notes it has paid or
delivered to the Trustee for cancellation or that any Holder has converted
pursuant to Article XIV. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
shall be disposed of by the Trustee in accordance with its normal procedures and
evidence of such disposition shall be delivered to the
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Company unless the Company timely directs by Company Order that the Trustee
deliver cancelled Notes to the Company.
Section 2.11 DEFAULTED INTEREST. Interest on any Note which is
payable but is not punctually paid or duly provided for on any Interest Payment
Date, plus any interest payable on the defaulted interest (to the extent that
payment of such interest is enforceable under applicable law) ("Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
regular Record Date by virture of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as follows:
(a) The Company may elect to make payment of any Defaulted Interest to the
Persons who are Holders on a subsequent special record date, which date shall be
the fifteenth day next preceding the date fixed by the Company for the payment
of the Defaulted Interest (which date shall be a Business Day), whether or not
such subsequent special record date is a Business Day, in which event, at least
15 days before the subsequent special record date, the Company or, at the
Company's option and instruction, the Trustee shall mail to each Holder, with a
copy to the Trustee, a notice, stating the subsequent special record date, the
payment date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid, in which case such Defaulted Interest
shall be paid to the persons who are Holders on such subsequent special record
date; or (b) the Company may make payment of any Defaulted Interest in any other
lawful and practical manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, by so notifying the Trustee of the proposed
manner of payment pursuant to this clause at least fifteen days prior to such
payment (or such shorter period as may be acceptable to the Trustee or permitted
in accordance with the rules of any applicable securities exchange).
ARTICLE III
REDEMPTION
Section 3.1 RIGHT TO REDEEM; NOTICES TO TRUSTEE. The Company, at its
option, may redeem the Notes for cash in accordance with the provisions set
forth in the Notes and this Article III. The Company will not have the right to
redeem the Notes prior to July 15, 2000. At any time thereafter, the Company
may redeem the Notes, in whole or from time to time in part, upon written notice
given not less than 15 nor more than 60 days prior to the Redemption Date to
each Holder, for an amount equal to the Redemption Price set forth in the Notes,
including, in each case, accrued and unpaid interest up to but not including the
Redemp-
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tion Date. If the Company elects to redeem Notes pursuant to such provisions,
it shall notify the Trustee in writing of the Redemption Date, the principal
amount of Notes to be redeemed, the Redemption Price and the Conversion Price.
The Company shall give the notice to the Trustee provided for in this
Section 3.1 at least 60 days before the Redemption Date (unless a shorter notice
shall be satisfactory to the Trustee). If fewer than all the Notes are to be
redeemed, the record date relating to such redemption shall be selected by the
Company and provided to the Trustee in writing, which record date shall not be
less than 10 days after the date of notice to the Trustee (unless a shorter
notice shall be satisfactory to the Trustee).
Section 3.2 SELECTION OF NOTES TO BE REDEEMED. If less than all the
Notes are to be redeemed, the Trustee shall select the Notes to be redeemed PRO
RATA or by lot, or by any other method the Trustee considers fair and
appropriate (so long as such method is not prohibited by the rules of any stock
exchange on which the Notes are then listed). The Trustee shall make the
selection at least 35 but not more than 60 days before the Redemption Date from
outstanding Notes not previously called for redemption. The Trustee may select
for redemption portions of the principal amounts of Notes that have
denominations larger than $1,000. Notes and portions of them the Trustee
selects shall be in principal amounts of $1,000 or an integral multiple thereof.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company promptly, but not less than 35 days before the Redemption Date, of the
Notes or portions of Notes to be redeemed.
If any Note selected for partial redemption is thereafter surrendered
for conversion in part before termination of the conversion right with respect
to the portion of the Note so selected, the converted portion of such Note shall
be deemed (so far as may be), solely for purposes of determining the aggregate
principal amount of Notes to be redeemed by the Company, to be the portion
selected for redemption. Notes that have been converted during a selection of
Notes to be redeemed may be treated by the Trustee as outstanding for the
purpose of such selection. Nothing in this Section 3.2 shall affect the right
of any Holder to convert any Note pursuant to Article XIV before the termination
of the conversion right with respect thereto.
Section 3.3 NOTICE OF REDEMPTION. At least 15 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
by first-class mail to each Holder of Notes to be redeemed in the manner
provided in Section 16.3.
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The notice shall identify the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, including any accrued and unpaid
interest due;
(3) the Conversion Price;
(4) the name and address of the Paying Agent and Conversion
Agent and of the office or agency referred to in Section 5.2;
(5) that Notes called for redemption may be converted at any
time before the close of business on the Redemption Date;
(6) that Holders who want to convert Notes must satisfy the
requirements set forth in the Notes;
(7) that Notes called for redemption must be surrendered to the
Paying Agent or at the office or agency referred to in Section 5.2 to collect
the Redemption Price;
(8) the CUSIP number of the Notes;
(9) if fewer than all the outstanding Notes are to be redeemed,
the certificate numbers and principal amounts of the particular Notes to be
redeemed;
(10) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed, and that, upon surrender of such
Note, a new Note or Notes in an aggregate principal amount equal to the
unredeemed portion thereof will be issued; and
(11) that, unless the Company defaults in payment of the
Redemption Price, interest, if any, on Notes selected for redemption, will cease
to accrue on and after the Redemption Date.
At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
Section 3.4 EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is given, Notes called for redemption (except for Notes that are
converted in accordance with the terms of this Indenture) become due and payable
on the Redemption Date stated in the notice and at the Redemption Price
therefor, including accrued and unpaid interest, if any, up to but not
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including the Redemption Date; PROVIDED that if the Redemption Date is on the
corresponding Interest Payment Date, the accrued interest up to but not
including the Redemption Date, if any, shall be payable to the registered Holder
of the redeemed Notes on the relevant Record Date, except that, in the case in
which a Note is called for redemption on any Interest Payment Date and such Note
is surrendered for conversion at any time during the ten business days
immediately preceding the date fixed for redemption, such interest shall be
payable on such redemption date to the person who surrenders such Note for
conversion; and PROVIDED, FURTHER, that if a Redemption Date is a Legal Holiday,
payment shall be made on the next succeeding Business Day, and no interest shall
accrue for the period from such Redemption Date to such succeeding Business Day.
Upon the later of the Redemption Date and the date such Notes are surrendered to
the Paying Agent or at the office or agency referred to in Section 5.2, such
Notes called for redemption shall be paid at the Redemption Price therefor.
Section 3.5 DEPOSIT OF REDEMPTION PRICE. Prior to or on the
Redemption Date, the Company shall deposit with the Paying Agent (or if the
Company or a Subsidiary or an Affiliate of either of them is the Paying Agent,
shall segregate and hold in trust) cash sufficient to pay the Redemption Price,
including any accrued and unpaid interest, of all Notes to be redeemed on that
date other than Notes or portions of Notes called for redemption which prior
thereto have been delivered by the Company to the Trustee for cancellation. The
Paying Agent shall as promptly as practicable return to the Company any cash,
with interest, if any, thereon, not required for that purpose because of
conversion of Notes pursuant to Article XIV. If such cash is then held by the
Company or a Subsidiary or an Affiliate of the Company in trust and is not
required for such purpose, it shall be discharged from such trust.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Notes called for redemption is
not prohibited under Article XI or otherwise, interest on the Notes to be
redeemed will cease to accrue on the applicable Redemption Date, whether or not
such Notes are presented for payment. Notwithstanding anything herein to the
contrary, if any Note surrendered for redemption in the manner provided in the
Notes shall not be so paid upon surrender for redemption because of the failure
of the Company to comply with the preceding paragraph, interest shall continue
to accrue and be paid from the Redemption Date until such payment is made on the
unpaid principal, and, to the extent lawful, on any interest not paid on such
unpaid principal, in each case at the rate and in the manner provided in Section
5.1 hereof and in the Notes.
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Section 3.6 NOTES REDEEMED IN PART. Upon surrender of a Note that is
redeemed in part, the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder, a new Note in an authorized denomination equal in
principal amount to the unredeemed portion of the Note surrendered.
Section 3.7 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes called for redemption by an agreement with
one or more investment bankers or other purchasers to purchase all or a portion
of such Notes by paying to the Trustee in trust for the Noteholders whose Notes
are to be so purchased, on or before the close of business on the Redemption
Date, an amount that, together with any amounts deposited with the Trustee by
the Company for redemption of such Notes is not less than the Redemption Price,
together with interest, if any, accrued to the Redemption Date, of such Notes.
Notwithstanding anything to the contrary contained in this Article III, the
obligation of the Company to pay the Redemption Price of such Notes, including
all accrued interest, if any, shall be deemed to be satisfied and discharged to
the extent such amount is so paid by such purchasers, but no such agreement
shall relieve the Company of its obligation to pay such Redemption Price and
interest, if any. If such an agreement is entered into, any Notes not duly
surrendered for conversion by the Holders thereof may, at the option of the
Company be deemed, to the fullest extent permitted (notwithstanding anything to
the contrary contained in Article XIV), surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the
Redemption Date, subject to payment of the above amount as aforesaid. The
Trustee shall hold and pay to the Holders whose Notes are selected for
redemption any such amount paid to it for purchase and conversion in the same
manner as it would moneys deposited with it by the Company for the redemption of
Notes.
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 NOTES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company
and each Holder of a Note, by such Holder's acceptance thereof, covenant and
agree, that, to the extent and in the manner hereinafter set forth in this
Article IV, the indebtedness represented by the Notes and the payment of the
principal, Redemption Price (together with accrued and unpaid interest, if any),
Repurchase Price and interest, if any, in respect of each and all of the Notes
are hereby expressly made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and that these subordination
provisions are
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for the benefit of the holders of the Senior Indebtedness, any one or more of
whom may enforce such provisions.
No provision of this Article IV shall prevent the occurrence of any
Default or Event of Default hereunder.
Section 4.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION. Upon any
distribution of assets of the Company in the event of (a) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relative to the
Company or to its creditors, as such, or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and liabilities of
the Company, then and in any such event the holders of Senior Indebtedness shall
be entitled to receive payment in full of all amounts due or to become due on or
in respect of all Senior Indebtedness, or provision shall be made for such
payment in money or money's worth, before the Noteholders are entitled to
receive any payment of the principal of, premium, if any, or interest on all
Notes (including, but not limited to, the Redemption Price with respect to Notes
called for redemption in accordance with Section 3.2 or the Repurchase Price of
Notes submitted for repurchase in accordance with Section 15.2) and to that end
the holders of Senior Indebtedness shall be entitled to receive, for application
to the payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or deliverable in
respect of the Notes in any such case, proceeding, dissolution, liquidation or
other winding up or event, including any such payment or distribution which may
be payable or deliverable by reason of the payment of any other indebtedness of
the Company being subordinated to the payment of the Notes. When used in this
Article IV, "payment in full" means, with respect to Designated Senior
Indebtedness, payment in full in cash or other form of payment acceptable to the
holder of such Designated Senior Indebtedness of all amounts due or to become
due or in respect of all such Designated Senior Indebtedness. "Paid in full"
shall have a correlative meaning.
In the event that, notwithstanding the foregoing provisions of this
Section 4.2, the Trustee or any Noteholder shall have received any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of the
Company being subordinated to the payment of the Notes, before all Senior
Indebtedness is paid in full or payment thereof provided for, and if such fact
shall, at or prior to the time of such payment or distribution, have been made
known to a Responsible Officer of the Trustee or, as the case may be,
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such Noteholder, then, in such event, such payment or distribution shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its properties and assets substantially as an
entirety to another Person upon the terms and conditions set forth in Article XI
shall not be deemed a dissolution, winding up, liquidation, reorganization,
assignment for the benefit of creditors or marshalling of assets and liabilities
of the Company for the purposes of this Section 4.2 if the Person formed by such
consolidation or into which the Company is merged or the Person that acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall as part of such consolidation, merger, conveyance or
transfer, comply with the conditions set forth in Article XI.
Section 4.3 NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT. In the
event and during the continuation of any default in the payment of principal of
(or premium, if any) or interest on any Designated Senior Indebtedness beyond
any applicable grace period with respect thereto, or in the event that any event
of default (other than a default in the payment of principal of, or premium, if
any, or interest on Senior Indebtedness) with respect to any Designated Senior
Indebtedness shall have occurred and be continuing, permitting the holders of
such Designated Senior Indebtedness (or a trustee on behalf of the holders
thereof) to declare such Designated Senior Indebtedness due and payable prior to
the date on which it would otherwise have become due and payable (a "SENIOR
INDEBTEDNESS DEFAULT"), and upon written notice of such default to the Trustee
and the Company by any holder of such Designated Senior Indebtedness or its
representative ("Payment Notice") then, unless and until such Designated Senior
Indebtedness Default shall have been cured or waived in writing, or shall have
ceased to exist, no payment (including any payment which may be payable by
reason of the payment of any other indebtedness of the Company being
subordinated to the payment of the Notes) of principal of, premium, if any, and
interest on all Notes (including, but not limited to, the Redemption Price with
respect to the Notes called for redemption in accordance with Section 3.2 or the
Repurchase Price of any Notes submitted for repurchase in accordance with
Section 15.2) or on account of the purchase or other acquisition of Notes shall
be made, nor may the Company pay cash with respect to the purchase
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price or upon conversion of any Notes (other than cash in lieu of fractional
shares) PROVIDED, that nothing in the above-described provision will prevent the
making of any payment in respect of the Notes for a period of more than 120 days
after the date such written notice of default is given, unless the maturity of
the Designated Senior Indebtedness has been accelerated, in which case no
payment on the Notes may be made until such acceleration has been waived or such
Designated Senior Indebtedness has been paid in full.
Notwithstanding the foregoing, (i) not more than one Payment Notice
shall be given within a period of 181 consecutive days, (ii) no event of default
that existed or was continuing on the date of any Payment Notice (whether or not
such event of default is on the same issue of Designated Senior Indebtedness)
shall be made the basis for the giving of a subsequent Payment Notice, and (iii)
if the Company or the Trustee receives any Payment Notice, a similar notice
relating to or arising out of the same default or facts giving rise to such
default (whether or not such default is on the same issue of Senior
Indebtedness) shall not be effective for purposes of this Section 4.3.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or any Noteholder prohibited by the foregoing
provisions of this Section 4.3, and if such fact shall then have been made known
to a Responsible Officer of the Trustee or, as the case may be, such Noteholder,
then and in such event such payment shall be paid over and delivered forthwith
to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 4.2 would be applicable.
Section 4.4 PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in
this Article or elsewhere in this Indenture or in any of the Notes shall prevent
(a) the Company, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshalling of assets and liabilities of the Company referred
to in Section 4.2 or under the conditions described in Section 4.3, from making
payments at any time of principal of, premium, if any, and interest on all Notes
(including, but not limited to, the Redemption Price with respect to the Notes
called for redemption in accordance with Section 3.2 or the Repurchase Price
with respect to Notes submitted for repurchase in accordance with Section 15.2)
or (b) the application by the Trustee of any money deposited with it hereunder
to the payment of or on account of the principal of, premium, if any, and
interest on all Notes (including, but not limited to, the Redemption Price with
respect to the Notes called for redemption in accordance with Section 3.2 or the
Repurchase Price with respect to Notes submitted for repurchase in accordance
with Section
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15.2), or the retention of such payment by the Holders of the Notes, if, at the
time of such application by the Trustee, the Trustee did not have actual
knowledge that such payment would have been prohibited by the provisions of this
Article IV.
Section 4.5 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to payment in full of all Senior Indebtedness, the Noteholders shall be
subrogated, to the extent of the payments or distributions made to the holders
of such Senior Indebtedness pursuant to the provisions of this Article IV
(equally and ratably with the holders of all indebtedness of the Company which
by its express terms is subordinated to indebtedness of the Company to
substantially the same extent as the Notes are subordinated and is entitled to
like rights of subrogation), to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on all Notes (including, but not limited to, the
Redemption Price with respect to the Notes called for redemption in accordance
with Section 3.2 or the Repurchase Price with respect to Notes submitted for
repurchase in accordance with Section 15.2), shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the Noteholders
or the Trustee would be entitled except for the provisions of this Article, and
no payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Noteholders or the Trustee, shall, as among the Company,
its creditors other than holders of Senior Indebtedness and the Noteholders, be
deemed to be a payment or distribution by the Company to or of the Senior
Indebtedness.
Section 4.6 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS; OBLIGATIONS
OF THE COMPANY UNCONDITIONAL. The provisions of this Article are and are
intended solely for the purpose of defining the relative rights of the
Noteholders, on the one hand, and the holders of Senior Indebtedness, on the
other hand. Nothing contained in this Article or elsewhere in this Indenture or
in the Notes is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Noteholders, the
obligation of the Company, which is absolute and unconditional (and which,
subject to the rights under this Article of the holders of Senior Indebtedness,
is intended to rank equally with all other general obligations of the Company),
to pay to the Noteholders the principal of, premium, if any, and interest on all
Notes (including, but not limited to, the Redemption Price with respect to the
Notes called for redemption in accordance with Section 3.2 or the Repurchase
Price with respect to Notes submitted for repurchase in accordance with Section
15.2) as and when the same shall become due and payable in accordance with the
terms of the Notes and this Indenture; or
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(b) affect the relative rights against the Company of the N oteholders and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Trustee or any Noteholder from exercising all remedies otherwise
permitted by applicable law upon Default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness to
receive cash, property and securities otherwise payable or deliverable to the
Trustee or such holder.
Section 4.7 TRUSTEE TO EFFECTUATE SUBORDINATION. Each Noteholder by
such Holder's acceptance thereof authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
his attorney-in-fact for any and all such purposes.
Section 4.8 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any non-compliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Noteholders, without
incurring responsibility to the Noteholders and without impairing or releasing
the subordination provided in this Article or the obligations hereunder of the
Noteholders to the holders of Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or
supplement in any manner Senior Indebtedness or any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; (iii) release any Person liable in any
manner for the collection of Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
Section 4.9 NOTICE TO TRUSTEE. The Company shall give prompt written
notice to the Trustee of any fact known to the Company which would prohibit the
making of any payment to or by the Trustee in respect of the Notes.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to or
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by the Trustee in respect of the Notes, unless and until the Trustee shall have
received written notice therefor from the Company or a holder of Senior
Indebtedness or from any trustee thereof; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of Section 6.1, shall be
entitled in all respects to assume that no such facts exist.
Subject to the provisions of Section 7.1, the Trustee shall be
entitled to rely conclusively on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
Section 4.10 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT. Upon payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 7.1, and the
Holders shall be entitled to rely conclusively upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Noteholders, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 4.11 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders or to the
Company or to any other person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
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Section 4.12 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.7.
Section 4.13 ARTICLE APPLICABLE TO PAYING AGENTS. In case at any
time any Paying Agent other than the Trustee shall have been appointed by the
Company and be then acting hereunder, the term "Trustee" as used in this Article
shall in such case (unless the context otherwise requires) be construed as
extending to and including such Paying Agent within its meaning as fully for all
intents and purposes as if such Paying Agent were named in this Article in
addition to or in place of the Trustee; PROVIDED, HOWEVER, that Sections 4.9 and
4.11 shall not apply to the Company or any Affiliate of the Company if it or
such Affiliate acts as Paying Agent.
Section 4.14 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article XII shall be for the sole benefit of Noteholders and, to
the extent allocated for the payment of Notes, shall not be subject to the
subordination provisions of this Article IV. Otherwise, any deposit of assets
with the Trustee (whether or not in trust) for the payment of principal of or
interest on any Notes shall be subject to the provisions of Sections 4.1, 4.2,
4.3, 4.4 and 4.5.
Section 4.15 CERTAIN CONVERSIONS NOT DEEMED PAYMENT. For the
purposes of this Article only, (1) the issuance and delivery of junior
securities and payment of cash in lieu of fractional shares upon conversion of
Notes in accordance with Article XIV shall not be deemed to constitute a payment
or distribution on account of the principal of, premium, if any, and interest on
all Notes (including, but not limited to, the Redemption Price with respect to
the Notes called for redemption in accordance with Section 3.2 or the Repurchase
Price with respect to Notes submitted for repurchase in accordance with Section
15.2) or on account of the purchase or other acquisition of Notes, and (2) the
payment, issuance or delivery of cash, property or securities (other than junior
securities) upon conversion of a Note shall be deemed to constitute payment on
account of principal of such Note. For the purposes of this Section, the term
"JUNIOR SECURITIES" means (a) shares of any stock of any
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class of the Company, (b) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness that may be
outstanding at the time of issuance or delivery of such securities to the same
extent as, or to a greater extent than, the Notes are so subordinated as
provided in this Article, and (c) any securities into which the Notes become
convertible pursuant to section 14.6 that are securities of a Person required to
enter into a supplemental indenture and are either (x) shares of any class of
stock of such Person or (y) securities of such Person that are subordinated in
right of payment to all Senior Indebtedness that may be outstanding at the time
of issuance or delivery of such securities to substantially the same extent as,
or to a greater extent than, the Notes are so subordinated as provided in this
Article. Nothing contained in this Article or elsewhere in this Indenture or in
the Notes is intended to or shall impair, as among the Company, its creditors
other than holders of Senior Indebtedness and the Holders of the Notes, the
right, which is absolute and unconditional, of any Noteholder to convert such
Note in accordance with Article XIV.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Notes at the
places, at the respective times and in the manner provided herein and in the
Notes. Principal, interest and other payments shall be considered paid on the
date due if on such date (i) the Trustee or Paying Agent holds in accordance
with this Indenture money sufficient to pay all principal, interest and other
payment then due and (ii) there is no impairment pursuant to the terms of this
Indenture on the Trustee's ability to pay such monies over to the Holders.
Interest on the Notes shall be paid, in accordance with the terms of the Note,
semi-annually on January 15 and July 15 of each year (each such date, an
"Interest Payment Date"), commencing January 15, 1998, to Holders of record at
the close of business on January 1 or July 1, as the case may be, immediately
preceding each such Interest Payment Date (each such date, a "Record Date"),
except as otherwise provided herein and in the Note. Interest on the Notes
shall be computed on the basis of a 360-day year comprised of twelve 30-day
months. Each installment of interest on the Notes due on any semi-annual
Interest Payment Date may, at the option of the Company, be paid by check mailed
to the registered address of such person, or in such other manner as may be
acceptable to the Company upon the written order of such person, forwarded to
the Trustee of the Company no later than 15 days prior to the relevant payment
date.
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Section 5.2 MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the Borough of Manhattan in the City of New York, an office or
agency where the Notes may be surrendered for registration of transfer or
exchange or for presentation for payment or for conversion or redemption and
where notices and deeds to or upon the Company in respect of the Notes and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations surrenders,
notices and demands may be made or served at the Corporate Trust Office or the
office or agency of the Trustee in The City of New York.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan in
the City of New York, for such purposes. The Company will give prompt written
notice to the holders of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee and the office or agency of the Trustee in The City of New York
(which shall initially be, c/o The Chase Manhattan Bank, 55 Water Street, New
York, New York), as an office or agency of the Company for each of the aforesaid
purposes.
Section 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 7.8, a successor Trustee, so
that there shall at all times be a Trustee qualified and acting hereunder.
Section 5.4 CORPORATE EXISTENCE. Subject to Article XI, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate existence of its
Subsidiaries in accordance with the respective organizational documents of each
of them.
Section 5.5 PAYMENT OF TAXES AND OTHER CLAIMS. Except with respect
to immaterial items, the Company shall, and shall cause each of its Subsidiaries
to, pay or discharge or cause to be paid or discharged, before the same shall
become delinquent,
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(i) all taxes, assessments and governmental charges (including withholding taxes
and any penalties, interest and additions to taxes) levied or imposed upon the
Company or any of its Subsidiaries or any of their respective properties and
assets and (ii) all lawful claims, whether for labor, materials, supplies,
services or anything else, which have become due and payable and which by law
have or may become a lien upon the property and assets of the Company or any of
its Subsidiaries; PROVIDED, HOWEVER, that neither the Company nor any Subsidiary
shall be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which such
disputed amounts the need for adequate reserves has been reviewed in accordance
with GAAP.
Section 5.6 MAINTENANCE OF PROPERTIES AND INSURANCE. The Company
shall cause all material properties used or useful to the conduct of its
business and the business of each of its Subsidiaries to be maintained and kept
in good condition, repair and working order (reasonable wear and tear excepted)
and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in their reasonable judgment may be necessary, so that the business
carried on in connection therewith may be properly conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section 5.6 shall prevent the Company or
any Subsidiary from discontinuing any operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is
(a) in the judgment of the Company, desirable in the conduct of the business of
such entity and (b) not disadvantageous in any material respect to the Holders.
The Company shall provide, or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company is adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with (except for
self-insurance) reputable insurers or with the government of the United States
of America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the reasonable, good
faith opinion of the Company and adequate and appropriate for the conduct of the
business of the Company and such Subsidiaries in a prudent manner for entities
similarly situated in the industry, unless failure to provide such insurance
(together with all other such failures) would not have a material adverse effect
on the financial condition or results of operations of the Company and such
Subsidiaries considered as a whole.
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Section 5.7 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT. (a) The
Company shall deliver to the Trustee within 90 days after the end of its fiscal
year an Officers' Certificate complying with Section 314(a)(4) of the Trust
Indenture Act and stating that a review of its activities and the activities of
its Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture and further stating, as to each such Officer signing such certificate,
whether or not the signer knows of any failure by the Company or any Subsidiary
of the Company to comply with any conditions or covenants in this Indenture and,
if such signer does know of such a failure to comply, the certificate shall
describe such failure with particularity. The Officers' Certificate shall also
notify the Trustee should the relevant fiscal year end on any date other than
the current fiscal year end date.
(b) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any payment
to or by the Trustee in respect of the Notes, an Officers' Certificate
specifying such Default, Event of Default or fact and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not be
deemed to have knowledge of any Default, any Event of Default or any such fact
unless one of its Responsible Officers receives written notice thereof from the
Company or any of the Holders.
Section 5.8 STAY, EXTENSION AND USURY LAWS. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law has been enacted.
Section 5.9 LIMITATION ON STATUS AS INVESTMENT COMPANY. Neither the
Company nor any of its Subsidiaries shall become an "investment company," as
that term is defined in the Investment Company Act of 1940, as amended, or
otherwise become subject to regulation thereunder.
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Section 5.10 SEC REPORTS. Whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
shall furnish to the Trustee (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports, and the Trustee shall make any such
reports available to the Noteholders upon request. All such reports shall be
furnished to the Trustee within 15 days after the Company files such reports
with the Commission or, in the event the Company is at any time no longer
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
(or any such successor provisions), such reports shall be furnished to the
Trustee at the times the Company would have been required to provide such
reports if it were still subject to such reporting requirements.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 EVENTS OF DEFAULT. In case one or more of the following
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
(a) default in the payment of any installment of interest upon
any of the Notes as and when the same shall become due and payable, and
continuance of such default for a period of thirty (30) days, whether or not
such payment is permitted under Article IV hereof; or
(b) default in the payment of the principal of or premium, if
any, on any of the Notes as and when the same shall become due and payable
either at maturity or in connection with any redemption pursuant to Article III
or repurchase pursuant to Article XV, by acceleration or otherwise, whether or
not such payment is permitted under Article IV hereof; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the Company in
the Notes or in this Indenture (other than a covenant or agreement a default in
whose performance or whose
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breach is elsewhere in this Section 6.1 specifically dealt with) continued
for a period of thirty (30) days after the date on which written notice of
such failure, requiring the Company to remedy the same, shall have been given
to the Company by the Trustee, or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Notes at the
time outstanding; or
(d) default by the Company with respect to any bond, debenture,
note or other evidence of indebtedness for borrowed money of the Company, which
default results in acceleration of any such indebtedness which is in an amount
of in excess of $10 million without such indebtedness having been discharged, or
such acceleration having been rescinded or annulled within a period of ten (10)
days after the date of such acceleration; or
(e) the Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due; or
(f) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of ninety (90) consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 6.1(e) or (f)), unless the principal of all of the Notes shall have
already become due and payable, the Trustee may, by notice to the Company, or,
if requested by the Holders of not less than 25% in aggregate principal amount
of the Notes then outstanding, after the giving of written notice to the Company
and the Trustee by such Holders, the Trustee shall, declare the principal of all
the Notes and the interest accrued thereon to be due and payable immediately,
and upon any such declaration, the same shall become and shall be immediately
due and payable, anything in this Indenture or in the Notes contained to the
contrary notwithstanding. If an Event of Default specified in Section 6.1(e) or
(f) occurs, the principal of all the Notes and the interest accrued thereon
shall be and become
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immediately and automatically due and payable without any further action on the
part of the Company, the Trustee or the Noteholders. This provision, however,
is subject to the condition that if, at any time after the principal of the
Notes shall have been so declared due and payable, and before any judgment or
decree for the payment of the monies due shall have been obtained or entered as
hereinafter provided, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay all matured installments of interest upon all Notes and
the principal of and premium, if any, on any and all Notes which shall have
become due otherwise than by acceleration (with interest on overdue installments
of interest (to the extent that payments of such interest is enforceable under
applicable law) and on such principal and premium, if any, at the rate borne by
the Notes, to the date of such payment or deposit) and amounts due to the
Trustee pursuant to Section 7.7, and if any and all Defaults under this
Indenture, other than the nonpayment of principal of and premium, Redemption
Price and Repurchase Price, if any, and accrued interest on Notes which shall
have become due by acceleration, shall have been cured or waived in accordance
with Section 6.7, then the Holders of a majority in aggregate principal amount
of the Notes then outstanding, by written notice to the Company and to the
Trustee, may waive all Defaults or Events of Default and rescind and annul such
declaration and its consequences; but no such waiver or rescission and annulment
shall extend to or shall affect any subsequent Default or Event of Default, or
shall impair any right consequent thereon. Notwithstanding the foregoing
sentence, no waiver shall be effective against any Holder for any Event of
Default or event which with notice or lapse of time or both would be an Event of
Default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of each outstanding Note affected
thereby, unless each such affected Holder agrees, in writing, to waive such
Event of Default or other event. The Company shall notify the Trustee in
writing promptly upon becoming aware of any Default or Event of Default.
If a Default occurs and is continuing, the Trustee shall, within
ninety (90) days after the occurrence of such default, give to the Holders
notice of such default; PROVIDED, that, except in the case of a default in the
payment of principal of or interest on any of the Notes, the Trustee may
withhold such notice if it in good faith determines that the withholding of such
notice is in the interests of the Holders in accordance with Section 7.5. In
case the Trustee shall have proceeded to enforce any right under this Indenture
and such proceedings shall have been discontinued or abandoned because of such
waiver or rescission and annulment or for any other reason or shall have been
determined adversely to the Trustee, then the Company, the Noteholders and the
Trustee shall continue as though no such proceeding had been taken.
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Section 6.2 PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR. The Company
covenants that if the Company Defaults pursuant to Sections 6.1(a) or 6.1(b)
then, upon demand of the Trustee, the Company will pay to the Trustee, for the
benefit of the Holders, the whole amount that then shall have become due and
payable on all such Notes for principal and premium, if any, or interest, or
both, as the case may be, with interest upon the overdue principal and premium,
if any, and (to the extent that payment of such interest is enforceable under
applicable law) upon the overdue installments of interest at the rate borne by
the Notes; and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including reasonable compensation
to the Trustee, its agents, attorneys and counsel, and any expenses or
liabilities incurred by the Trustee hereunder other than through its negligence
or bad faith. Until such demand by the Trustee, the Company may pay the
principal of and premium, if any, and interest on the Notes to the registered
Holders, whether or not the Notes are overdue.
If the Company fails promptly to pay such amounts upon such demand,
the Trustee, in its own name and as trustee of an express trust, shall be
entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.
If there shall be pending proceedings for the bankruptcy or for the
reorganization of the Company or any other obligor on the Notes under Title 11
of the United States Code, or any other applicable law, or in case a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or
similar official shall have been appointed for or taken possession of the
Company or such other obligor, the property of the Company or such other
obligor, or in the case of any other judicial proceedings relative to the
Company or such other obligor upon the Notes, or to the creditors or property of
the Company or such other obligor, the Trustee, irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand pursuant to the provisions of this Section 6.2, shall be entitled and
empowered, by intervention in such proceeding or otherwise, to file and prove a
claim or claims for the whole amount of principal, premium, if any, and interest
owing and unpaid in respect of the Notes, and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
Noteholders allowed in such judicial proceedings relative to
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the Company or any other obligor on the Notes, its or their creditors, or its or
their property, and to collect and receive any monies or other property payable
or deliverable on any such claims, and to distribute the same after the
deduction of any amounts due the Trustee under Section 7.7.
All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes, or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Noteholders.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the
Noteholders, and it shall not be necessary to make any Noteholders parties to
any such proceedings.
Section 6.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any monies
collected by the Trustee pursuant to this Article VI shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes, and stamping thereon the
payment, if only partially paid, and upon surrender thereof, if fully paid:
First: To the payment of all amounts due the Trustee under
Section 7.7;
Second: To the holders of Senior Indebtedness to the extent
provided in Article IV;
Third: If the principal of the outstanding Notes shall not have
become due and be unpaid, to the payment of interest on the Notes in
default in the order of the maturity of the installments of such
interest, with interest (to the extent that such interest has been
collected by the Trustee) upon the overdue installments of interest at
the rate borne by the Notes, such payments to be made ratably to the
persons entitled thereto;
Fourth: If the principal of the outstanding Notes shall have
become due, by declaration or otherwise, and be unpaid to the payment
of the whole amount then owing and unpaid upon the Notes for principal
and premium, if
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any, and interest, with interest on the overdue principal and premium,
if any, and (to the extent that such interest has been collected by
the Trustee) upon overdue installments of interest at the rate borne
by the Notes; and PROVIDED, that if such monies shall be insufficient
to pay in full the whole amounts so due and unpaid upon the Notes,
then to the payment of such principal and premium, if any, and
interest without preference or priority of principal and premium, if
any, over interest, or of interest over principal and premium, if any,
or of any installment of interest over any other installment of
interest, or of any Note over any other Note, ratably to the aggregate
of such principal and premium, if any, and accrued and unpaid
interest; and
Fifth: To the payment of the remainder, if any, to the Company
or any other person lawfully entitled thereto.
Section 6.4 PROCEEDINGS BY NOTEHOLDER. No Holder shall have any
right to institute any suit, action or proceeding in equity or at law upon or
under or with respect to this Indenture, or for the appointment of a receiver,
trustee, liquidator, custodian or other similar official, or for any other
remedy hereunder, unless (a) such Holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided; (b) (i) Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder, (ii) such Holders shall have offered to the Trustee such
reasonable indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred therein or thereby, (iii) the Trustee for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding, and
(iv) no direction inconsistent with such written request shall have been given
to the Trustee during such sixty (60) day period pursuant to Section 6.7. No
one or more Noteholders shall have any right in any manner whatever to affect,
disturb or prejudice the rights of any other Holder of Notes, or to obtain or
seek to obtain priority over or preference to any other such Holder, or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal, ratable and common benefit of all Noteholders (except as
otherwise provided herein). For the protection and enforcement of this Section
6.4, each and every Noteholder and the Trustee shall be entitled to such relief
as can be given at law or in equity.
Notwithstanding any other provision of this Indenture and the Notes,
the right of any Holder to receive payment of the
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principal of and premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such Holder.
Anything in this Indenture or the Notes to the contrary
notwithstanding, any Holder, without the consent of either the Trustee or the
Holder of any other Note, in his own behalf and for his own benefit, may
enforce, and may institute and maintain any proceeding suitable to enforce, his
rights of conversion as provided herein.
Section 6.5 PROCEEDINGS BY TRUSTEE. In case of an Event of Default,
the Trustee may in its discretion proceed to protect and enforce the rights
vested in it by this Indenture by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any of such rights,
either by suit in equity or by action at law or by proceeding in bankruptcy or
otherwise, whether for the specific enforcement of any covenant or agreement
contained in this Indenture or in aid of the exercise of any power granted in
this Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
Section 6.6 REMEDIES CUMULATIVE AND CONTINUING. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes pursuant to Section 2.7, all powers and remedies given by
this Article VI to the Trustee or to the Noteholders shall, to the extent
permitted by law, be deemed cumulative and not exclusive of any thereof or of
any other powers and remedies available to the Trustee or the Noteholders, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in this Indenture, and no delay or
omission of the Trustee or of any Noteholder to exercise any right or power
accruing upon any Default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein; and subject to the
provisions of Section 6.4, every power and remedy given by this Article VI or by
law to the Trustee or to the Noteholders may be exercised from time to time, and
as often as shall be deemed expedient, by the Trustee or by the Noteholders.
Section 6.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY
MAJORITY OF NOTEHOLDERS. The Holders of a majority in aggregate principal
amount of the Notes at the time outstanding shall have the right, subject to
Section 7.2(e), to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; PROVIDED, HOWEVER, that (a) such
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direction shall not be in conflict with any rule of law or with this Indenture,
and (b) the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction. The Holders of a majority in aggregate
principal amount of the Notes at the time outstanding may, on behalf of the
Holders of all of the Notes, waive any past Default or Event of Default
hereunder and its consequences EXCEPT (i) a Default in the payment of interest
or premium, if any, on, or the principal of, the Notes, (ii) a failure by the
Company to convert any Notes into Common Stock, (iii) a Default in the payment
of the Redemption Price (including accrued and unpaid interest) pursuant to
Article III or Repurchase Price pursuant to Article XV or (iv) a Default in
respect of a covenant or provisions hereof which under Article X cannot be
modified or amended without the consent of the Holders of each Note affected
thereby. Upon any such waiver the Company, the Trustee and the Holders shall be
restored to their former positions and rights hereunder, but no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereon. Whenever any Default or Event of Default
hereunder shall have been waived as permitted by this Section 6.7, said Default
or Event of Default shall for all purposes of the Notes and this Indenture be
deemed to have been cured and to be not continuing, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
Section 6.8 UNDERTAKING TO PAY COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; PROVIDED that the provisions of this Section 6.8 (to the
extent permitted by law) shall not apply to any suit instituted by the Trustee,
to any suit instituted by any Noteholder, or group of Noteholders, holding in
the aggregate more than ten percent in principal amount of the Notes at the time
outstanding determined in accordance with Section 8.4, or to any suit instituted
by any Noteholder for the enforcement of the payment of the principal of or
premium, if any, or interest on any Note on or after the due date expressed in
such Note or to any suit for the enforcement of the right to convert any Note in
accordance with the provisions of Article XIV or to require the Company to
repurchase any Note in accordance with Article XV.
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ARTICLE VII
TRUSTEE
Section 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificate or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) this paragraph (c) does not limit the effect of paragraph
(b) of this Section 7.1;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.7.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.1.
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(e) The Trustee (and its directors, officers, employees and agents)
may refuse to perform any duty or exercise any right or power hereunder or
extend or risk its own funds or otherwise incur any financial liability unless
the Trustee (and its directors, officers, employees and agents) receives
indemnity satisfactory to it against any loss, liability or expense.
(f) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
(acting in any capacity hereunder) shall be under no liability for interest on
any money received by it hereunder except as the Trustee may otherwise have
agreed in writing with the Company.
(g) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or indemnity
satisfactory to it against such risk or liability is not reasonably assured to
it.
Section 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent, attorneys, custodians or
nominees, appointed with due care.
(d) Subject to the provisions of Section 7.1(c), the Trustee shall
not be liable for any action it takes or omits to take in good faith which it
believes to be authorized or within its rights or powers.
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee (and its directors, officers, employees and agents)
security or such reasonable indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
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(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney.
(g) The Trustee may consult with counsel (at the expense of the
Company) and any Opinion of Counsel or any advice of such Counsel shall be full
and complete authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance with such
Opinion of Counsel;
(h) In the event that the Trustee is also acting as Paying Agent,
Conversion Agent or Registrar hereunder, the rights and protections afforded to
the Trustee pursuant to this Article VII shall also be afforded to such Paying
Agent, Conversion Agent or Registrar;
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty unless so specified herein.
Section 7.3 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of the Notes
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, Conversion
Agent or co-registrar may do the same with like rights. However, the Trustee
must comply with Sections 7.10 and 7.11.
Section 7.4 TRUSTEE'S DISCLAIMER. The Trustee makes no
representation as to the validity, adequacy or priority of this Indenture or the
Notes, it shall not be accountable for the Company's use of the proceeds from
the Notes, it shall not be responsible for any statement in the registration
statement for the Notes under the Securities Act or in the Indenture or the
Notes (other than its certificate of authentication), or the determination as to
the Persons entitled to receive any notices hereunder.
Section 7.5 NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is actually known to a Responsible Officer of the Trustee,
the Trustee shall give notice of the Default within 90 days after it occurs to
each Noteholder and to those holders of Designated Senior Indebtedness that have
provided the Trustee with written instruction for the provision of such
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notice; PROVIDED, that the Trustee shall have no responsibility for obtaining
any such instruction from such holders. Except in the case of a Default
described in Section 6.1(a) or (b), the Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interest of Noteholders.
Section 7.6 REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each
July 15 beginning with the July 15 following the date of this Indenture, the
Trustee shall mail to each Noteholder such report dated as of such July 15 as
may be required by and in compliance with Section 313(a) of the Trust Indenture
Act. The Trustee also shall comply with Trust Indenture Act Sections 313(b) and
313(c).
A copy of each such report at the time of its mailing to Noteholders
shall be provided to the Company and shall be filed with the Commission and each
stock exchange on which the Notes are listed. The Company agrees promptly to
notify the Trustee whenever the Notes become listed on any stock exchange and of
any delisting thereof.
Section 7.7 COMPENSATION AND INDEMNITY. The Company agrees:
(a) to pay to the Trustee and to the extent the Trustee acts as
Registrar, Paying Agent or Authenticating Agent, from time to time such
compensation as shall have been agreed to in writing between the Company and the
Trustee for all services rendered by it hereunder in its capacity as Trustee,
Registrar, Paying Agent or Authenticating Agent (which compensation shall not
(to the extent permitted by law) be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(b) to reimburse the Trustee upon its written request, for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, advances and disbursements of its agents and
counsel (who may be in-house counsel)), except any such expense, disbursement or
advance as may be attributable to its or their negligence, bad faith or wilfull
misconduct; and
(c) to indemnify each of the Trustee or any predecessor Trustee (and
its directors, officers, employees and agents) for, and to hold it harmless
against, any and all loss, liability, damage, claim or expense, including taxes
(other than taxes based upon, measured or determined by the income of the
Trustee), incurred without negligence, bad faith or wilful misconduct on its
part (or on the part of its directors, officers, employees and agents), arising
out of or in connection with the acceptance
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or administration of this trust, including the reasonable costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
The Trustee shall give the Company prompt notice of any claim or
liability for which the Trustee might be entitled to indemnification under
subparagraph (c) of this Section 7.7. The Company shall defend the claim and
the Trustee shall provide reasonable cooperation at the Company's expense in the
defense. The Trustee may have separate counsel with regard to defense of any
claim and the Company shall pay the reasonable fees and expenses of such
counsel; PROVIDED, that the Company will not be required to pay such fees and
expenses if it assumes the Trustee's defense and there is no conflict of
interest between the Company and the Trustee in connection with such defense.
The Company need not pay for any settlement made without its written consent.
The Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct. To secure the Company's payment obligations in
this Section 7.7, the Trustee shall have a lien prior to the Notes on all money
or property held or collected by the Trustee or the earlier resignation or
removal of the Trustee.
The Company's payment obligations pursuant to this Section 7.7 shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 7.1(f) or (g), the expenses are
intended to constitute expenses of administration under Federal or State
bankruptcy laws. The provisions of this Section shall survive the termination
of this Indenture.
Section 7.8 REPLACEMENT OF TRUSTEE. The Trustee may resign by so
notifying the Company; PROVIDED, HOWEVER, no such resignation shall be effective
until a successor Trustee has accepted its appointment pursuant to this Section
7.8. The Holders of a majority in aggregate principal amount of the Notes at
the time outstanding may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee (subject to the consent of the Company, such consent
not to be unreasonably withheld). The Company may remove the Trustee if the
Trustee increases fees to the Company and such increases result in fees for
services that are materially higher than commercially available to the Company
from another entity qualifying under Section 7.10, and at the time of such
removal no Default or Event of Default exists. The Company shall remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
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(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint, by
resolution of its Board of Directors, a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Noteholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Upon the appointment and acceptance of a successor Trustee, and the
presentment of reasonable documentation by the resigning or removed Trustee to
the Company, all fees, charges and expenses of the resigning or removed Trustee
shall become immediately due and payable. The resigning or removed Trustee
shall have no liability for the acts or omissions of any successor Trustee
hereunder.
Section 7.9 SUCCESSOR TRUSTEE BY MERGER. Except as otherwise
provided in Section 7.8(1) or 7.8(4), if the Trustee consolidates with, merges
or converts into, or transfers all or substantially all its corporate trust
business or assets to, another corporation, the resulting, surviving or
transferee corporation without any further act shall be the successor Trustee.
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Section 7.10 ELIGIBILITY; DISQUALIFICATION. The Trustee shall at
all times satisfy the requirements of Trust Indenture Act Section 310(a)(1), (2)
and (5). The Trustee shall have (or, in the case of a corporation included in a
bank holding company system, the related bank holding company shall have) a
combined capital and surplus of at least $50,000,000 as set forth in its or such
holding company's most recent published annual report of condition. The Trustee
shall comply with Trust Indenture Act Section 310(b), including the optional
provision permitted by the second sentence of Trust Indenture Act Section
310(b)(9). In determining whether the Trustee has conflicting interests as
defined in Trust Indenture Act Section 310(b)(1), the provisions contained in
the proviso to Trust Indenture Act Section 310(b)(1) shall be deemed
incorporated herein.
Section 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The
Trustee shall comply with Trust Indenture Act Section 311(a), excluding any
creditor relationship listed in Trust Indenture Act Section 311(b). A trustee
who has resigned or been removed shall be subject to Trust Indenture Act Section
311(a) to the extent indicated therein.
ARTICLE VIII
CONCERNING THE HOLDERS
Section 8.1 ACTION BY HOLDERS. Whenever in this Indenture it is
provided that the Holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the Holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
Holders voting in favor thereof at any meeting of Noteholders duly called and
held in accordance with the provisions of Article IX, or (c) by a combination of
such instrument or instruments and any such record of such a meeting of
Noteholders. Whenever the Company or the Trustee solicits the taking of any
action by the Holders, the Company or the Trustee shall fix in advance of such
solicitation, a date as the record date for determining Holders entitled to take
such action. The record date shall be not more than fifteen (15) days prior to
the date of commencement of solicitation of such action.
Section 8.2 PROOF OF EXECUTION BY NOTEHOLDERS. Subject to the
provisions of Sections 7.1, 7.2 and 9.6, proof of the execution of any
instrument by a Noteholder or his agent or
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proxy shall be sufficient if made in accordance with such reasonable rules and
regulations as may be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee. The holding of Notes shall be proved by the
registry of such Notes or by a certificate of the Note registrar.
The record of any Noteholders' meeting shall be proved in the manner
provided in Section 9.6.
Section 8.3 WHO ARE DEEMED ABSOLUTE OWNERS. The Company, the
Trustee, any authenticating agent, any Paying Agent, any Conversion Agent and
any Registrar may deem the Person in whose name such Note shall be registered
upon the Note register to be, and may treat such person as, the absolute owner
of such Note (whether or not such Note shall be overdue and notwithstanding any
notation of ownership or other writing thereon) for the purpose of receiving
payment of or on account of the principal of, premium, if any, and interest on
such Note, for conversion of such Note and for all other purposes; and neither
the Company nor the Trustee nor any Paying Agent nor any Conversion Agent nor
any authenticating agent nor any Registrar shall be affected by any notice to
the contrary. All such payments so made to any Holder for the time being, or
upon his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for monies payable upon any
such Note.
Section 8.4 REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any
time prior to (but not after) the evidencing to the Trustee, as provided in
Section 8.1, of the taking of any action by the Holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any Noteholder which is shown by the evidence to be
included in the Notes the Holders of which have consented to such action may, by
filing written notice with the Company or with the Trustee at its Corporate
Trust Office and upon proof of holding as provided in Section 8.2, revoke such
action so far as it concerns such Note. Except as aforesaid, any such action
taken by the Holder of any Note shall be conclusive and binding upon such Holder
and upon all future Holders and owners of such Note and of any Notes issued in
exchange or substitution therefor, irrespective of whether any notation in
regard thereto is made upon such Note or any Note issued in exchange or
substitution therefor.
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ARTICLE IX
NOTEHOLDERS' MEETINGS
Section 9.1 PURPOSE OF MEETINGS. A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article IX for any of the following purposes:
(a) to give any notice to the Company or to the Trustee or to give
any directions to the Trustee permitted under this Indenture, or to consent to
the waiving of any Default or Event of Default hereunder and its consequences,
or to take any other action authorized to be taken by Noteholders pursuant to
any of the provisions of Article VI;
(b) to remove the Trustee and nominate a successor trustee pursuant
to the provisions of Article VII;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.2; or
(d) to take any other action authorized to be taken by or on behalf
of the Holders of any specified aggregate principal amount of the Notes under
any other provision of this Indenture or under applicable law.
Section 9.2 CALL OF MEETINGS BY TRUSTEE. The Trustee may at any time
call a meeting of Noteholders to take any action specified in Section 9.1, to be
held at such time and at such place as the Trustee shall determine. Notice of
every meeting of the Noteholders, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting and
the establishment of any record date pursuant to Section 8.1, shall be mailed to
Noteholders at their addresses as they shall appear on the Note register. Such
notice shall also be mailed to the Company. Such notices shall be mailed not
less than twenty (20) nor more than ninety (90) days prior to the date fixed for
the meeting.
Any meeting of Noteholders shall be valid without notice if the
Holders of all Notes then outstanding are present in person or by proxy or if
notice is waived before or after the meeting by the Holders of all Notes
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
Section 9.3 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS. In case at
any time the Company, pursuant to a resolution of its Board of Directors, or the
Holders of at least
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ten percent in aggregate principal amount of the Notes then outstanding, shall
have requested the Trustee to call a meeting of Noteholders, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed the notice of such meeting within
twenty (20) days after receipt of such request, then the Company or such
Noteholders may determine the time and the place at any location for such
meeting and may call such meeting to take any action authorized in Section 9.1,
by mailing notice thereof as provided in Section 9.2.
Section 9.4 QUALIFICATIONS FOR VOTING. To be entitled to vote at any
meeting of Noteholders a Person shall (a) be a Holder of one or more Notes on
the record date pertaining to such meeting or (b) be appointed by an instrument
in writing as proxy by a Holder of one or more Notes. The only Persons who
shall be entitled to be present or to speak at any meeting of Noteholders shall
be the Persons entitled to vote at such meeting and their counsel and any
representative of the Trustee and its counsel and any representatives of the
Company and its counsel.
Section 9.5 REGULATIONS. Notwithstanding any other provisions of
this Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 9.3, in which case the Company
or the Noteholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the Holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote at the
meeting.
Subject to the provisions of Section 8.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by such Noteholder; PROVIDED,
HOWEVER, that no vote shall be cast or counted at any meeting in respect of any
Note challenged as not outstanding and ruled by the chairman of the meeting to
be not outstanding. The chairman of the meeting shall have no right to vote
other than by virtue of Notes held by such chairman or instruments in writing as
aforesaid duly designating him as the proxy to vote on behalf of other
Noteholders. Any meeting of Noteholders duly called pursuant to the provisions
of Section 9.2
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or 9.3 may be adjourned from time to time by the Holders of a majority of the
aggregate principal amount of Notes represented at the meeting, whether or not
constituting a quorum, and the meeting may be held as so adjourned without
further notice.
Section 9.6 VOTING. The vote upon any resolution submitted to any
meeting of Noteholders shall be by written ballot on which shall be subscribed
the signatures of the Holders of Notes or of their representatives by proxy and
the principal amount of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 9.2. The record shall show the principal amount of the Notes voting in
favor of or against any resolution. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 9.7 NO DELAY OF RIGHTS BY MEETING. Nothing in this Article
IX contained shall be deemed or construed to authorize or permit, by reason of
any call of a meeting of Noteholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the
Noteholders under any of the provisions of this Indenture or of the Notes.
ARTICLE X
SUPPLEMENTAL INDENTURES
Section 10.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
The Company, when authorized by the resolutions of the Board of Directors, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
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(a) to make provision with respect to the conversion rights of the
Noteholders pursuant to the requirements of Section 14.6;
(b) subject to Article IV, to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Notes, any property or assets;
(c) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor corporation of
the covenants, agreements and obligations of the Company pursuant to Article XI;
(d) to add to the covenants of the Company such further covenants,
restrictions or conditions as the Company and the Trustee shall consider to be
for the benefit of the Holders, and to make the occurrence, or the occurrence
and continuance, of a Default in any such additional covenants, restrictions or
conditions a Default or an Event of Default permitting the enforcement of all or
any of the several remedies provided in this Indenture as herein set forth;
PROVIDED, HOWEVER, that in respect of any such additional covenant, restriction
or condition such supplemental indenture may provide for a particular period of
grace after default (which period may be shorter or longer than that allowed in
the case of other defaults) or may provide for an immediate enforcement upon
such default or may limit the remedies available to the Trustee upon such
default;
(e) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture which shall not adversely affect the interest of
any Holder of the Notes;
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(g) to comply with the Trust Indenture Act.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
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Any supplemental indenture authorized by the provision of this Section
10.1 may be executed by the Company and the Trustee without notice to or consent
of the Holders, notwithstanding any of the provisions of Section 10.2.
Section 10.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent (evidenced as provided in Article VIII) of the Holders of not
less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or any supplemental indenture or of modifying in any manner the
rights of the Noteholders; PROVIDED, HOWEVER, that no such supplemental
indenture shall, without the consent of the Holders of each Note affected
thereby (A) (i) extend the fixed maturity of any Note, (ii) reduce the rate or
extend the time of payment of interest thereon, (iii) reduce the principal
amount thereof or premium, if any, thereon, or reduce any amount payable on
redemption thereof, (iv) make any changes that could alter the rights of Holders
to waive defaults or Events of Defaults, or to receive payment of the Notes; (v)
waive a default in the payment of the principal of a premium or interest on any
Note, (vi) make the principal thereof or interest or premium, if any, thereon
payable in any coin or currency other than cash, (vii) modify the provisions of
this Indenture with respect to the subordination of the Notes in a manner
adverse to the Noteholders in any material respect, (viii) change the obligation
of the Company to repurchase any Note upon the occurrence of a Change in Control
in a manner adverse to the Noteholders, (ix) impair the right to convert the
Notes into Common Stock subject to the terms set forth herein, including Section
14.6, in a manner adverse to the Holders, without the consent of the Holder of
each Note so affected, or (B) reduce the aforesaid percentage of Notes, the
Holders of which are required to consent to any such supplemental indenture.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or an Assistant
Secretary authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of written evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture, unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
After an amendment, supplement or waiver under this Section 10.2
becomes effective, the Company shall mail to the
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Holders affected thereby a notice briefly describing the amendment, supplement
or waiver. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture or waiver.
It shall not be necessary for the consent of the Noteholders under
this Section 10.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 10.3 EFFECT OF SUPPLEMENTAL INDENTURE. Any supplemental
indenture executed pursuant to the provisions of this Article X shall comply
with the Trust Indenture Act, as then in effect. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article X, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the Holders
of Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
Section 10.4 NOTATION ON NOTES. Notes authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions of
this Article X may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may, at the Company's expense, be
prepared and executed by the Company, authenticated by the Trustee (or an
authenticating agent duly appointed by the Trustee pursuant to Section 16.12)
and delivered in exchange for the Notes then outstanding, upon surrender of such
Notes then outstanding.
Section 10.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE. The Trustee, subject to the provisions of Sections 7.1 and
7.2 shall be entitled to an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article X.
ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
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Section 11.1 COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS. Subject
to the provisions of Section 11.2 and Article XV, nothing contained in this
Indenture or in any Note shall prevent any consolidation or merger of the
Company with or into any other corporation or corporations (whether or not
affiliated with the Company), or successive consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any sale, transfer, conveyance or lease (or successive sales, transfers,
conveyances or leases) of all or substantially all of the property and assets of
the Company, to any other corporation (whether or not affiliated with the
Company), authorized to acquire and operate the same and which, in each case,
shall be organized under the laws of the United States of America, any state
thereof or the District of Columbia; PROVIDED, that upon any such consolidation,
merger, sale, conveyance or lease, either (a) the Company is the surviving
corporation or (b) the due and punctual payment of the principal of and premium,
if any, and interest on all of the Notes, according to their tenor, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by the Company, shall be expressly assumed, by
supplemental indenture reasonably satisfactory in form to the Trustee, executed
and delivered to the Trustee by the corporation (if other than the Company)
formed by such consolidation, or into which the Company shall have been merged,
or by the corporation which shall have acquired or leased such property, and
such supplemental indenture shall provide for the applicable conversion rights
set forth in Section 14.6; and PROVIDED FURTHER, that immediately before and
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing.
For purposes of this Section 11.1, a sale, transfer, conveyance or
lease (or successive sales, transfer, conveyances or leases) of all or
substantially all of the Company's property and assets shall include a sale,
transfer, conveyance or lease (for successive sales, transfers, conveyances or
leases) of all or substantially all of any one or more of the Company's
Subsidiaries' properties and assets, which properties and assets, if held by the
Company instead of such Subsidiary or Subsidiaries, would constitute all or
substantially all of the Company's property and assets on a consolidated basis.
Section 11.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any
such consolidation, merger, sale, conveyance or lease and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be
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substituted for the Company, with the same effect as if it had been named herein
as the party of the first part. Such successor corporation thereupon may cause
to be signed, and may issue either in its own name or in the name of the Company
any or all of the Notes issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee; and, upon the Company Order
of such successor corporation instead of the Company and subject to all the
terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall deliver, or cause to be authenticated and
delivered, any Notes which previously shall have been signed and delivered by
the officers of the Company to the Trustee for authentication, and any Notes
which such successor corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All the Notes so issued shall in all
respects have the same legal rank and benefit under this Indenture as the Notes
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Notes had been issued at the date of the execution hereof.
In the event of any such consolidation, merger, sale or conveyance (but not in
the event of any such lease), the person named as the "Company" in the first
paragraph of this Indenture or any successor which shall thereafter have become
such in the manner prescribed in this Article XI may be dissolved, wound up and
liquidated at any time thereafter and such person shall be released from its
liabilities as obligor and maker of the Notes and from its obligations under
this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.
Section 11.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee,
subject to Sections 7.1 and 7.2, shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that any such
consolidation, merger, sale, conveyance or lease and any such assumption
complies with the provisions of this Article XI.
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 12.1 DISCHARGE OF INDENTURE. When (a) the Company shall
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which have been destroyed, lost or stolen and in lieu of
or in substitution for which other Notes shall have been authenticated and
delivered) and not theretofore cancelled, or (b) all the Notes not theretofore
cancelled or delivered to the Trustee for cancellation shall
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have become due and payable, or are by their terms to become due and payable
within one year or are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption,
and the Company shall deposit with the Trustee, in trust, funds sufficient to
pay at maturity or upon redemption of all of the Notes (other than any Notes
which shall have been mutilated, destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and delivered)
not theretofore canceled or delivered to the Trustee for cancellation, including
principal and premium, if any, and interest due or to become due to such date of
maturity or redemption date, as the case may be, and if in either case the
Company shall also pay or cause to be paid all other sums payable hereunder by
the Company, then this Indenture shall cease to be of further effect (except as
to (i) remaining rights of registration of transfer, substitution and exchange
and conversion of Notes, (ii) rights hereunder of Noteholders to receive
payments of principal of and premium, if any, and interest on, the Notes and the
other rights, duties and obligations of Noteholders, as beneficiaries hereof
with respect to the amounts, if any, so deposited with the Trustee and (iii) the
rights, obligations and immunities of the Trustee hereunder, including, without
limitation, the Trustee's right to compensation and indemnity under Section 7.7
hereof), and the Trustee, on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel as required by Section 16.5 and at the
cost and expense of the Company, shall execute proper instruments acknowledging
satisfaction of and discharging this Indenture; the Company, however, hereby
agreeing to reimburse the Trustee for any costs or expenses thereafter
reasonably and properly incurred by the Trustee and to compensate the Trustee
for any services thereafter reasonably and properly rendered by the Trustee in
connection with this Indenture or the Notes.
Section 12.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.
Subject to Section 12.4, all monies deposited with the Trustee pursuant to
Section 12.1 and not in violation of Article IV shall be held in trust for the
sole benefit of the Noteholders and not to be subject to the subordination
provisions of Article IV, and such monies shall be applied by the Trustee to the
payment, either directly or through any Paying Agent (including the Company if
acting as its own Paying Agent), to the Holders of the particular Notes for the
payment or redemption of which such monies have been deposited with the Trustee,
of all sums due and to become due thereon for principal and interest and
premium, if any.
Section 12.3 PAYING AGENT TO REPAY MONIES HELD. Upon the
satisfaction and discharge of this Indenture, all monies then held by any Paying
Agent (other than the Trustee) shall, upon written request of the Company, be
repaid to the Company or paid
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to the Trustee, and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
Section 12.4 RETURN OF UNCLAIMED MONIES. Subject to the requirements
of applicable law, any monies deposited with or paid to the Trustee for payment
of the principal of, premium, if any, or interest on Notes and not applied but
remaining unclaimed by the Holders of Notes for two years after the date upon
which the principal of, premium, if any, or interest on such Notes, as the case
may be, shall have become due and payable, shall be repaid to the Company by the
Trustee on demand and all liability of the Trustee shall thereupon cease with
respect to such monies; and the Holder of any of the Notes shall thereafter look
only to the Company for any payment which such Holder may be entitled to collect
unless an applicable abandoned property law designates another Person.
Section 12.5 REINSTATEMENT. If the Trustee or the Paying Agent is
unable to apply any money in accordance with Section 12.2 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 12.1 until such time as the Trustee or the Paying
Agent is permitted to apply all such money in accordance with Section 12.2;
PROVIDED, HOWEVER, that if the Company makes any payment of interest on or
principal of any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE XIII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 13.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS. No
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer, or director or subsidiary,
as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporations, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby
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expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issue of the Notes.
ARTICLE XIV
CONVERSION OF NOTES
Section 14.1 RIGHT TO CONVERT. Subject to and upon compliance with
the provisions of this Indenture, a Holder shall have the right, at such
Holder's option, at any time prior to the close of business on July 15, 2002
(except that, with respect to any Note or portion of a Note which shall be
called for redemption, such right shall terminate, except as provided in Section
14.2 or Section 3.4, at the close of business on the Redemption Date of such
Note or portion of a Note, or such earlier date as the Holder presents the Note
for redemption, unless the Company shall default in payment due upon redemption
thereof, in which case, the conversion right shall terminate at the close of
business on the date such default is cured and such Note is redeemed) to convert
the principal amount of any such Note, or any portion of such principal amount
which is $1,000 or an integral multiple thereof, into that number of fully paid
and nonassessable shares of Common Stock (as such shares shall then be
constituted) obtained by dividing the principal amount of the Note or portion
thereof surrendered for conversion by the Conversion Price in effect at such
time, by surrender of the Note so to be converted in whole or in part, together
with any required funds, in the manner provided in Section 14.2. A Holder is
not entitled to any rights of a holder of Common Stock until such Holder has
converted such Holder's Notes to Common Stock, and only to the extent such Notes
are deemed to have been converted to Common Stock under this Article XIV.
Section 14.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON
STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to
exercise the conversion privilege with respect to any Note, the Holder of such
Note shall surrender such Note, duly endorsed, at an office or agency maintained
by the Company pursuant to Section 5.2, accompanied by the funds, if any,
required by the last paragraph of this Section 14.2, and shall give written
notice of conversion in the form provided on the Notes (or such other notice
which is acceptable to the Company) to the office or agency that the Holder
elects to convert such Note or the portion thereof specified in said notice.
Such notice shall also state the name or names (with address or addresses) in
which the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 14.7. Each such Note
surrendered for conversion shall, unless the shares issuable on
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conversion are to be issued in the same name as the registration of such Note,
be duly endorsed by, or be accompanied by instruments of transfer in form
satisfactory to the Company duly executed by, the Holder or his duly authorized
attorney.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, the Company shall issue and shall deliver to such
Holder at the office or agency maintained by the Company for such purpose
pursuant to Section 5.2, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such Note or portion
thereof in accordance with the provisions of this Article XIV and a check or
cash in respect of any fractional interest in respect of a share of Common Stock
arising upon such conversion, as provided in Section 14.3. In case any Note of
a denomination greater than $1,000 shall be surrendered for partial conversion,
and subject to Section 2.3, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of the Note so surrendered, without
charge to him, a new Note or Notes in authorized denominations in an aggregated
principal amount equal to the unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 14.2 have been satisfied as to such Note (or portion thereof),
and the Person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares of Common Stock
represented thereby; PROVIDED, HOWEVER, that any such surrender on any date when
the stock transfer books of the Company shall be closed shall constitute the
Person in whose name the certificates are to be issued as the record holder
thereof for all purposes on the next succeeding day on which such stock transfer
books are open, but such conversion shall be at the Conversion Price in effect
on the date upon which such Note shall be surrendered.
If any Holder surrenders a Note for conversion during the period from
the close of business on the Record Date for any Interest Payment Date to the
close of business on the Business Day next preceding the following Interest
Payment Date, then notwithstanding such conversion, the interest payable on such
Interest Payment Date will be paid to the Holder of record on such Record Date.
However, in such event, such Note, when surrendered for conversion, must be
accompanied by delivery of a check or draft payable in an amount equal to the
interest payable on such Interest Payment Date on the portion so converted;
PROVIDED, HOWEVER, that no such payment need be made if there shall exist at the
time of conversion a default in the payment of interest on the Notes.
Notwithstanding the foregoing, if any Note is called for redemption on an
Interest Payment Date and
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such Note is surrendered for conversion at any time during the 10 business days
immediately preceding the date fixed for redemption, interest shall accrue on
such Note through, but not including, the date fixed for redemption and shall be
payable on such Redemption Date to the Person who surrenders such Note for
conversion, and the conversion date of such Note will be deemed to be the
Redemption Date. In such event, no check or draft payable in an amount equal to
the interest payable shall accompany the Note on surrender. Except as provided
above in this Section 14.2, no adjustment shall be made for interest accrued on
any Note converted or for dividends on any shares issued upon the conversion of
such Note as provided in this Article XIV.
Section 14.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same Holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered. If any fractional share of Common
Stock would be issuable upon the conversion of any Note or Notes, the Company
shall make an adjustment and payment therefor in cash at the current market
value thereof to the Holder of Notes. The current market value of a share of
Common Stock shall be the Closing Price on the first Trading Day immediately
preceding the day on which the Notes (or specified portions thereof) are deemed
to have been converted.
Section 14.4 CONVERSION PRICE. The conversion price shall be as
specified in the form of Note (herein called the "CONVERSION PRICE") attached as
Exhibit A hereto, subject to adjustment as provided in this Article XIV.
Section 14.5 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day following the date fixed
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for such determination. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the Company. If
any dividend or distribution of the type described in this Section 14.5(a) is
declared but not so paid or made, the Conversion Price shall again be adjusted
to the Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all or
substantially all holders of its outstanding shares of Common Stock entitling
them (for a period expiring within 45 days after the date fixed for
determination of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase shares of Common Stock (or securities convertible into
shares of Common Stock) at a price per share less than the Current Market Price
(as defined below) on the date fixed for determination of stockholders entitled
to receive such rights or warrants, the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date fixed for determination of
stockholders entitled to receive such rights or warrants by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for determination of stockholders entitled
to receive such rights and warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Current Market Price, and of which the denominator shall be the number
of shares of Common Stock outstanding on the date fixed for determination of
stockholders entitled to receive such rights and warrants plus the total number
of additional shares of Common Stock offered for subscription or purchase. Such
adjustments shall be successively made whenever any such rights and warrants are
issued, and shall become effective immediately after the opening of business on
the day following the date fixed for determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of Common Stock are
not delivered after the expiration of such rights or warrants, the Conversion
Price shall be readjusted to the Conversion Price which would then be in effect
had the adjustments made upon the issuance of such rights or warrants been made
on the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such date fixed for the determination of stockholders
entitled to receive such rights or warrants had not been fixed. In determining
whether any rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received by the Company for such
rights or warrants, the value of such consider-
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ation, if other than cash, to be determined by the Board of Directors.
(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) In case the Company shall, by dividend or otherwise, distribute
to all or substantially all holders of its Common Stock shares of any class of
capital stock of the Company (other than any dividends or distributions to which
Section 14.5(a) applies) or evidences of its indebtedness or other non-cash
assets (including securities, but excluding any rights or warrants referred to
in Section 14.5(b), and excluding any dividend or distribution paid exclusively
in cash (any of the foregoing hereinafter in this Section 14.5(d) called the
"SECURITIES")), then, in each such case the Conversion Price shall be reduced so
that the same shall be equal to the price determined by multiplying the
Conversion Price in effect on the Record Date with respect to such distribution
by a fraction of which the numerator shall be the Current Market Price per share
of the Common Stock on such Record Date less the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive,
and described in a resolution of the Board of Directors) on the Record Date of
the portion of the Securities so distributed applicable to one share of Common
Stock and the denominator shall be the Current Market Price per share of the
Common Stock, such reduction to become effective immediately prior to the
opening of business on the day following such Record Date; PROVIDED, HOWEVER,
that in the event the then fair market value (as so determined) of the portion
of the Securities so distributed applicable to one share of Common Stock is
equal to or greater than the Current Market Price of the Common Stock on the
Record Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Noteholder shall have the right to receive upon conversion the
amount of Securities such Holder would have received had such Holder converted
each Note on the Record Date. In the event that such dividend or distribution
is not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or distribution
had not been declared. If the Board of Directors determines the fair market
value of any
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distribution for purposes of this Section 14.5(d) by reference to the actual or
when issued trading market for any securities, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price of the Common Stock.
In the event the Company implements a stockholder rights plan, such
rights plan shall provide that upon conversion of the Notes the Holders will
receive, in addition to the Common Stock issuable upon such conversion, the
rights issued under such rights plan (notwithstanding the occurrence of an event
causing such rights to separate from the Common Stock at or prior to the time of
conversion).
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("TRIGGER EVENT"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 14.5 (and no adjustment to the Conversion Price under
this Section 14.5 will be required) until the occurrence of the earliest Trigger
Event, whereupon such rights and warrants shall be deemed to have been
distributed and an appropriate adjustment (if any is required) to the Conversion
Price shall be made under this Section 14.5(d). If any such right or warrant,
including any such existing rights or warrants distributed prior to the date of
this Indenture, are subject to events, upon the occurrence of which such rights
or warrants become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the date of the occurrence of any and each
such event shall be deemed to be the date of distribution and record date with
respect to new rights or warrants with such rights (and a termination or
expiration of the existing rights or warrants without exercise by any of the
holders thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto that was counted
for purposes of calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 14.5 was made, (1) in the case of any such
rights or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted upon
such final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the per share redemption or repurchase price received by a holder or holders
of Common Stock with respect to such rights or warrants (assuming such holder
had retained such rights or warrants), made to all
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holders of Common Stock as of the date of such redemption or repurchase, and (2)
in the case of such rights or warrants which shall have expired or been
terminated without exercise by any holders thereof, the Conversion Price shall
be readjusted as if such rights and warrants had not been issued.
For purposes of this Section 14.5(d) and Sections 14.5(a) and (b), any
dividend or distribution to which this Section 14.5(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both) referred to in Section 14.5(b), shall
be deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets or shares of capital stock other than such shares of Common
Stock or rights or warrants (and any Conversion Price reduction required by this
Section 14.5(d) with respect to such dividend or distribution shall then be
made) immediately followed by (2) a dividend or distribution of such shares of
Common Stock or such rights or warrants (and any further Conversion Price
reduction required by Sections 14.5(a) and (b) with respect to such dividend or
distribution shall then be made), except (A) the Record Date of such dividend or
distribution shall be substituted as "the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution" and "the
date fixed for such determination" within the meaning of Sections 14.5(a) and
(b) and (B) any shares of Common Stock included in such dividend or distribution
shall not be deemed "outstanding at the close of business on the date fixed for
such determination" within the meaning of Section 14.5(a).
(e) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock cash (excluding any quarterly cash dividend
on the Common Stock to the extent that the aggregate cash dividend per share of
Common Stock in any fiscal quarter does not exceed the greater of (i) the amount
per share of Common Stock of the next preceding quarterly cash dividend on the
Common Stock to the extent that such preceding quarterly dividend did not
require any adjustment of the conversion price pursuant to this clause (e) (as
adjusted to reflect subdivisions or combinations of the Common Stock), and (ii)
3.75% of the average of the daily Closing Prices of the Common Stock for the 10
consecutive Trading Days immediately prior to the date of declaration of such
dividend, and excluding any dividend or distribution in connection with the
liquidation, dissolution or winding up of the Company) the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on the Record Date for such distribution by a fraction of which the
numerator shall be the Current Market Price of the Common Stock on the Record
Date less the amount of cash so distributed (and not excluded as provided above)
applicable to one share of Common Stock and the denominator shall be such
Current Market Price of the Common Stock, such
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reduction to be effective immediately prior to the opening of business on the
day following the Record Date. In the event that such dividend or distribution
is not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or distribution
had not been declared.
(f) For purposes of this Section 14.5, the following terms shall have
the meaning indicated:
(1) "CLOSING PRICE" with respect to any securities on any day
shall mean the closing sale price regular way on such day or, in the case
no such sale takes place on such day, the average of the reported closing
bid and asked prices, regular way, in each case on the Nasdaq National
Market, or, if such security is not quoted on such quotation system, on the
principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such
security on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors for that purpose, or a price determined in
good faith by the Board of Directors or, to the extent permitted by
applicable law, a duly authorized committee thereof, whose determination
shall be conclusive.
(2) "CURRENT MARKET PRICE" shall mean the average of the daily
Closing Prices per share of Common Stock for the ten consecutive Trading
Days immediately prior to the date in question; PROVIDED, HOWEVER, that (1)
if the "ex" date (as hereinafter defined) for any event (other than the
issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c),
(d) or (e) occurs during such ten consecutive Trading Days, the Closing
Price for each Trading Day prior to the "ex" date for such other event
shall be
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adjusted by multiplying such Closing Price by the same fraction by which
the Conversion Price is so required to be adjusted as a result of such
other event, (2) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 14.5(a), (b), (c), (d) or (e) occurs
on or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the Closing Price for each
Trading Day on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal of the
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event, and (3) if the "ex" date for the issuance or
distribution requiring such computation is prior to the day in question,
after taking into account any adjustment required pursuant to clause (1) or
(2) of this proviso, the Closing Price for each Trading Day on or after
such "ex" date shall be adjusted by adding thereto the amount of any cash
and the fair market value (as determined by the Board of Directors or, to
the extent permitted by applicable law, a duly authorized committee thereof
in a manner consistent with any determination of such value for purposes of
Section 14.5(d), whose determination shall be conclusive and described in a
resolution of the Board of Directors or such duly authorized committee
thereof, as the case may be) of the evidences of indebtedness, shares of
capital stock or assets being distributed applicable to one share of Common
Stock as of the close of business on the day before such "ex" date. For
purposes of any computation under Section 14.5(e), the Current Market Price
of the Common Stock on any date shall be deemed to be the average of the
daily Closing Prices per share of Common Stock for such day and the next
two succeeding Trading Days; PROVIDED, HOWEVER, that if the "ex" date for
any event (other than the tender or exchange offer requiring such
computation) that requires an adjustment to the Conversion Price pursuant
to Section 14.5(a), (b), (c), (d) or (e) occurs on or after the Expiration
Time for the tender or exchange offer requiring such computation and prior
to the day in question, the Closing Price for each Trading Day on and after
the "ex" date for such other event shall be adjusted by multiplying such
Closing Price by the reciprocal of the fraction by which the Conversion
Price is so required to be adjusted as a result of such other event. For
purposes of this paragraph, the term "ex" date, (1) when used with respect
to any issuance or distribution, means the first date on which the Common
Stock trades regular way on the relevant exchange or in the relevant market
from which the Closing Price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(3) when used with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the Expiration Time of such offer.
(3) "FAIR MARKET VALUE" shall mean the amount which a willing
buyer would pay a willing seller in an arm's length transaction.
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(4) "RECORD DATE" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for
or converted into any combination of cash, securities or other property,
the date fixed for determination of shareholders entitled to receive such
cash, securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).
(5) "TRADING DAY" shall mean (x) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or another
national security exchange, a day on which the New York Stock Exchange or
another national security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a day on which
trades may be made on thereon or (z) if the applicable security is not so
listed, admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(g) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 14.5(a), (b), (c), (d) or (e), as the
Board of Directors considers to be advisable to avoid or diminish any income tax
to holders of Common Stock or rights to purchase Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time if the
period is at least twenty (20) Business Days, the reduction is irrevocable
during the period and the Board of Directors shall have made a determination
that such reduction would be in the best interests of the Company, which
determination shall be conclusive. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Company shall mail to Holders of record
of the Notes a notice of the reduction at least fifteen (15) days prior to the
date the reduced Conversion Price takes effect, and such notice shall state the
reduced Conversion Price and the period during which it will be in effect.
(h) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
14.5(h) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Article XIV
shall be made by the Company and shall be made
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to the nearest cent or to the nearest one thousandth of a share, as the case may
be. No adjustment need be made for rights to purchase Common Stock pursuant to
a Company plan for reinvestment of dividends or interest. To the extent the
Notes become convertible into cash, assets, property or securities (other than
capital stock of the Company), no adjustment need be made thereafter as to the
cash, assets, property or such securities. Interest will not accrue on the
cash.
(i) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Trustee and any Conversion Agent other than
the Trustee an Officers' Certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such certificate, the Company shall
prepare a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion Price
to the Holder of each Note at his last address appearing on the Note register,
within 20 days after execution thereof. Failure to deliver such notice shall
not affect the legality or validity of any such adjustment.
(j) In any case in which this Section 14.5 provides that an
adjustment shall become effective immediately after a Record Date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
Holder of any Note converted after such Record Date and before the occurrence of
such event the additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and above the Common
Stock issuable upon such conversion before giving effect to such adjustment and
(ii) paying to such Holder any amount in cash in lieu of any fraction pursuant
to Section 14.3.
(k) For purposes of this Section 14.5, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
Section 14.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 14.5(c) applies), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including
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cash) with respect to or in exchange for such Common Stock, or (iii) any sale or
conveyance of the properties and assets of the Company as, or substantially as,
an entirety to any other corporation as a result of which holders of Common
Stock shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, then the
Company or the successor or purchasing corporation, as the case may be, shall
execute with the Trustee a supplemental indenture (which shall comply with the
Trust Indenture Act as in force at the date of execution of such supplemental
indenture) providing that such Notes shall be convertible into the kind and
amount of shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of such Notes (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock available to convert all
such Notes) immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming such holder of Common Stock did
not exercise such holder's rights of election, if any, as to the kind or amount
of shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance (provided that, if the kind or amount of shares
of stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("nonelecting share"),
then for the purposes of this Section 14.6 the kind and amount of shares of
stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance for each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder of Notes, at his address appearing on the
Note register provided for in Section 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
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If this Section 14.6 applies to any event or occurrence, Section 14.5
shall not apply.
Section 14.7 TAXES ON SHARES ISSUED. The issue of stock certificates
on conversions of Notes shall be made without charge to the converting
Noteholder for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than that
of the Holder of any Note converted, and, in such event, the Company shall not
be required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax had been paid.
Section 14.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The Company
shall reserve, free from preemptive rights, out of its authorized but unissued
shares or shares held in treasury, sufficient shares of Common Stock to provide
for the conversion of the Notes from time to time as such Notes are presented
for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and non-assessable
by the Company and free from all taxes, liens and charges with respect to the
issue thereof.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Notes hereunder require registration
with or approval of any governmental authority under any federal or state law
before such shares may be validly issued upon conversion, the Company will in
good faith and as expeditiously as possible endeavor to secure such registration
or approval, as the case may be.
The Company further covenants that if at any time the Common Stock
shall be listed on The Nasdaq National Market, the New York Stock Exchange or
any other national securities exchange the Company will, if permitted by the
rules of such exchange, list and keep listed so long as the Common Stock shall
be so listed on such exchange, all Common Stock issuable upon conversion of the
Notes.
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Section 14.9 RESPONSIBILITY OF TRUSTEE. The Trustee and any other
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Notes to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and any other Conversion Agent shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Note; and the Trustee and any
other Conversion Agent make no representations with respect thereto. Subject to
the provisions of Section 7.1, neither the Trustee nor any Conversion Agent
shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any Note for the purpose of conversion or
to comply with any of the duties, responsibilities or covenants of the Company
contained in this Article. Without limiting the generality of the foregoing,
neither the Trustee nor any Conversion Agent shall be under any responsibility
to calculate or determine the correctness of any provisions contained in any
supplemental indenture entered into pursuant to Section 14.6 relating either to
the kind or amount of shares of stock or securities or property (including cash)
receivable by Noteholders upon the conversion of their Notes after any event
referred to in such Section 14.6 or to any adjustment to be made with respect
thereto, but, subject to the provisions of Section 7.1, may accept as conclusive
evidence of the correctness of any such provisions, and shall be protected in
relying upon, the Officers' Certificate (which the Company shall be obligated to
file with the Trustee prior to the execution of any such supplemental indenture)
with respect thereto.
Section 14.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case:
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Price pursuant to Section 14.5; or
(2) the Company shall authorize the granting to all or
substantially all the holders of its Common Stock of rights or warrants to
subscribe for or purchase any share of any class or any other rights or
warrants; or
(3) of any reclassification or reorganization of the Common
Stock of the Company (other than a subdivision or combination of its
outstanding Common Stock, or a change in par value, or from par value to no
par value, or from no par
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value to par value), or of any consolidation or merger to which the Company
is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the
assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
Holder of Notes, as promptly as possible but in any event at least fifteen (15)
days prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, or rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
ARTICLE XV
REPURCHASE OF NOTES AT THE
OPTION OF THE HOLDER UPON CHANGE IN CONTROL
Section 15.1 RIGHT TO REQUIRE REPURCHASE. In the event that a Change
in Control (as hereinafter defined) shall occur, then each Holder shall have the
right, at the Holder's option, to require the Company to repurchase, and upon
the exercise of such right the Company shall repurchase, all of such Holder's
Notes, or any portion of the principal amount thereof that is an integral
multiple of $1,000 (provided that no single Note may be repurchased in part
unless the portion of the principal amount of such Note to be outstanding after
such repurchase is equal to $1,000 or an integral multiple of $1,000), on the
date (the "REPURCHASE DATE") that is 30 days after the date of the Company
Notice (as defined in Section 15.2) for cash at a purchase price equal to 100%
of the principal amount (the "REPURCHASE PRICE"), plus interest accrued and
unpaid to, but excluding, the Repurchase Date; PROVIDED that if the Repurchase
Date is on an Interest Payment Date, then the interest payable on such date
shall be paid to the Holder of record of the Note on the
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next preceding Record Date. Whenever in this Indenture there is a reference, in
any context, to the principal of any Note as of any time, such reference shall
be deemed to include reference to the Repurchase Price payable in respect of
such Note to the extent that such Repurchase Price is, was or would be so
payable at such time, and express mention of the Repurchase Price in any
provision of this Indenture shall not be construed as excluding the Repurchase
Price in those provisions of this Indenture when such express mention is not
made.
Section 15.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC. In
the event that, pursuant to Section 15.1, the Company shall be required to
commence an irrevocable and unconditional offer to purchase the Notes, the
following procedures shall apply:
(a) Unless the Company shall have theretofore called for redemption
all of the outstanding Notes pursuant to Article III, on or before the 10th day
after the occurrence of a Change in Control, the Company shall give to all
Holders written notice (the "COMPANY NOTICE") of the occurrence of the Change in
Control and of the repurchase right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a repurchase
right to the Trustee.
Each Company Notice shall state:
(i) the Repurchase Date,
(ii) the date by which the repurchase right must be
exercised,
(iii) the Repurchase Price,
(iv) a description of the procedure which a Holder must
follow to exercise a repurchase right,
(v) that on the Repurchase Date the Repurchase Price will
become due and payable upon each such note designated by the Holder to be
repurchased, and that interest thereon shall cease to accrue on and after
said date,
(vi) the Conversion Price, the date on which the right to
convert the Notes to be repurchased will terminate and the places where
such Notes may be surrendered for conversion, and
(vii) the place or places where such Notes are to be
surrendered for payment of the Repurchase Price and accrued interest, if
any.
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No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Notes.
If any of the foregoing provisions or other provisions of this Article
are inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a Holder shall deliver to the
Trustee or any Paying Agent on or before the Repurchase Date (i) written notice
of the Holder's exercise of such right, which notice shall set forth the name of
the Holder, the principal amount of the Notes to be repurchased (and, if any
Note is to be repurchased in part, the serial number thereof, the portion of the
principal amount thereof to be repurchased and the name of the Person in which
the portion thereof to remain outstanding after such repurchase is to be
registered) and a statement that an election to exercise the repurchase right is
being made thereby, and (ii) the Notes with respect to which the repurchase is
being exercised.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the Trustee
or the Paying Agent the Repurchase Price in cash, together with accrued and
unpaid interest to, but excluding, the Repurchase Date payable with respect to
the Notes as to which the purchase right has been exercised. On the Repurchase
Date and upon deposit of the Repurchase Price in cash with the Trustee or Paying
Agent, the Trustee or Paying Agent will make payment to the Noteholder on the
Repurchase Date in the manner specified pursuant to Section 15.2.
(d) If any Note (or portion thereof) is surrendered for repurchase to
be paid on the Repurchase Date, the principal amount of such Note (or portion
thereof, as the case may be) shall, until paid, bear interest from the
Repurchase Date at the rate borne by the Notes, and each Note shall remain
convertible into Common Stock until the principal of such Note (or portion
thereof, as the case may be) shall have been paid or duly provided for.
(e) Any Note which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
authenticate and deliver to the Holder of such Note without service charge, a
new Note or Notes, containing identical terms and conditions, each in an
authorized denomination in aggregate
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principal amount equal to and in exchange for the portion of the principal of
the Note so surrendered that was not repurchased.
(f) Any Holder that has delivered to the Trustee its written notice
exercising its right to require the Company to repurchase its Notes upon a
Change in Control shall have the right to withdraw such notice at any time prior
to the close of business on the Repurchase Date by delivery of a written notice
of withdrawal to the Trustee prior to the close of business on such date. A
Note in respect of which a Holder is exercising its option to require repurchase
upon a Change in Control may be converted into Common Stock in accordance with
Article XIV only if such Holder withdraws its notice in accordance with the
preceding sentence.
Section 15.3 CERTAIN DEFINITIONS. For purposes of this Article XV
only,
(1) the term "BENEFICIAL OWNER" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission pursuant to the
Exchange Act; and
(2) the term "PERSON" shall include any syndicate or group which
would be deemed to be a "person" under Section 13(d)(3) of the Exchange
Act.
Section 15.4 CHANGE IN CONTROL. A "CHANGE IN CONTROL" shall be
deemed to have occurred at such time after the original issuance of the Notes
as:
(i) the acquisition by any Person (including any syndicate
or group deemed to be a "person" under Section 13(d)(3) or 14(d)(2) of the
Exchange Act or any successor provision) of beneficial ownership, directly
or indirectly, through a purchase, merger, or other acquisition transaction
or series of transactions, of shares of capital stock of the Company
entitling such Person to exercise more than 50% of the total voting power
of all shares of capital stock of the Company entitling the holders thereof
to vote generally in elections of directors; or
(ii) any consolidation of the Company, with, or merger of
the Company into, any other Person, any merger of another Person into the
Company, or any sale, lease, or exchange, in one transaction or a series of
related transactions, of all or substantially all of the property and
assets of the Company to another Person (other than (a) any such
transaction pursuant to which the holders of 50% or more of the total
voting power of all shares of capital stock of the Company entitled to vote
generally in the election of directors
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immediately prior to such transaction has, directly or indirectly, at least
50% or more of the total voting power of all shares of capital stock of the
continuing or surviving corporation entitled to vote generally in elections
of directors of the continuing or surviving corporation immediately after
such transaction, and (b) a merger which (1) does not result in any
reclassification, conversion, exchange, or cancellation of outstanding
shares of capital stock of the Company or (2) is effected primarily to
change the jurisdiction of incorporation of the Company and results in
reclassification, conversion, or exchange of outstanding shares of Common
Stock solely into shares of Common Stock of the surviving entity);
provided, however, that a Change in Control shall not be deemed to have occurred
if the Closing Price per share of the Common Stock for any 10 Trading Days
within the period of 20 consecutive Trading Days ending immediately before the
occurrence of the event that would otherwise constitute a Change in Control
shall equal or exceed 105% of the conversion price of the Notes in effect on
each such Trading Day.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 SUCCESSORS. All agreements of the Company in this
Indenture and the Notes shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
Section 16.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 16.3 NOTICES. Any notice or communication shall be in
writing and delivered in person, by overnight delivery service or mailed by
first-class mail, postage prepaid, addressed as follows:
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if to the Company:
Dura Pharmaceuticals, Inc.
5880 Pacific Center Boulevard
San Diego, California 92121
Attention: General Counsel
if to the Trustee:
Chase Trust Company of California
101 California Street
Suite 2725
San Francisco, California 94111
Attn: Corporate Trust Administration
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
such Holder by overnight delivery service or by first class mail, postage
prepaid, at his address as it appears on the Note register and shall be
sufficiently given to such Holder if so delivered or mailed with the time
prescribed.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 16.4 GOVERNING LAW. This Indenture and the Notes shall be
governed by and construed in accordance with the laws of the state of New York,
as applied to contracts made and performed within the state of New York, without
regard to principles of conflict of laws.
Section 16.5 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
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Section 16.6 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
Officers' Certificate or Opinion of Counsel with respect to compliance with a
covenant or condition provided for in this Indenture shall include:
(1) a statement that each person making such Officers'
Certificate or Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such Officers' Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such person, he has
made such examination or investigation as is necessary to enable such
person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement that, in the opinion of such person, such
covenant or condition has been complied with.
Section 16.7 LEGAL HOLIDAYS. A "Legal Holiday" is any day other than
a Business Day. If any specified date (including a date for giving notice) is a
Legal Holiday, the action shall be taken on the next succeeding day that is not
a Legal Holiday, and to the extent applicable no interest, if any, shall accrue
for the intervening period.
Section 16.8 TRUST INDENTURE ACT CONTROLS. If any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in an indenture qualified under the Trust Indenture Act, such
required provision shall control.
Section 16.9 NO SECURITY INTEREST CREATED. Nothing in this Indenture
or in the Notes, expressed or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect, in any jurisdiction where property of
the Company or its subsidiaries is located.
Section 16.10 BENEFITS OF INDENTURE. Nothing in this Indenture or in
the Notes, expressed or implied, shall give to any Person, other than the
parties hereto, any Paying Agent, any authenticating agent, any Note registrar
and their successors hereunder, the Holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal for equitable right, remedy or claim
under this Indenture.
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Section 16.11 TABLE OF CONTENTS, HEADINGS, ETC. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 16.12 AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authenticating and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.2, 2.6, 2.7, 2.9, 3.3, 14.2 and 15.2, as fully to all
intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Notes. For all purposes of this Indenture, the authentication and delivery of
Notes by the authenticating agent shall be deemed to be authentication and
delivery of such Notes "by the Trustee" and a certificate of authentication
executed on behalf of the Trustee by an authenticating agent shall be deemed to
satisfy any requirement hereunder or in the Notes for the Trustee's certificate
of authentication. Such authenticating agent shall at all times be a person
eligible to serve as trustee hereunder pursuant to Section 7.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticated agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section 16.12, without the execution or filing of any paper or any further act
on the part of the parties hereto or the authenticating agent or such successor
corporation.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any authenticating agent shall cease to be eligible under this Section, the
Trustee shall either promptly appoint a successor authenticating agent or itself
assume the duties and obligations of the former authenticating agent under this
Indenture, and upon such appointment of a successor authenticating agent, if
made, shall give written notice of such appointment of a successor
authenticating agent to the Company and shall mail notice of such appointment of
a successor authenticating agent to all Holders of Notes as the names and
addresses of such Holders appear on the Note register.
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The Trustee agrees to pay to the authenticating agent from time to
time reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the Trustee shall be entitled to be reimbursed for such
pre-approved payments, subject to Section 7.6.
The provisions of Sections 7.2, 7.3, 7.4, 8.3 and this Section 16.12
shall be applicable to any authenticating agent.
Section 16.13 SEVERABILITY. In case any provision in this Indenture
or in the Notes 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 16.14 RULES BY TRUSTEE, PAYING AGENT, CONVERSION AGENT AND
REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of
the Noteholders. The Registrar, Conversion Agent and the Paying Agent may make
reasonable rules for their functions.
Section 16.15 NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Notes or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Note, each Noteholder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Notes.
Section 16.16 EXECUTION IN COUNTERPARTS. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
Section 16.17 QUALIFICATION OF INDENTURE. The Company shall qualify
this Indenture under the Trust Indenture Act and shall pay all reasonable costs
and expenses (including reasonable attorneys' fees for the Company and the
Trustee) incurred in connection therewith, including, but not limited to,
reasonable costs and expenses of qualification of the Indenture and the
Securities and printing this Indenture and the Securities. The Trustee shall be
entitled to receive from the Company any such Officers' Certificates, Opinions
of Counsel or other documentation as it may reasonably request in connection
with any such qualification of this Indenture under the TIA.
Chase Trust Company of California hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly signed, all as of the date first written above.
DURA PHARMACEUTICALS, INC.
By: /s/ Cam L. Garner
-------------------------------
Name: Cam L. Garner
Title: Chairman of the Board,
President and Chief
Executive Officer
CHASE TRUST COMPANY OF CALIFORNIA
not in its individual capacity
but solely as Trustee
By: /s/ R. T. Maravilla
-------------------------------
Name: R.T. Maravilla
Title: Assistant Vice President
<PAGE>
EXHIBIT A
DURA PHARMACEUTICALS, INC.
31/2% CONVERTIBLE SUBORDINATED NOTE DUE 2002
No. __ CUSIP 26632S AA 7
Dura Pharmaceuticals, Inc., a corporation duly organized and validly
existing under the laws of the State of Delaware (herein called the "Company,"
which term includes any successor corporation under the Indenture referred to on
the reverse hereof), for value received hereby promises to pay to
_____________________, or registered assigns, the principal sum of __________
($__________) on July 15, 2002, at the office or agency of the Company
maintained for that purpose in The City of New York, or, at the option of the
holder of this Note, at the Corporate Trust Office, in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts, and to pay interest, semi-annually on
January 15 and July 15 of each year, commencing January 15, 1998, on said
principal sum at said office or agency, in like coin or currency, at the rate
per annum of 3 1/2%, from January 15 or July 15, as the case may be, next
preceding the date of this Note to which interest has been paid or duly provided
for, unless the date hereof is a date to which interest has been paid or duly
provided for, in which case from the date of this Note, or unless no interest
has been paid or duly provided for on the Notes, in which case from July 30,
1997, until payment of said principal sum has been made or duly provided for.
Notwithstanding the foregoing, if the date hereof is after any January 1 or July
1, as the case may be, and before the following January 15 or July 15, this Note
shall bear interest from such January 15 or July 15; PROVIDED, HOWEVER, that if
the Company shall default in the payment of interest due on such January 15 or
July 15, then this Note shall bear interest from the next preceding January 15
or July 15 to which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for on such Note, from July 30, 1997.
The interest payable on the Note pursuant to the Indenture on any January 15 or
July 15 will be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the record date,
which shall be the January 1 or July 1 (whether or not a Business Day) next
preceding such January 15 or July 15, as provided in the Indenture; PROVIDED
that any such interest not punctually paid or duly provided for shall cease to
be payable to the holder on the relevant regular record date by virtue of having
been such holder and shall be payable as provid-
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ed in the Indenture. Interest may, at the option of the Company, be paid by
check mailed to the registered address of such person, or in such other manner
as may be acceptable to the Company upon the written order of such person,
forwarded to the Trustee or the Company no later than 15 days prior to the
relevant payment date.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on the Notes to the
prior payment in full of all Senior Indebtedness, as defined in the Indenture,
and provisions giving the holder of this Note the right to convert this Note
into Common Stock of the Company on the terms and subject to the limitations
referred to on the reverse hereof and as more fully specified in the Indenture.
Such further provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State.
This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.
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IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
Dated: DURA PHARMACEUTICALS, INC.
By:________________________________
[SEAL] Attest:____________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in
the within-named Indenture.
CHASE TRUST COMPANY OF CALIFORNIA, not in its individual
capacity but solely as Trustee
By:________________________________
Authorized Signatory
By:________________________________
As Authenticating Agent
(if different from Trustee)
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[FORM OF REVERSE OF NOTE]
DURA PHARMACEUTICALS, INC.
3 1/2% CONVERTIBLE SUBORDINATED NOTE DUE 2002
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 3 1/2% Convertible Subordinated Notes due 2002 (the "Notes"),
issued pursuant to an indenture, dated as of July 30, 1997 (the "Indenture"),
between the Company and Chase Trust Company of California, not in its individual
capacity but solely as trustee (the "Trustee," which term includes any successor
trustee pursuant to the Indenture). Reference is hereby made to the Indenture
for a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and accrued interest on all Notes
may be declared, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, evidenced as in
the Indenture provided, to execute supplemental indentures adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or modifying in any manner the rights
of the holders of the Notes; PROVIDED, HOWEVER, that no such supplemental
indenture shall, without the consent of the holders of each Note affected
thereby (i) extend the fixed maturity of any Note, or reduce the rate or extend
the time of payment of interest thereon, or reduce the principal amount thereof
or premium, if any, thereon, or reduce any amount payable on redemption thereof,
or make any changes that could alter the rights of holders to waive defaults or
Events of Default or to receive payment of the Notes, or waive a default in the
payment of the principal of or premium or interest on any Note, or make the
principal thereof or interest or premium, if any, thereon payable in any coin or
currency other than that provided in the Note, or modify the provisions of the
Indenture with respect to the subordination of the Notes in a manner adverse to
the Noteholders in any material respect, or change the obligation of the Company
to repurchase any Note upon the occurrence of a Change in Control in a manner
adverse to the holder of the Notes, or impair the right to convert the Notes
into Common Stock subject to the terms set forth in the Indenture, in a manner
adverse to the holders, without the consent of the holder
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of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the
holders of which are required to consent to any such supplemental indenture. It
is also provided in the Indenture that the holders of a majority in aggregate
principal amount of the Notes at the time outstanding may on behalf of the
holders of all of the Notes waive any past default or Event of Default under the
Indenture and its consequences except a default in the payment of interest or
any premium on or the principal of any of the Notes, a default in the payment of
the redemption price (including accrued and unpaid interest) pursuant to Article
III or repurchase price pursuant to Article XV, a failure by the Company to
convert any Notes into Common Stock of the Company or a default in respect of a
covenant or provisions of the Indenture which under Article X cannot be modified
or amended without the consent of each holder affected thereby. Any such
consent or waiver by the holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Note and any Notes which may be issued in exchange or
substitute hereof, irrespective of whether or not any notation thereof is made
upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of the Company,
as defined in the Indenture, whether outstanding at the date of the Indenture or
thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on such holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee such holder's attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note at the place, at the respective times, at the rate and in the coin
or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
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governmental charge that may be imposed in connection with any registration or
exchange of Notes, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.
The Notes will not be redeemable at the option of the Company prior to
July 15, 2000. At any time thereafter, and prior to maturity, the Notes may be
redeemed at the option of the Company as a whole, or from time to time in part,
upon mailing a notice of such redemption not less than 15 nor more than 60 days
before the date fixed for redemption to the holders of Notes at their last
registered addresses, all as provided in the Indenture, at the following
optional redemption prices (expressed as a percentage of the principal amount),
together in each case with accrued and unpaid interest to, but excluding, the
date fixed for redemption.
If redeemed during the 12-month period beginning July 15:
Redemption
Year Price
---- -----
2000. . . . . . . . . . . . . . . . . . 101.40%
2001. . . . . . . . . . . . . . . . . . 100.70
The Notes are not subject to redemption through the operation of any
sinking fund.
If a Change in Control (as defined in the Indenture) occurs, the
holder of this Note shall have the right, in accordance with the provisions of
the Indenture, to require the Company to repurchase this Note or any portion of
the principal amount hereof that is an integral multiple of $1,000 for cash at a
Repurchase Price equal to 100% of the principal amount plus accrued and unpaid
interest to, but excluding, the Repurchase Date; PROVIDED that if such
Repurchase Date is January 15 or July 15, then the interest payable on such date
shall be paid to the holder of record of the Note on the next preceding January
1 or July 1, respectively. Unless the Company shall have theretofore called for
redemption all of the outstanding Notes pursuant to Article III of the
Indenture, on or before the 10th day after the occurrence of a Change in
Control, the Company shall give to all holders of Notes written notice of the
occurrence of the Change in Control and of the repurchase right set forth in the
Indenture arising as a result thereof.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time prior to the close of business on July 15,
2002, or, as to all or any portion hereof called for redemption, prior to the
close of business on the Business Day immediately preceding the date fixed for
redemp-
A-6
<PAGE>
tion or such earlier date as the holder presents the Note for redemption (unless
the Company shall default in payment due upon redemption thereof), to convert
the principal amount hereof or any portion of such principal amount which is
$1,000 or an integral multiple thereof, into that number of shares of the
Company's Common Stock, as said shares shall be constituted at the date of
conversion, obtained by dividing the principal amount of this Note or portion
thereof to be converted by the Conversion Price of $50.635 or such Conversion
Price as adjusted from time to time as provided in the Indenture, upon surrender
of this Note, together with a conversion notice as provided in the Indenture, to
the Company at the office or agency of the Company maintained for that purpose
in The City of New York, or at the option of such holder, the Corporate Trust
Office, and, unless the shares issuable on conversion are to be issued in the
same name as this Note, duly endorsed by, or accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder or by
such holder's duly authorized attorney. No adjustment in respect of interest or
dividends will be made upon any conversion; PROVIDED, HOWEVER, that if this Note
shall be surrendered for conversion during the period from the close of business
on any record date for the payment of interest to the close of business on the
Business Day preceding the interest payment date, notwithstanding such
conversion, the interest payable on such interest payment date will be paid to
the holder of record on such record date. However, in such event, such Note,
when surrendered for conversion, must be accompanied by delivery of a check or
draft payable in an amount equal to the interest payable on such interest
payment date on the portion so converted; PROVIDED, HOWEVER, that no such
payment need be made if there shall exist at the time of conversion a default in
the payment of interest on the Notes. Notwithstanding the foregoing, if any
Note is called for redemption on an interest payment date and such Note is
surrendered for conversion at any time during the 10 Business Days immediately
preceding the date fixed for redemption, interest shall accrue on such Note
through, but not including, the date fixed for redemption and shall be payable
on such Redemption Date to the Person who surrenders such Note for conversion,
and the conversion date of such Note will be deemed to be the Redemption Date.
In such event, no check or draft payable in an amount equal to the interest
payable shall accompany the Note on surrender. No fractional shares will be
issued upon any conversion, but an adjustment in cash will be made, as provided
in the Indenture, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of any Note or Notes for conversion.
Any Notes called for redemption, unless surrendered for conversion on
or before the close of business on the date fixed for redemption, may be deemed
to be purchased from the holder of such Notes at an amount equal to the
applicable redemption price, together with accrued interest to but not including
the date
A-7
<PAGE>
fixed for redemption, by one or more investment bankers or other purchasers who
may agree with the Company to purchase such Notes from the holders thereof and
convert them into Common Stock of the Company and to make payment for such Notes
as aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in The City of New York, or at the option of the
holder of this Note, at the Corporate Trust Office, a new Note or Notes of
authorized denominations for an equal aggregate principal amount will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any Paying Agent,
any Conversion Agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note shall
be overdue and notwithstanding any notation of ownership or other writing
hereon), for the purpose of receiving payment hereof, or on account hereof, for
the conversion hereof and for all other purposes, and neither the Company nor
the Trustee nor any other authenticating agent nor any Paying Agent nor any
other Conversion Agent nor any Note registrar shall be affected by any notice to
the contrary. All payments made to or upon the order of such registered holder
shall, to the extent of the sum or sums paid, satisfy and discharge liability
for monies payable on this Note.
No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, stockholder, employee, agent, officer or
director or subsidiary, as such, past, present or future, of the Company or of
any successor corporation, either directly or through the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issue hereof, expressly waived and released.
Terms used in this Note and defined in the Indenture are used herein
as therein defined.
A-8
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT-- _____ Custodian _______
(Cust.) (Minor)
under Uniform Gifts to Minors Act
______________________________________
(State)
Additional abbreviations may also be used
though not in the above list.
A-9
<PAGE>
CONVERSION NOTICE
To: DURA PHARMACEUTICALS, INC.
The undersigned registered owner of this Note hereby irrevocably exercises
the option to convert this Note, or the portion hereof (which is $1,000
principal amount or an integral multiple thereof) below designated, into shares
of Common Stock of Dura Pharmaceuticals, Inc. in accordance with the terms of
the Indenture referred to in this Note, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this Note
not converted are to be issued in the name of a person other than the
undersigned, the undersigned will check the appropriate box below and pay all
transfer taxes payable with respect thereto. Any amount required to be paid to
the undersigned on account of interest accompanies this Note.
Dated:_________________
__________________________________________________
__________________________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible
Guarantor Institution (banks, stockbrokers,
savings and loan associations and credit unions)
with membership in an approved signature guarantee
medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of
Common Stock are to be issued, or Notes are to be
delivered, other than to and in the name of the
registered holder.
__________________________________________________
Signature Guarantee
A-10
<PAGE>
_______ Fill in for registration of
shares of Common Stock if
to be issued, and Notes if
to be delivered, other than
to and in the name of the
registered holder:
_________________________________
(Name)
_________________________________
(Social Security or other
Taxpayer Identification Number)
_________________________________
(Street Address)
_________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if less than
all): $________
__________________________________________________
Social Security or Other Taxpayer Identification
Number
A-11
<PAGE>
OPTION TO ELECT REPURCHASE
UPON A CHANGE IN CONTROL
To: DURA PHARMACEUTICALS, INC.
The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from Dura Pharmaceuticals, Inc. (the "Company")
as to the occurrence of a Change in Control with respect to the Company and
requests and instructs the Company to repay the entire principal amount of this
Note, or the portion thereof (which is $1,000 principal amount or an integral
multiple thereof) below designated, in accordance with the terms of the
Indenture referred to in this Note at the repurchase price, together with
accrued interest to, but excluding, such date, to the registered holder hereof.
Dated:______________ _____________________________________________
_____________________________________________
Signature(s)
Principal amount to be repurchased (if less
than all):
$________
_____________________________________________
Social Security or Other Taxpayer
Identification Number
A-12
<PAGE>
ASSIGNMENT
For value received ____________________ hereby sell(s), assign(s) and
transfer(s) unto
________________________________________________________________________________
(Please insert name, address and social security or other identifying
number of assignee)
$________ of the within Notes, and irrevocably constitutes and appoints
____________________ attorney to transfer the said Notes on the books of the
Company, with full power of substitution in the premises.
Dated:______________ _____________________________________________
_____________________________________________
Signature(s)
Signature(s) must be guaranteed by an
eligible Guarantor Institution (banks,
stockbrokers, savings and loan associations
and credit unions) with membership in an
approved signature guarantee medallion
program pursuant to Securities and Exchange
Commission Rule 17Ad-15.
_____________________________________________
Signature Guarantee
NOTICE: The signature(s) on the conversion notice, the option to elect
repurchase upon a Change of Control or the assignment must correspond with the
name(s) as written upon the face of the Note in every particular without
alteration or enlargement or any change whatsoever.
A-13
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS................................................................. 1
Section 1.1 DEFINITIONS.............................................. 1
AFFILIATE.......................................................... 1
BOARD OF DIRECTORS................................................. 1
BUSINESS DAY....................................................... 1
CASH or CASH....................................................... 2
CODE............................................................... 2
COMMISSION......................................................... 2
COMMON STOCK....................................................... 2
COMPANY............................................................ 2
COMPANY ORDER...................................................... 2
CORPORATE TRUST OFFICE............................................. 2
CREDIT AGREEMENT................................................... 2
DEFAULT............................................................ 2
DESIGNATED SENIOR INDEBTEDNESS..................................... 2
EXCHANGE ACT....................................................... 3
EVENT OF DEFAULT................................................... 3
GAAP............................................................... 3
INDENTURE.......................................................... 3
NOTE............................................................... 3
NOTEHOLDER or HOLDER............................................... 3
OFFICER............................................................ 3
OFFICERS' CERTIFICATE.............................................. 3
OPINION OF COUNSEL................................................. 3
OVER-ALLOTMENT OPTION.............................................. 3
PERSON............................................................. 4
PREDECESSOR NOTE................................................... 4
REDEMPTION DATE.................................................... 4
REDEMPTION PRICE................................................... 4
RESPONSIBLE OFFICER................................................ 4
SECURITIES ACT..................................................... 4
SENIOR INDEBTEDNESS................................................ 4
SUBSIDIARY......................................................... 5
TRUST INDENTURE ACT................................................ 6
TRUSTEE............................................................ 6
UNDERWRITERS....................................................... 6
Section 1.2 OTHER DEFINITIONS........................................ 6
Section 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........ 7
Section 1.4 RULES OF CONSTRUCTION.................................... 7
ARTICLE II
THE NOTES................................................................... 8
Section 2.1 FORM AND DATING.......................................... 8
Section 2.2 EXECUTION AND AUTHENTICATION............................. 8
Section 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT............. 9
Section 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST..................... 9
i
<PAGE>
Section 2.5 NOTEHOLDER LISTS......................................... 10
Section 2.6 TRANSFER AND EXCHANGE.................................... 10
Section 2.7 REPLACEMENT NOTES........................................ 11
Section 2.8 OUTSTANDING NOTES; DETERMINATIONS OF HOLDERS' ACTION..... 12
Section 2.9 TEMPORARY NOTES.......................................... 13
Section 2.10 CANCELLATION............................................. 13
Section 2.11 DEFAULTED INTEREST....................................... 14
ARTICLE III
REDEMPTION.................................................................. 14
Section 3.1 RIGHT TO REDEEM; NOTICES TO TRUSTEE...................... 14
Section 3.2 SELECTION OF NOTES TO BE REDEEMED........................ 15
Section 3.3 NOTICE OF REDEMPTION..................................... 15
Section 3.4 EFFECT OF NOTICE OF REDEMPTION........................... 16
Section 3.5 DEPOSIT OF REDEMPTION PRICE.............................. 17
Section 3.6 NOTES REDEEMED IN PART................................... 18
Section 3.7 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION............ 18
ARTICLE IV
SUBORDINATION OF NOTES...................................................... 18
Section 4.1 NOTES SUBORDINATE TO SENIOR INDEBTEDNESS................. 18
Section 4.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION................ 19
Section 4.3 NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT........... 20
Section 4.4 PAYMENT PERMITTED IF NO DEFAULT.......................... 21
Section 4.5 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.. 22
Section 4.6 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS; OBLIGATIONS
OF THE COMPANY UNCONDITIONAL.......................... 22
Section 4.7 TRUSTEE TO EFFECTUATE SUBORDINATION...................... 23
Section 4.8 NO WAIVER OF SUBORDINATION PROVISIONS.................... 23
Section 4.9 NOTICE TO TRUSTEE........................................ 23
Section 4.10 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.................................................. 24
Section 4.11 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS........................................... 24
Section 4.12 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
PRESERVATION OF TRUSTEE'S RIGHTS....................... 25
Section 4.13 ARTICLE APPLICABLE TO PAYING AGENTS...................... 25
Section 4.14 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT....... 25
Section 4.15 CERTAIN CONVERSIONS NOT DEEMED PAYMENT................... 25
ARTICLE V
COVENANTS OF THE COMPANY.................................................... 26
Section 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST............... 26
Section 5.2 MAINTENANCE OF OFFICE OR AGENCY.......................... 27
Section 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE....... 27
ii
<PAGE>
Section 5.4 CORPORATE EXISTENCE...................................... 27
Section 5.5 PAYMENT OF TAXES AND OTHER CLAIMS........................ 27
Section 5.6 MAINTENANCE OF PROPERTIES AND INSURANCE.................. 28
Section 5.7 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT................ 29
Section 5.8 STAY, EXTENSION AND USURY LAWS........................... 29
Section 5.9 LIMITATION ON STATUS AS INVESTMENT COMPANY............... 29
Section 5.10 SEC REPORTS.............................................. 30
ARTICLE VI
DEFAULTS AND REMEDIES....................................................... 30
Section 6.1 EVENTS OF DEFAULT........................................ 30
Section 6.2 PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR.............. 33
Section 6.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE............... 34
Section 6.4 PROCEEDINGS BY NOTEHOLDER................................ 35
Section 6.5 PROCEEDINGS BY TRUSTEE................................... 36
Section 6.6 REMEDIES CUMULATIVE AND CONTINUING....................... 36
Section 6.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY
MAJORITY OF NOTEHOLDERS................................ 36
Section 6.8 UNDERTAKING TO PAY COSTS................................. 37
ARTICLE VII
TRUSTEE..................................................................... 38
Section 7.1 DUTIES OF TRUSTEE........................................ 38
Section 7.2 RIGHTS OF TRUSTEE........................................ 39
Section 7.3 INDIVIDUAL RIGHTS OF TRUSTEE............................. 40
Section 7.4 TRUSTEE'S DISCLAIMER..................................... 40
Section 7.5 NOTICE OF DEFAULTS....................................... 40
Section 7.6 REPORTS BY TRUSTEE TO HOLDERS............................ 41
Section 7.7 COMPENSATION AND INDEMNITY............................... 41
Section 7.8 REPLACEMENT OF TRUSTEE................................... 42
Section 7.9 SUCCESSOR TRUSTEE BY MERGER.............................. 43
Section 7.10 ELIGIBILITY; DISQUALIFICATION............................ 44
Section 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY........ 44
ARTICLE VIII
CONCERNING THE HOLDERS...................................................... 44
Section 8.1 ACTION BY HOLDERS........................................ 44
Section 8.2 PROOF OF EXECUTION BY NOTEHOLDERS........................ 44
Section 8.3 WHO ARE DEEMED ABSOLUTE OWNERS........................... 45
Section 8.4 REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND............. 45
ARTICLE IX
NOTEHOLDERS' MEETINGS....................................................... 46
Section 9.1 PURPOSE OF MEETINGS...................................... 46
Section 9.2 CALL OF MEETINGS BY TRUSTEE.............................. 46
Section 9.3 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS............... 46
Section 9.4 QUALIFICATIONS FOR VOTING................................ 47
iii
<PAGE>
Section 9.5 REGULATIONS.............................................. 47
Section 9.6 VOTING................................................... 48
Section 9.7 NO DELAY OF RIGHTS BY MEETING............................ 48
ARTICLE X
SUPPLEMENTAL INDENTURES..................................................... 48
Section 10.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS... 48
Section 10.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS...... 50
Section 10.3 EFFECT OF SUPPLEMENTAL INDENTURE......................... 51
Section 10.4 NOTATION ON NOTES........................................ 51
Section 10.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE...................................... 51
ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.......................... 51
Section 11.1 COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS............ 52
Section 11.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED.................. 52
Section 11.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE................... 53
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE..................................... 53
Section 12.1 DISCHARGE OF INDENTURE................................... 53
Section 12.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.......... 54
Section 12.3 PAYING AGENT TO REPAY MONIES HELD........................ 54
Section 12.4 RETURN OF UNCLAIMED MONIES............................... 55
Section 12.5 REINSTATEMENT............................................ 55
ARTICLE XIII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS...................................................... 55
Section 13.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS......... 55
ARTICLE XIV
CONVERSION OF NOTES......................................................... 56
Section 14.1 RIGHT TO CONVERT......................................... 56
Section 14.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON
STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR
DIVIDENDS.............................................. 56
Section 14.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES............... 58
Section 14.4 CONVERSION PRICE......................................... 58
Section 14.5 ADJUSTMENT OF CONVERSION PRICE........................... 58
Section 14.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE................................................ 66
iv
<PAGE>
Section 14.7 TAXES ON SHARES ISSUED................................... 68
Section 14.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING
OF COMMON STOCK........................................ 68
Section 14.9 RESPONSIBILITY OF TRUSTEE................................ 69
Section 14.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS............... 69
ARTICLE XV
REPURCHASE OF NOTES AT THE
OPTION OF THE HOLDER UPON CHANGE IN CONTROL................................. 70
Section 15.1 RIGHT TO REQUIRE REPURCHASE.............................. 70
Section 15.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC...... 71
Section 15.3 CERTAIN DEFINITIONS...................................... 73
Section 15.4 CHANGE IN CONTROL........................................ 73
ARTICLE XVI
MISCELLANEOUS PROVISIONS.................................................... 74
Section 16.1 SUCCESSORS............................................... 74
Section 16.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION................... 74
Section 16.3 NOTICES.................................................. 74
Section 16.4 GOVERNING LAW............................................ 75
Section 16.5 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT....... 75
Section 16.6 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............ 76
Section 16.7 LEGAL HOLIDAYS........................................... 76
Section 16.8 TRUST INDENTURE ACT CONTROLS............................. 76
Section 16.9 NO SECURITY INTEREST CREATED............................. 76
Section 16.10 BENEFITS OF INDENTURE.................................... 76
Section 16.11 TABLE OF CONTENTS, HEADINGS, ETC......................... 77
Section 16.12 AUTHENTICATING AGENT..................................... 77
Section 16.13 SEVERABILITY............................................. 78
Section 16.14 RULES BY TRUSTEE, PAYING AGENT, CONVERSION AGENT AND
REGISTRAR.............................................. 78
Section 16.15 NO RECOURSE AGAINST OTHERS............................... 78
Section 16.16 EXECUTION IN COUNTERPARTS................................ 78
Section 16.17 QUALIFICATION OF INDENTURE. ............................. 78
v
<PAGE>
EXHIBIT 10.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of May 8, 1997, is
between Bank of America National Trust and Savings Association (the "Bank")
and DURA PHARMACEUTICALS, INC. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 14, 1997 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Subparagraph 6.2(d) of the Agreement, the form of the compliance
certificate required is amended in its entirety as set forth in the
compliance certificate attached hereto.
2.2 In Subparagraph 6.3(a) of the Agreement, the amount "One Hundred Thirty
Million Dollars ($130,000,000)" is substituted for the amount "Two Hundred
Million Dollars ($200,000,000)."
2.3 In Subparagraph 6.3(b)(i)(A) of the Agreement, the amount "One Hundred
Eighty Million Dollars ($180,000,000)" is substituted for the amount "Two
Hundred Fifty Million Dollars ($250,000,000)."
2.4 Subparagraph 6.3(b)(ii)(B) is amended to read in its entirety as follows:
"(B) The amount of purchases of intangible assets up to a maximum of Fifty
Million Dollars ($50,000,000), excluding intangible assets related
to the Borrower's acquisition of Nasarel and Nasalide."
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
25
<PAGE>
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
X /s/ Susan J. Pepping
- --------------------------------------
BY: SUSAN J. PEPPING
TITLE: VICE PRESIDENT
DURA PHARMACEUTICALS, INC.
X /s/ James W. Newman
- --------------------------------------
BY: JAMES W. NEWMAN
TITLE: SR. V.P. FINANCE & ADMIN., CFO
X /s/ Erle Mast
- --------------------------------------
BY: ERLE MAST
TITLE: V.P. FINANCE
26
<PAGE>
EXHIBIT 10.2
- --------------------------------------------------------------------------------
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of July 30, 1997, is between
Bank of America National Trust and Savings Association (the "Bank") and Dura
Pharmaceuticals, Inc., a Delaware Corporation (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan Agreement
dated as of April 14, 1997, and amended as of May 8, 1997 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement to permit the
Borrower to execute the Indenture (as defined in Paragraph 6.7 below) and to
provide that this Agreement is Designated Senior Indebtedness (as defined in the
Indenture) for purposes of the Indenture.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment shall
have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 Subparagraph 6.2(d) is amended and restated in its entirety as follows:
"(d) Within the periods provided in (a) and (b) above, a compliance certificate
of the Borrower signed by the Borrower's Chief Financial Officer or Vice
President Finance in the form of Exhibit A attached hereto."
2.2 Paragraph 6.3 is amended and restated in its entirety as follows:
"6.3 NET WORTH. To maintain on a consolidated basis for each quarterly
accounting period Net Worth equal to, on a cumulative basis, at least the sum
of:
(a) Four Hundred Fifty Million Dollars ($450,000,000); PLUS
(b) the sum of 50% of net income after income taxes (without subtracting
losses) earned in each quarterly accounting period commencing with the
quarter ended June 30, 1997; PLUS
(c) the net proceeds from any equity securities (including shares issued upon
the exercise of stock options) issued in each quarterly accounting period
commencing with the quarter ended June 30, 1997; PLUS
(d) any increase in stockholders' equity resulting from the conversion of debt
securities to equity securities issued in each quarterly accounting period
commencing with the quarter ended June 30, 1997; MINUS
(e) cash and noncash charges for in-process technology purchased from Spiros
Development Corporation (the "Spiros Charges") incurred in such quarterly
accounting period commencing with the quarter ended June 30, 1997, up to a
maximum of Twenty Million Dollars ($20,000,000) in the aggregate.
-27-
<PAGE>
'Net Worth' means the gross book value of the Borrower's assets less total
liabilities, including but not limited to accrued and deferred income taxes, and
any reserves against assets."
2.3 Paragraph 6.4 is amended and restated in its entirety as follows:
"6.4 MAXIMUM ADJUSTED FUNDED DEBT TO ADJUSTED EBITDA. To maintain a ratio of
(i) funded debt, including all interest bearing obligations but excluding
obligations owing to Procter & Gamble Pharmaceuticals, Inc. for the Entex
Products up to a maximum of Twenty Million Dollars ($20,000,000) LESS
domestic cash and domestic cash equivalents up to an amount equal to the
face amount of the Notes issued pursuant to and as defined in the Indenture
TO (ii) EBITDA of not greater than the ratio indicated for each period
specified below:
Period Ratio
------ -----
From and including the date of
this Agreement to and including
August 31, 1997 2.00 to 1.00
From and including September 1,
1997 and thereafter 1.75 to 1.00
Upon the Bank's request, from time to time, the Borrower shall provide
evidence acceptable to the Bank of cash equivalents. For purposes of this
Agreement, cash equivalents means:
(a) domestic certificates of deposit or domestic time deposits;
(b) U.S. treasury bills and other direct obligations of the federal government;
(c) shares in domestic money market funds;
(d) readily marketable obligations of an agency of the United States of America
that are generally considered in the securities industry to be implicit
obligations of the federal government;
(e) prime bankers' acceptances and commercial paper issued by financial
institutions rated at least A1 by Standard & Poors Ratings Group or at
least P-1 by Moody's Investors Service, Inc.; and
(f) repurchase agreements covering U.S. government securities.
For purposes of this Agreement, `EBITDA' means net income for such period, LESS,
to the extent added in determining such net income, interest income, PLUS, to
the extent deducted in determining such net income, (i) interest expense, (ii)
depreciation, (iii) depletion, (iv) amortization, (v) all federal, state, local
and foreign income taxes and (vi) the Spiros Charges up to a maximum of Twenty
Million Dollars ($20,000,000) in the aggregate. This ratio will be calculated
at the end of each fiscal quarter using the results of that quarter and each of
the three immediately preceding quarters."
2.4 Paragraph 6.5 is amended and restated in its entirety as follows:
"6.5 MINIMUM EBIT. To maintain on a consolidated basis EBIT of at least $0 for
each quarterly accounting period.
For purposes of this Agreement 'EBIT' means net income for such period, LESS, to
the extent added in determining such net income, interest income, PLUS, to the
extent deducted in determining such net income, (i) interest expense, all
federal, state, local and foreign income taxes and (iii) the Spiros Charges up
to a maximum of Twenty Million Dollars ($20,000,000) in the aggregate."
2.5 Paragraph 6.7 is amended by the addition of the following as subparagraph
(f):
"(f) Debt pursuant to that certain Indenture to be dated as of July 30, 1997,
between the Borrower and Chase Trust Company of California, as trustee
('Indenture')."
2.6 Paragraph 6.13 is amended by the addition of the following as subparagraphs
(f), (g), (h) and (i):
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"(f) any proposed amendment or modification of the Indenture.
"(g) any amendment or modification of the Indenture, including a duly executed
copy thereof.
"(h) any Event of Default (as defined in the Indenture) with respect to the
Notes (as defined in the Indenture).
"(i) any Change in Control (as defined in the Indenture)."
2.7 Paragraph 6.21 is amended by the addition of the following as subparagraph
(h):
"(h) acquire assets, including license agreements and product rights in an
aggregate amount exceeding One Hundred Million Dollars ($100,000,000),
which amount shall include contingent acquisition obligations incurred
before or after the date of this Agreement and shall exclude the sum of
Seventy Million Dollars ($70,000,000) relating to the Borrower's
acquisition of the rights to the Nasarel and Nasalide products."
2.8 The following is added as Paragraph 6.23:
"6.23 AMENDMENT OF INDENTURE. Not amend, waive or supplement the Indenture
without the prior written consent of the Bank if such amendment,
waiver or supplement, in the reasonable opinion of the Bank, adversely
affects the rights of the Bank under this Agreement, including,
without limitation, any amendment, waiver or supplement which may (i)
increase the rate of, change the time for payment of interest on, or
the fixed maturity of any Note, (ii) increase the principal of any
Note, (iii) grant collateral to secure any Note, or (iv) shorten the
120 day or 181 day periods provided in Section 4.3 of the Indenture."
2.9 The following is added as Paragraph 8.13:
"8.13 DEFAULT OF NOTES. Any Event of Default (as defined in the Indenture)
occurs under the Indenture or any Note."
2.10 The following is added as Paragraph 8.14:
"8.14 CHANGE IN CONTROL. A Change in Control (as defined in the Indenture)
occurs and one or more holders of Notes (as defined in the Indenture)
has the right to require the Borrower to repurchase its Note(s)."
2.11 The following is added as Paragraph 9.12:
"9.12 VOLUNTARY TERMINATION OF COMMITMENT. The Borrower may, upon not less
than three business days' prior notice to the Bank, terminate the
Commitment. Once terminated in accordance with this Paragraph, the
Commitment may not be reinstated. All outstanding principal, accrued
but unpaid interest, and accrued commitment fees to, but not including
the effective date of any termination of the Commitment, shall be paid
on the effective date of such termination."
2.12 The Borrower's address for notices on the signature page of the Agreement
is amended in full to read as follows:
"7474 Lusk Boulevard
San Diego, California 92121-4204"
3. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that: (a) there is no
event which is, or with notice or lapse of time or both would be, a
default under the Agreement, (b) the representations and warranties in the
Agreement are true as of the date of this Amendment as if made on the date
of this Amendment, (c) this Amendment is within the Borrower's powers, has
been duly authorized, and does not conflict with any of the Borrower's
organizational papers, and (d) this Amendment does not conflict with any
law, agreement, or obligation by which the Borrower is bound.
4. FEE. On or before August 6, 1997, the Borrower will pay to the Bank an
amendment fee of Ten Thousand Dollars ($10,000). The fee shall be used in
part by the Bank to reimburse the Bank for legal costs incurred by the Bank
in the preparation of this Amendment.
5. CONDITIONS. This Amendment will be effective when the Bank receives:
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(a) a duly executed copy of the Indenture, in form and substance satisfactory
to Bank;
(b) a duly executed copy of the Agreement and Plan of Merger of Borrower and
Dura Pharmaceuticals, Inc. (a California Corporation);
(c) a duly executed Copy of the Borrower's By-Laws;
(d) a duly executed, file stamped copy of the Borrower's Articles of
Incorporation.
6. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of the
Amendment.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By:/s/ Susan J. Pepping
---------------------------
Susan J. Pepping
Title: Vice President
DURA PHARMACEUTICALS, INC.
By:/s/ James W. Newman
---------------------------
James W. Newman
Title: Senior Vice President,
Finance and Administration
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<PAGE>
DURA PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
EFFECTIVE DECEMBER 9, 1992; AS AMENDED JUNE 2, 1994; AS
AMENDED MAY 25, 1995; AS AMENDED MAY 29, 1996
AS AMENDED JULY 1, 1996; AS AMENDED FEBRUARY 19, 1997
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
A. IMPLEMENTATION. This 1992 Stock Option Plan ("PLAN") is implemented
as of December 9, 1992 ("EFFECTIVE DATE"), to enable Dura Pharmaceuticals, Inc.
("COMPANY") to grant options to the following eligible individuals ("ELIGIBLE
INDIVIDUALS") in order to attract them and to retain their services: (a) key
employees (including officers and directors) of the Company or its subsidiaries
or any parent corporation who are primarily responsible for the management,
growth and financial success of the Company or its subsidiaries, (b)
non-employee members of the Board of Directors ("BOARD") of the Company or any
of its subsidiaries, and (c) consultants and independent contractors who perform
valuable services for the Company or its subsidiaries.
B. SUCCESSOR PLAN. This Plan is a successor to the Company Stock Option
Plan that was adopted by the Board in 1983 ("1983 PLAN"). No further option
grants (including, but not limited to automatic option grants) will be made
under the 1983 Plan on and after the Effective Date of this Plan. All options
outstanding under the 1983 Plan on the Effective Date are hereby incorporated
into this Plan and will be treated as outstanding options under this Plan. Each
outstanding option so incorporated will continue to be governed solely by the
express terms and conditions of the instruments evidencing such grant. No
provision of this Plan will be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Company's Common Stock under the terms of the
incorporated options.
II. ADMINISTRATION OF THE PLAN
A. COMMITTEE. The Plan will be administered by the Board of Directors or
by a committee or committees appointed by the Board, and consisting of two or
more members of the Board. The Board may delegate the responsibility for
administration of the Plan with respect to designated classes of optionees to
different committees, subject to such limitations as the Board deems
appropriate. With respect to any matter, the term "COMMITTEE," when used in
this Plan, will refer to the committee that has been delegated authority with
respect to such matter. Members of a committee will serve for such term as the
Board may determine, and will be subject to removal by the Board at any time.
B. SECTION 16(b) COMMITTEE. Notwithstanding any other provision of this
Agreement, each grant of an option or other transaction between the Company and
any Section 16 Insider shall be valid and enforceable only if approved by the
Board of Directors or by a committee composed exclusively of two or more
Non-Employee Directors. For this purpose, a "Section 16 Insider" shall mean an
officer or director of the Corporation subject to the short-swing profit
liabilities of Section 16 of the 1934 Act, and a Non-Employee Director shall
have the meaning set forth in Rule 16b-3(b)(3).
<PAGE>
C. AUTHORITY. Any Committee will have full authority to administer
the Plan within the scope of its delegated responsibilities, including
authority to interpret and construe any relevant provision of the Plan, to
adopt such rules and regulations as it may deem necessary, and to determine
the terms of grants made under the Plan (which need not be identical).
Decisions of a Committee made within the discretion delegated to it by the
Board will be final and binding on all persons.
III. STOCK SUBJECT TO THE PLAN
A. NUMBER OF SHARES. Shares of the Company's Common Stock available
for issuance under the Plan shall be drawn from either the Company's
authorized but unissued shares of Common Stock or from reacquired shares of
Common Stock, including shares repurchased by the Company on the open market.
The maximum number of shares of Common Stock that may be issued over the
term of the Plan shall not exceed 7,607,360 shares, subject to adjustment
from time to time in accordance with the provisions of this Section. This
authorized share reserve is comprised of (i) the number of shares remaining
available for issuance under the 1983 Plan as of the Effective Date,
including the shares subject to the outstanding options incorporated into
this Plan and any other shares that would have been available for future
option grant under the 1983 Plan, plus (ii) an additional 416,040 shares of
Common Stock, plus (iii) an additional increase of 750,000 shares of Common
Stock, plus (iv) an additional increase of 1,000,000 shares of Common Stock,
plus (v) an additional increase of 1,500,000 shares of Common Stock, plus
(vi) an additional increase of 1,600,000 shares of Common Stock.
Accordingly, to the extent one or more outstanding options under the 1983
Plan that have been incorporated into this Plan are subsequently exercised,
the number of shares issued with respect to each such option will reduce, on
a share-for-share basis, the number of shares available for issuance under
this Plan.
B. EXPIRED OPTIONS. Should an outstanding option under this Plan
(including any outstanding option under the 1983 Plan incorporated into this
Plan) expire or terminate for any reason prior to exercise in full (including
any option cancelled in accordance with the cancellation-regrant provisions
of this Plan), the shares subject to the portion of the option not so
exercised will be available for subsequent option grant under this Plan.
Shares subject to any option or portion thereof cancelled in accordance with
the stock appreciation (or limited stock appreciation) rights provisions of
this Plan will NOT be available for subsequent option grant under the Plan.
C. ADJUSTMENTS. If any change is made to the Common Stock issuable
under the Plan (including Common Stock issuable under an Automatic Option
Grant) by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments will be made to (i) the number and/or class of shares
issuable under the Plan, (ii) the number and/or class of shares and price per
share in effect under each outstanding option under the Plan, and (iii) the
number and/or class of shares and price per share in effect under each
outstanding option incorporated into this Plan from the 1983 Plan. The
purpose of these adjustments will be to preclude the enlargement or dilution
of rights and benefits under the options.
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ARTICLE TWO
STANDARD OPTION PROVISIONS
I. TERMS AND CONDITIONS OF OPTIONS
A. COMMITTEE DISCRETION.
(1) Except as provided under the Automatic Option Grant provisions of
this Plan, the Committee will have full authority to determine which Eligible
Individuals are to receive option grants under the Plan, the number of shares to
be governed by each such grant, whether the option is to be an incentive stock
option ("INCENTIVE OPTION") that satisfies the requirements of Section 422 of
the Internal Revenue Code or a non-qualified option not intended to satisfy such
requirements ("NON-QUALIFIED OPTION"), the time or times at which each such
option is to become exercisable, and the maximum term for which the option is to
remain outstanding.
(2) Notwithstanding any other provision of this Plan, no individual
shall be granted options to acquire more than 400,000 shares in any fiscal year
or 1,500,000 shares over the lifetime of the Plan.
B. TERM. No option granted under the Plan will be exercisable after the
expiration of 10 years from the date the option was granted.
C. PRICE. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than 100% percent of the Fair Market Value
per share of Common Stock on the option grant date, provided that the Plan
Administrator may fix the exercise price at less than 100% if the optionee, at
the time of the option grant, shall have made a payment to the Company
(including payment made by means of an agreed salary reduction) equal to the
excess of the Fair Market Value of the Common Stock on the option grant date
over such exercise price.
D. EXERCISE AND PAYMENT. After any option granted under the Plan becomes
exercisable, it may be exercised by notice to the Company at any time prior to
the termination of such option. The option price will be payable in full in
cash or check made payable to the Company; provided, however, that the Committee
may, either at the time the option is granted or at the time it is exercised and
subject to such limitations as it may determine, authorize payment of all or a
portion of the option price in one or more of the following alternative forms:
(1) a promissory note authorized pursuant to Section IV of this
Article; or
(2) full payment in shares of Common Stock valued as of the exercise
date and held for the requisite period to avoid a charge to the Company's
earnings; or
(3) full payment through a sale and remittance procedure under which
the option holder delivers a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale proceeds to pay the option prices.
For purposes of Subparagraphs (1) and (3) immediately above, the Exercise Date
shall be the date on which written notice of the exercise of the option is
delivered to the Company. In all other cases, the Exercise Date will be the
date on which written notice and actual payment is received by the Company.
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The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options granted
under this Plan on or after the Effective Date and for all non-qualified options
outstanding under the 1983 Plan and incorporated into this Plan. The Plan
Administrator may also allow such procedure to be utilized in connection with
one or more disqualifying dispositions of Incentive Option shares effected after
the Effective Date, whether such Incentive Options were granted under this Plan
or the 1983 Stock Option Plan.
E. SHAREHOLDER RIGHTS. An option holder will have no shareholder rights
with respect to any shares covered by an option (including an Automatic Option
Grant) prior to the Exercise Date of the option, as defined in the immediately
preceding Paragraph and in the Automatic Option Grant provisions of Section II
of Article Three of this Plan.
F. SEPARATION FROM SERVICE. The Committee will determine whether options
will continue to be exercisable, and the terms of such exercise, on and after
the date that an optionee ceases to be employed by, or to provide services to,
the Company or its subsidiaries PROVIDED, however, that in no event will an
option be exercisable after the specified expiration date of the option term.
The date of termination of an optionee's employment or services will be
determined by the Committee, which determination will be final.
G. INCENTIVE OPTIONS. Options granted under the Plan that are intended
to be Incentive Options will be subject to the following additional terms:
(1) DOLLAR LIMITATION. The aggregate fair market value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee after December 31, 1986 under this Plan
(or any other option plan of the Company or its parent or subsidiary
corporations) may for the first time become exercisable as incentive stock
options under the Federal tax laws during any one calendar year shall not exceed
the sum of $100,000. To the extent the Employee holds two or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as incentive stock
options under the Federal tax laws shall be applied on the basis of the order in
which such options are granted.
(2) 10% SHAREHOLDER. If any employee to whom an Incentive Option is
to be granted pursuant to the provisions of the Plan is, on the date of grant,
the owner of stock (determined with application of the ownership attribution
rules of Section 424(d) of the Internal Revenue Code) possessing more than 10%
of the total combined voting power of all classes of stock of his or her
employer corporation or of its parent or subsidiary corporation ("10%
SHAREHOLDER"), then the following special provisions will apply to the option
granted to such individual:
(i) The option price per share of the stock subject to such
Incentive Option will not be less than 110% of the Fair Market Value of the
option shares on the date of grant; and
(ii) The option will not have a term in excess of 5 years from
the date of grant.
(3) PARENT AND SUBSIDIARY. For purposes of this Section, "PARENT
CORPORATION" and "SUBSIDIARY CORPORATION" will have the meaning attributed to
those terms, as they are used in Section 422(b) of the Internal Revenue Code.
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<PAGE>
(4) EMPLOYEES. Incentive Options may only be granted to employees of
the Company or its subsidiaries.
H. FAIR MARKET VALUE. For all purposes under this Plan (including, but
not limited to Automatic Option Grants) the fair market value per share of
Common Stock on any relevant date under the Plan ("FAIR MARKET VALUE") will be
determined as follows:
(1) If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded in the over-the-counter
market, the fair market value will be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Common Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its NASDAQ system or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Common Stock on
the date in question, then the mean between the highest bid price and lowest
asked price (or the closing selling price) on the last preceding date for which
such quotations exist will be determinative of fair market value.
(2) If the Common Stock is at the time listed or admitted to trading
on any national stock exchange, then the fair market value will be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Committee to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on such exchange
on the date in question, then the fair market value will be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
(3) If the Common Stock is at the time neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market, then
the fair market value will be determined by the Committee after taking into
account such factors as the Committee shall deem appropriate.
I. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Qualified
Option may be assigned in whole or in part during the Optionee's lifetime. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
II. STOCK APPRECIATION RIGHTS
If, and only if the Committee, in its discretion, elects to implement an
option surrender program under the Plan, one or more option holders may, upon
such terms as the Committee may establish at the time of the option grant or at
any time thereafter, be granted the right to surrender all or part of an
unexercised option in exchange for a distribution equal in amount to the
difference between (i) the Fair Market Value (at date of surrender) of the
shares for which the surrendered option or portion thereof is at the time
exercisable and (ii) the aggregate option price payable for such shares. The
distribution to which an option holder becomes entitled under this
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<PAGE>
Section may be made in shares of Common Stock, valued at Fair Market Value at
the date of surrender, in cash, or partly in shares and partly in cash, as the
Committee, in its sole discretion, deems appropriate. The option surrender
provisions of this Section will not apply to options granted pursuant to the
Automatic Option Grant provisions of this Plan.
III. CORPORATE TRANSACTION/CHANGE OF CONTROL/HOSTILE TAKEOVER
A. CORPORATE TRANSACTION. In the event of any of the following
transactions ("CORPORATE TRANSACTION"):
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation,
(2) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of the Company,
(3) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held such securities
immediately prior to such merger, or
(4) an acquisition by any person or related group of persons (other
than the Company or a person that directly or indirectly controls, is controlled
by or is under common control with, the Company) of ownership of more than fifty
percent (50%) of the Company's outstanding Common Stock, pursuant to a tender or
exchange offer,
the exercisability of each option at the time outstanding under this Article Two
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be outstanding.
B. HOSTILE TAKEOVER. One or more officers of the Company subject to the
short-swing profit restrictions of the Federal securities laws may, in the
Committee's sole discretion, be granted, in tandem with their outstanding
options, limited stock appreciation rights as described below. In addition all
Automatic Option Grants under this Plan will be made in tandem with limited
stock appreciation rights as described below.
(1) Upon the occurrence of a Hostile Takeover, each outstanding
option with such a limited stock appreciation right in effect for at least six
(6) months will automatically be cancelled in return for a cash distribution
from the Company in an amount equal to the excess of (i) the Takeover Price
(defined below) of the shares of Common Stock at the time subject to the
cancelled option (whether or not the option is otherwise at the time exercisable
for such shares) over (ii) the aggregate exercise price payable for such shares.
The cash distribution payable upon such cancellation shall be made within five
(5) days following the consummation of the Hostile Takeover. Neither the
approval of the Committee nor the consent of the Board shall be required in
connection with such option cancellation and cash distribution.
(2) For purposes of the limited stock appreciation rights described
above, the following definitions shall be in effect:
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(i) A Hostile Takeover shall be deemed to occur upon the
acquisition by any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of ownership of more than 50% of the Company's
outstanding Common Stock (excluding the Common Stock holdings of officers and
directors of the Company who participate in this Plan) pursuant to a tender or
exchange offer which the Board does not recommend the Company's shareholders
accept.
(ii) The Takeover Price per share shall be deemed to be equal to
the GREATER of (a) the Fair Market Value per share on the date of cancellation,
or (b) the highest reported price per share paid in effecting the Hostile
Takeover. However, if the cancelled option is an Incentive Option, the Takeover
Price shall not exceed the clause (a) price per share.
C. COMPANY RIGHTS. The grant of options (including Automatic Option
Grants) under this Plan shall in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
IV. LOANS OR GUARANTEE OF LOANS
The Committee may assist any optionee (including any officer) in the
exercise of one or more outstanding options under this Article by (a)
authorizing the extension of a loan to such optionee from the Company, (b)
permitting the optionee to pay the option price for the purchased Common Stock
in installments over a period of years or (c) authorizing a guarantee by the
Company of a third-party loan to the optionee. The terms of any loan,
installment method of payment or guarantee (including the interest rate and
terms of repayment) will be established by the Committee in its sole discretion.
Loans, installment payments and guarantees may be granted without security or
collateral (other than to optionees who are consultants or independent
contractors, in which event the loan must be adequately secured by collateral
other than the purchased shares), but the maximum credit available to the
optionee shall not exceed the SUM of (i) the aggregate option price (less par
value) of the purchased shares plus (ii) any federal and state income and
employment tax liability incurred by the optionee in connection with the
exercise of the option. Automatic Option Grants will not be subject to these
loan and loan guarantee provisions.
V. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and from time
to time, with the consent of the affected optionees, the cancellation of any or
all outstanding options under this Article (including outstanding options under
the 1983 Plan incorporated into this Plan) and to grant in substitution new
options under the Plan covering the same or different numbers of shares of
Common Stock but having an option price per share not less than 100% of the fair
market value of the Common Stock on the new grant date. Automatic Option Grants
will not be subject to these cancellation and regrant provisions.
VI. REPURCHASE RIGHTS
The Committee may in its discretion determine that it shall be a term and
condition of one or more options exercised under the Plan that the Company (or
its assigns) shall have the right, exercisable upon the optionee's separation
from service with the Company and its subsidiaries, to repurchase any or all of
the shares of Common Stock previously acquired by the optionee upon the exercise
of such option. Any such repurchase right shall be exercisable upon such terms
and conditions (including the establishment of the appropriate vesting schedule
and
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other provisions for the expiration of such right in one or more installments)
as the Committee may specify in the instrument evidencing such right. The
Committee shall also have full power and authority to provide for the automatic
termination of these repurchase rights, in whole or in part, and thereby
accelerate the vesting of any or all of the purchased shares.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. GRANTS
A. AUTOMATIC OPTION GRANTS. Non-employee members of the Board will
automatically be granted Non-Qualified Options to purchase the number of shares
of Common Stock set forth below (subject to adjustment under Section III(C) of
Article One of this Plan) on the dates and pursuant to the terms set forth below
("AUTOMATIC OPTION GRANTS").
B. CONTINUING DIRECTORS. On the date of each Annual Shareholders Meeting
of the Company held after the Effective Date of this Plan, each continuing
non-employee member of the Board will receive an Automatic Option Grant to
purchase 8,000 shares of Common Stock; provided, however, that an individual who
has not served as a non-employee member of the Board for the immediately
preceding 180 days will not receive such a grant.
C. NEW DIRECTORS. Each individual person who is newly elected or
appointed as a non-employee member of the Board on or after the Effective Date
of this Plan will receive, on the effective date of such election or
appointment, an Automatic Option Grant to purchase 30,000 shares of Common
Stock.
II. TERMS
The terms applicable to each Automatic Option Grant will be as follows:
A. PRICE. The option price per share will be equal to 100% of the Fair
Market Value of a share of Common Stock on the date of grant.
B. OPTION TERM. Each Automatic Option Grant will have a maximum term of
10 years measured from the automatic grant date.
C. EXERCISABILITY. Each Automatic Option Grant will become exercisable
for all Automatic Option Grant shares one (1) year after the automatic grant
date, provided the optionee continues to serve as a Board member throughout that
one (1)-year period.
D. PAYMENT. Upon exercise of the option, the option price for the
purchased shares will become payable immediately in one or more of the following
alternative forms: cash, shares of Common Stock held for the requisite period
to avoid a charge to the Company's reported earnings and valued at Fair Market
Value on the Exercise Date (as defined below), or pursuant to a sale and
remittance procedure under which the option holder delivers a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale proceeds to pay the option price. For
these purposes, the Exercise Date shall be the date on which written notice of
the exercise of the option is delivered to the Company. Except to the extent
the sale and remittance procedure specified above is utilized for the exercise
of the option, payment of the exercise price for the purchased shares must
accompany the notice.
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E. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
(1) Should the optionee cease to be a Board member for any reason
(other than death) while holding one or more Automatic Option Grants, then the
optionee will have 6 months following the date of such cessation of Board
membership in which to exercise each such option for any or all of the shares of
Common Stock for which the option is exercisable at the time Board membership
ceases; provided however, that in no event may such an option be exercised after
the expiration of its 10-year term.
(2) Should the optionee die while holding one or more Automatic
Option Grants, then each such option may subsequently be exercised, for any or
all of the shares of Common Stock for which the option is exercisable at the
time of the optionee's death, by the personal representative of the optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the optionee's Will or in accordance with the laws of descent and distribution.
Any such exercise must, however, occur before the earlier of (i) the expiration
of the option's 10-year term, or (ii) 12 months after the date of the
optionee's death.
F. ACCELERATION. Automatic Option Grants will be subject to acceleration
and termination in the event of a Corporate Transaction as described in Article
Two, Section III.A. of this Plan.
G. HOSTILE TAKEOVER. Automatic Option Grants will be granted in tandem
with limited stock appreciation rights, as described in the Hostile Takeover
provisions contained in Article Two, Section III.B. of this Plan.
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
A. GENERAL RULES. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever.
However, no such amendment or modification shall, without the consent of the
option holders, adversely affect rights and obligations with respect to options
at the time outstanding under the Plan. In addition, certain amendments may be
made conditional on first having obtained stockholder approval if required by
the Board or pursuant to any applicable laws or regulations.
B. AUTOMATIC OPTION GRANTS. Amendment of the Automatic Option Grant
provisions of this Plan is subject to the requirements outlined above. In
addition, the Automatic Option Grant provisions of this Plan may not be amended
more than once every 6 months, other than to comport with changes in the
Internal Revenue Code or rules thereunder.
C. AMENDMENT OF OPTIONS. The Committee shall have full power and
authority to modify or waive any or all of the terms, conditions or restrictions
applicable to any outstanding option, to the extent not inconsistent with the
Plan; provided, however, that no such modification or waiver shall (1) without
the consent of the option holder, adversely affect the holder's rights
thereunder or (2) affect any outstanding option granted pursuant to the
Automatic Option Grant provisions of this Plan except to the extent necessary to
conform to any amendment to this Plan.
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II. TAX WITHHOLDING
A. OBLIGATION. The Company's obligation to deliver shares or cash upon
the exercise of stock options or stock appreciation rights granted under the
Plan is subject to the satisfaction of all applicable Federal, State and local
income and employment tax withholding requirements.
B. STOCK WITHHOLDING. The Plan Administrator may, in its discretion and
upon such terms and conditions as it may deem appropriate (including the
applicable safe-harbor provisions of SEC Rule 16b-3) provide any or all holders
of outstanding option grants under the Plan with the election to have the
Company withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such options, one or more of such shares with an aggregate fair
market value equal to the designated percentage (any multiple of 5% specified by
the optionee) of the Federal and State income taxes ("Taxes") incurred in
connection with the acquisition of such shares. In lieu of such direct
withholding, one or more optionees may also be granted the right to deliver
shares of Common Stock to the Company in satisfaction of such Taxes. The
withheld or delivered shares shall be valued at the Fair Market Value on the
applicable determination date for such Taxes or such other date required by the
applicable safe-harbor provisions of SEC Rule 16b-3.
III. EFFECTIVE DATE AND TERM OF PLAN
A. IMPLEMENTATION. This Plan, as successor to the Company's 1983 Stock
Option Plan, shall become effective as of the Effective Date, and no further
option grants shall be made under the 1983 Plan on or after the Effective Date
of this Plan. If shareholder approval of the 1,600,000-share increase is not
obtained by February 19, 1998, then each option granted under this Plan subject
to this share increase shall terminate without ever becoming exercisable for the
option shares and all shares issued hereunder shall be repurchased by the
Corporation at the purchase price paid, together with interest (at the
applicable Short Term Federal Rate). Subject to the foregoing limitations,
options may be granted under this Plan at any time from and after the Effective
Date of the Plan and before the date fixed herein for termination of the Plan.
B. TERMINATION. Unless sooner terminated due to a Corporate Transaction
or a Change in Control, the Plan will terminate upon the EARLIER of (i) December
8, 2002, or (ii) the date on which all shares available for issuance under the
Plan have been issued or cancelled pursuant to exercise, surrender or cash-out
of options. If the date of termination is determined under clause (i) above,
then options outstanding on such date shall thereafter continue to have force
and effect in accordance with the provisions of the instruments evidencing those
options.
C. ADDITIONAL SHARES. Options to purchase shares of Common Stock may be
granted under the Plan which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until shareholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such shareholder approval is not obtained within twelve (12) months
after the date the first such excess option grants are made, then (I) any
unexercised excess options shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow.
III. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares pursuant
to options granted under the Plan shall be used for general corporate purposes.
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IV. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the Plan,
and the issuance of stock upon the exercise or surrender of any such option
shall be subject to the procurement by the Company of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the stock issued pursuant to it.
V. NO EMPLOYMENT/SERVICE RIGHTS
Neither the establishment of this Plan, nor any action taken under the
terms of this Plan, nor any provision of this Plan shall be construed so as to
grant any individual the right to remain in the employ or service of the Company
(or any parent or subsidiary corporation) for any period of specific duration,
and the Company (or any parent or subsidiary corporation retaining the services
of such individual) may terminate such individual's employment or service at any
time and for any reason, with or without cause.
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INDEMNIFICATION AGREEMENT
(Directors)
THIS AGREEMENT is made and entered into this 2nd day of July, 1997 between
Dura Pharmaceuticals, Inc., a Delaware corporation ("Corporation"), whose
address is 5880 Pacific Center Blvd., San Diego, California 92121 and
__________________ ("Director"), whose address is __________________.
RECITALS:
A. WHEREAS, Director, a member of the Board of Directors of Corporation,
performs a valuable service in such capacity for Corporation; and
B. WHEREAS, the Certificate of Incorporation of Corporation authorizes
and permits contracts between Corporation and the members of its Board of
Directors with respect to indemnification of such directors; and
C. WHEREAS, the Board of Directors of Corporation have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "Law"); and
D. WHEREAS, the Bylaws and the Law, as amended and in effect from time
to time or any successor or other statutes of Delaware having similar import and
effect, currently purports to be the controlling law governing Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
E. WHEREAS, in accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation; and
F. WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board of
Directors by such D & O Insurance, if any, and by statutory and bylaw
indemnification provisions; and
G. WHEREAS, in order to induce Director to continue to serve as a member
of the Board of Directors of Corporation, Corporation has determined and agreed
to enter into this contract with Director.
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Director.
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(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
all other disbursements or out-of-pocket expenses and reasonable compensation
for time spent by Director for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination
that Director is not entitled to indemnification shall have been made pursuant
to Section 5 hereof and either (i) a final adjudication in a Delaware court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Director's right to indemnification hereunder, or (ii) Director shall have
failed to file a complaint in a Delaware court or seek an arbitrator's award
pursuant to Section 13(a) for a period of one hundred twenty (120) days after
the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a
law firm selected by Corporation and approved by Director (which approval shall
not be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Director in an action to determine Director's
right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, and penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in respect
of such judgments, fines, penalties or amounts paid in settlement) of any
proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed
action, claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(i) A change in the composition of the Board of Directors
of Corporation (the "Board"), as a result of which fewer than two-thirds (2/3)
of the incumbent directors are directors who either (1) had been directors of
Corporation twenty-four (24) months prior to such change or (2) were elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of Corporation 24 months prior
to such change and who were still in office at the time of the election or
nomination; or
(ii) Any "person" (as such term is used in section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty percent
(20%) or more of the combined voting power of Corporation's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances)
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having the right to vote at elections of directors (the "Capital Stock"), except
that any change in ownership of Corporation's securities by any person resulting
solely from a reduction in the aggregate number of outstanding shares of Capital
Stock, and any decrease thereafter in such person's ownership of securities,
shall be disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of Corporation.
2. INDEMNITY OF DIRECTOR. Corporation hereby agrees to hold harmless and
indemnify Director to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all expenses (including attorneys' fees), witness
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by Director in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Director is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Director is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Director by
Corporation under the non-exclusivity provisions of the Bylaws of Corporation
and the Law.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Director is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any action, suit or proceeding in which judgment is
rendered against Director for an accounting of profits made from the purchase or
sale by Director of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of Director's conduct which is finally adjudged to
have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct if such conduct has been established by a judgment or other
final adjudication adverse to Director (an "Adverse Judgment");
(e) provided there has been no Change of Control, on account of or
arising in response to any action, suit or proceeding (other than an action,
suit or proceeding referred to in Section 14(b) hereof) initiated by Director or
any of Director's affiliates against Corporation or any officer, director or
stockholder of Corporation unless such action, suit or proceeding was authorized
in the specific case by action of the Board of Directors of Corporation; or
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(f) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Director believes that he or she is entitled to
indemnification pursuant to this Agreement, Director shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Director to support his or her claim for indemnification. Director shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Director requests indemnification. The
President or the Secretary or other appropriate officer shall, promptly upon
receipt of Director's request for indemnification, advise the Board of Directors
in writing that Director has made such a request. Determination of Director's
entitlement to indemnification shall be made not later than ninety (90) days
after Corporation's receipt of his or her written request for such
indemnification.
(b) The Director shall be entitled to select the forum in which
Director's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board of Directors consisting of
Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by
Corporation, another by Director and the third by the first two arbitrators
selected. If for any reason three arbitrators are not selected within thirty
(30) days after the appointment of the first arbitrator, then selection of
additional arbitrators shall be made by the American Arbitration Association.
If any arbitrator resigns or is unable to serve in such capacity for any reason,
the American Arbitration Association shall select his or her replacement. The
arbitration shall be conducted pursuant to the commercial arbitration rules of
the American Arbitration Association now in effect.
If Director fails to make such designation, his or her claim
shall be determined by the forum selected by Corporation.
6. PRESUMPTION AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a request
for indemnification, Director shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination. The
termination of any Proceeding by judgment, order, settlement, arbitration award
or conviction, or upon a plea of nolo contendere or its equivalent shall not
affect this presumption or, except as may be provided in Section 4 hereof,
establish a presumption with regard to any factual matter relevant to
determining Director's rights to indemnification hereunder. If the person or
persons so empowered to make a determination pursuant to Section 5(b) hereof
shall have failed to make the requested determination within thirty (30) days
after any judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, or other disposition
or partial disposition of any Proceeding or any other event which could enable
Corporation to determine
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Director's entitlement to indemnification, the requisite determination that
Director is entitled to indemnification shall be deemed to have been made.
7. CONTRIBUTION. If the indemnification provided in Sections 2 and 3 is
unavailable and may not be paid to Director for any reason other than those set
forth in Section 4, then in respect of any threatened, pending or completed
action, suit or proceeding in which Corporation is or is alleged to be jointly
liable with Director (or would be if joined in such action, suit or proceeding),
Corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by Director in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Director on the other hand from the transaction from which such action, suit or
proceeding arose, and (ii) the relative fault of Corporation on the one hand and
of Director on the other hand in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of Corporation on the one
hand and of Director on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
8. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or Director
against any Expenses and Liabilities in connection with any Proceeding to the
fullest extent permitted by the Law. In the event of a Change of Control,
Corporation shall establish a letter of credit, as provided in Section 9, to
ensure the payment of such amounts as may be necessary to effect indemnification
or advancement of Expenses as provided in this Agreement.
9. LETTER OF CREDIT.
(a) In order to secure the obligations of Corporation to indemnify
and advance Expenses to Director pursuant to this Agreement, Corporation shall
obtain at the time of any Change of Control, upon request of any director, an
irrevocable standby letter of credit naming the directors of the Corporation in
office at the time of a Change of Control as joint beneficiaries (the "Letter of
Credit"). The Letter of Credit shall be in an appropriate amount not less than
two million dollars ($2,000,000), shall be issued by a commercial bank
headquartered in the United States having assets in excess of $10 billion and
capital according to its most recent published reports equal to or greater than
the then applicable minimum capital standards promulgated by such bank's primary
federal regulator and shall contain terms and conditions reasonably acceptable
to all directors. The Letter of Credit shall provide that Director may from
time to time draw certain amounts thereunder, upon written certification by
Director to the issuer of the Letter of Credit that (i) Director has made
written request upon Corporation for an amount not less than the amount he or
she is drawing under the Letter of Credit and that Corporation has failed or
refused to provide him with such amount in full within thirty (30) days after
receipt of the request, and (ii) Director believes that he or she is entitled
under the terms of this Agreement to the amount which he or she is drawing upon
under the Letter of Credit. The issuance of the Letter of Credit shall not, in
any way, diminish Corporation's obligation to indemnify Director against
Expenses and Liabilities to the full extent required by this Agreement.
(b) Once Corporation has obtained the Letter of Credit, Corporation
shall maintain and renew the Letter of Credit or substitute letter of credit
meeting the criteria of Section 9(a) during the term of this Agreement so that
the Letter of Credit shall have an initial
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term of five years, be renewed for successive five-year terms, and always have
at least one year of its term remaining.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Director was serving Corporation or such other entity in any capacity referred
to herein.
11. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by Director
of notice of the commencement of any action, suit or proceeding, Director will,
if a claim in respect thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement thereof; but the omission so
to notify Corporation will not relieve it from any liability which it may have
to Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which Director notifies Corporation of the
commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Director. After notice from Corporation to Director of its
election to assume the defense thereof, Corporation will not be liable to
Director under this Agreement for any legal or other expenses subsequently
incurred by Director in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Director
shall have the right to employ his or her own counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
Corporation of its assumption of the defense thereof shall be at the expense of
Director unless (i) the employment of counsel by Director has been authorized by
Corporation, (ii) Director shall have reasonably concluded that there may be a
conflict of interest between Corporation and Director in the conduct of the
defense of such action or (iii) Corporation shall not in fact have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of Director's separate counsel shall be at the expense of
Corporation. Corporation shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of Corporation or as to which
Director shall have made the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall
not be liable to indemnify Director under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. Corporation shall be permitted to
settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty, out-of-pocket liability, or limitation on
Director without Director's written consent.
12. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Director employs his or her own counsel
pursuant to Section 11(b)(i) through (iii) above, Corporation shall advance to
Director, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Director for such expenses.
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(b) Director agrees that Director will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Director in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Director is not entitled, under the provisions of
the Law, the Bylaws, this Agreement or otherwise, to be indemnified by
Corporation for such expenses.
13. REMEDIES OF DIRECTOR.
(a) In the event that (i) a determination pursuant to Section 5
hereof is made that Director is not entitled to indemnification, (ii) advances
of Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to this Agreement, or (iv) Director otherwise seeks enforcement of this
Agreement, Director shall be entitled to a final adjudication in an appropriate
court of his or her rights. Alternatively, Director at his or her option may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration Association now in
effect, whose decision is to be made within ninety (90) days following the
filing of the demand for arbitration. The Corporation shall not oppose
Director's right to seek any such adjudication or arbitration award.
(b) In the event that a determination that Director is not entitled
to indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 13 shall be made de novo and Director shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Director is entitled to indemnification
has been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the absence
of (i) a misrepresentation of a material fact by Director or (ii) a specific
finding (which has become final) by an appropriate court that all or any part of
such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 13, Corporation
shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making any
assertion to the contrary.
(e) Expenses reasonably incurred by Director in connection with his
or her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be borne
by Corporation.
(f) Corporation and Director agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate, impracticable
and difficult of proof, and further agree that such breach would cause Director
irreparable harm. Accordingly, Corporation and Director agree that Director
shall be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
The Corporation and Director further agree that Director shall be entitled to
such injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting bond or
other undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by Corporation, and Corporation acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
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14. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Director to continue as a director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, the Corporation shall reimburse Director for all Director's reasonable
fees and expenses in bringing and pursuing such action.
15. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any or all of
the provisions hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Director to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the internal laws of the State of Delaware.
17. CONSENT TO JURISDICTION. The Corporation and Director each
irrevocably consent to jurisdiction of the courts of the State of Delaware for
all purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
18. BINDING EFFECT. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Director, his or her heirs, executors, administrators, personal representatives
and assigns and to the benefit of Corporation, its successors and assigns.
19. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
20. AMENDMENT AND TERMINATION. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
21. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
22. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Director by this
Agreement shall not be exclusive of any other right which Director may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding office.
8
<PAGE>
23. SURVIVAL OF RIGHTS. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporation or such other entity and shall inure to
the benefit of Director's heirs, executors and administrators.
24. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Director or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either party
to the other, and shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (ii) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
DIRECTOR: CORPORATION:
DURA PHARMACEUTICALS, INC.
By:
- -------------------- --------------------------------------
(Signature) (Signature)
Cam L. Garner, Chairman, President & CEO
- -------------------- -----------------------------------------
Printed Name Printed Name and Title
9
<PAGE>
INDEMNIFICATION AGREEMENT
(Officers)
THIS AGREEMENT is made and entered into this 2nd day of July, 1997 between
Dura Pharmaceuticals, Inc., a Delaware corporation ("Corporation"), whose
address is 5880 Pacific Center Blvd., San Diego, California 92121 and
__________________ ("Officer"), whose address is __________________.
RECITALS:
A. WHEREAS, Officer is an officer of Corporation and performs a valuable
service in such capacity for Corporation; and
B. WHEREAS, the Certificate of Incorporation of Corporation authorizes
and permits contracts between Corporation and its officers with respect to
indemnification of such officers; and
C. WHEREAS, the Board of Directors of Corporation have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "Law"); and
D. WHEREAS, the Bylaws and the Law, as amended and in effect from time
to time or any successor or other statutes of Delaware having similar import and
effect, currently purports to be the controlling law governing Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
E. WHEREAS, in accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation; and
F. WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded officers by such D & O
Insurance, if any, and by statutory and bylaw indemnification provisions; and
G. WHEREAS, in order to induce Officer to continue to serve as an officer
of Corporation, Corporation has determined and agreed to enter into this
contract with Officer.
NOW, THEREFORE, in consideration of Officer's continued service as an
officer after the date hereof, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Officer.
<PAGE>
(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
all other disbursements or out-of-pocket expenses and reasonable compensation
for time spent by Officer for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination
that Officer is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (i) a final adjudication in a Delaware court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Officer's right to indemnification hereunder, or (ii) Officer shall have failed
to file a complaint in a Delaware court or seek an arbitrator's award pursuant
to Section 13(a) for a period of one hundred twenty (120) days after the
determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a
law firm selected by Corporation and approved by Officer (which approval shall
not be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Officer in an action to determine Officer's
right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, and penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in respect
of such judgments, fines, penalties or amounts paid in settlement) of any
proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed
action, claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(i) A change in the composition of the Board of Directors of
Corporation (the "Board"), as a result of which fewer than two-thirds (2/3) of
the incumbent directors are directors who either (1) had been directors of
Corporation twenty-four (24) months prior to such change or (2) were elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of Corporation 24 months prior
to such change and who were still in office at the time of the election or
nomination; or
(ii) Any "person" (as such term is used in section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty percent
(20%) or more of the combined voting power of Corporation's then
2
<PAGE>
outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Capital
Stock"), except that any change in ownership of Corporation's securities by any
person resulting solely from a reduction in the aggregate number of outstanding
shares of Capital Stock, and any decrease thereafter in such person's ownership
of securities, shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any securities of
Corporation.
2. INDEMNITY OF OFFICER. Corporation hereby agrees to hold harmless and
indemnify Officer to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) against any and all legal expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Officer in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Officer is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Officer is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Officer by
Corporation under the non-exclusivity provisions of the Bylaws of Corporation
and the Law.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Officer is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Officer if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any action, suit or proceeding in which judgment is
rendered against Officer for an accounting of profits made from the purchase or
sale by Officer of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of Officer's conduct which is finally adjudged to have
been knowingly fraudulent or deliberately dishonest, or to constitute willful
misconduct if such conduct has been established by a judgment or other final
adjudication adverse to Officer (an "Adverse Judgment");
(e) provided there has been no Change of Control, on account of or
arising in response to any action, suit or proceeding (other than an action,
suit or proceeding referred to in Section 14(b) hereof) initiated by Officer or
any of Officer's affiliates against Corporation or any
3
<PAGE>
officer, director or stockholder of Corporation unless such action, suit or
proceeding was authorized in the specific case by action of the Board of
Directors of Corporation; or
(f) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Officer believes that he or she is entitled to
indemnification pursuant to this Agreement, Officer shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Officer to support his or her claim for indemnification. Officer shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Officer requests indemnification. The
President or the Secretary or other appropriate officer shall, promptly upon
receipt of Officer's request for indemnification, advise the Board of Directors
in writing that Officer has made such a request. Determination of Officer's
entitlement to indemnification shall be made not later than ninety (90) days
after Corporation's receipt of his or her written request for such
indemnification.
(b) The Officer shall be entitled to select the forum in which
Officer's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board of Directors consisting of
Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by
Corporation, another by Officer and the third by the first two arbitrators
selected. If for any reason three arbitrators are not selected within thirty
(30) days after the appointment of the first arbitrator, then selection of
additional arbitrators shall be made by the American Arbitration Association.
If any arbitrator resigns or is unable to serve in such capacity for any reason,
the American Arbitration Association shall select his or her replacement. The
arbitration shall be conducted pursuant to the commercial arbitration rules of
the American Arbitration Association now in effect.
If Officer fails to make such designation, his or her claim shall
be determined by the forum selected by Corporation.
6. PRESUMPTION AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a request
for indemnification, Officer shall be presumed to be entitled to indemnification
under this Agreement and Corporation shall have the burden of proof to overcome
that presumption in reaching any contrary determination. The termination of any
Proceeding by judgment, order, settlement, arbitration award or conviction, or
upon a plea of nolo contendere or its equivalent shall not affect this
presumption or, except as may be provided in Section 4 hereof, establish a
presumption with regard to any factual matter relevant to determining Officer's
rights to
4
<PAGE>
indemnification hereunder. If the person or persons so empowered to make a
determination pursuant to Section 5(b) hereof shall have failed to make the
requested determination within thirty (30) days after any judgment, order,
settlement, dismissal, arbitration award, conviction, acceptance of a plea of
nolo contendere or its equivalent, or other disposition or partial disposition
of any Proceeding or any other event which could enable Corporation to determine
Officer's entitlement to indemnification, the requisite determination that
Officer is entitled to indemnification shall be deemed to have been made.
7. CONTRIBUTION. If the indemnification provided in Sections 2 and 3 is
unavailable and may not be paid to Officer for any reason other than those set
forth in Section 4, then in respect of any threatened, pending or completed
action, suit or proceeding in which Corporation is or is alleged to be jointly
liable with Officer (or would be if joined in such action, suit or proceeding),
Corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by Officer in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Officer on the other hand from the transaction from which such action, suit or
proceeding arose, and (ii) the relative fault of Corporation on the one hand and
of Officer on the other hand in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of Corporation on the one
hand and of Officer on the other hand shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
8. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or Officer
against any Expenses and Liabilities in connection with any Proceeding to the
fullest extent permitted by the Law. In the event of a Change of Control,
Corporation shall establish a letter of credit, as provided in Section 9, to
ensure the payment of such amounts as may be necessary to effect indemnification
or advancement of Expenses as provided in this Agreement.
9. LETTER OF CREDIT.
(a) In order to secure the obligations of Corporation to indemnify
and advance Expenses to Officer pursuant to this Agreement, Corporation shall
obtain at the time of any Change of Control, upon request of any Officer, an
irrevocable standby letter of credit naming the Officers of the Corporation in
office at the time of a Change of Control as joint beneficiaries (the "Letter of
Credit"). The Letter of Credit shall be in an appropriate amount not less than
one million dollars ($1,000,000), shall be issued by a commercial bank
headquartered in the United States having assets in excess of $10 billion and
capital according to its most recent published reports equal to or greater than
the then applicable minimum capital standards promulgated by such bank's primary
federal regulator and shall contain terms and conditions reasonably acceptable
to all Officers. The Letter of Credit shall provide that Officer may from time
to time draw certain amounts thereunder, upon written certification by Officer
to the issuer of the Letter of Credit that (i) Officer has made written request
upon Corporation for an amount not less than the amount he or she is drawing
under the Letter of Credit and that Corporation has failed or refused to provide
him with such amount in full within thirty (30) days after receipt of the
request, and (ii) Officer believes that he or she is entitled under the terms of
this Agreement to the amount which he or she is drawing upon under the Letter of
Credit. The issuance of the
5
<PAGE>
Letter of Credit shall not, in any way, diminish Corporation's obligation to
indemnify Officer against Expenses and Liabilities to the full extent required
by this Agreement.
(b) Once Corporation has obtained the Letter of Credit, Corporation
shall maintain and renew the Letter of Credit or substitute letter of credit
meeting the criteria of Section 9(a) during the term of this Agreement so that
the Letter of Credit shall have an initial term of five years, be renewed for
successive five-year terms, and always have at least one year of its term
remaining.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Officer is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Officer shall be subject to
any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Officer was serving Corporation or such other entity in any capacity referred to
herein.
11. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by Officer
of notice of the commencement of any action, suit or proceeding, Officer will,
if a claim in respect thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement thereof; but the omission so
to notify Corporation will not relieve it from any liability which it may have
to Officer otherwise than under this Agreement. With respect to any such action,
suit or proceeding as to which Officer notifies Corporation of the commencement
thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Officer. After notice from Corporation to Officer of its
election to assume the defense thereof, Corporation will not be liable to
Officer under this Agreement for any legal or other expenses subsequently
incurred by Officer in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. Officer shall have the
right to employ his or her own counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Officer unless
(i) the employment of counsel by Officer has been authorized by Corporation,
(ii) Officer shall have reasonably concluded that there may be a conflict of
interest between Corporation and Officer in the conduct of the defense of such
action or (iii) Corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses of
Officer's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of Corporation or as to which Officer shall have made
the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall
not be liable to indemnify Officer under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. Corporation shall be permitted to
settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty, out-of-pocket liability, or limitation on
Officer without Officer's written consent.
6
<PAGE>
12. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Officer employs his or her own counsel pursuant
to Section 11(b)(i) through (iii) above, Corporation shall advance to Officer,
prior to any final disposition of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative or investigative, any and
all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Officer for such expenses.
(b) Officer agrees that Officer will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Officer in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Officer is not entitled, under the provisions of the
Law, the Bylaws, this Agreement or otherwise, to be indemnified by Corporation
for such expenses.
13. REMEDIES OF OFFICER.
(a) In the event that (i) a determination pursuant to Section 5
hereof is made that Officer is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to this Agreement, or (iv) Officer otherwise seeks enforcement of this
Agreement, Officer shall be entitled to a final adjudication in an appropriate
court of his or her rights. Alternatively, Officer at his or her option may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration Association now in
effect, whose decision is to be made within ninety (90) days following the
filing of the demand for arbitration. The Corporation shall not oppose
Officer's right to seek any such adjudication or arbitration award.
(b) In the event that a determination that Officer is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 13 shall be made de novo and Officer shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Officer is entitled to indemnification
has been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the absence
of (i) a misrepresentation of a material fact by Officer or (ii) a specific
finding (which has become final) by an appropriate court that all or any part of
such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 13, Corporation
shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making any
assertion to the contrary.
(e) Expenses reasonably incurred by Officer in connection with his or
her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be borne
by Corporation.
7
<PAGE>
(f) Corporation and Officer agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate, impracticable
and difficult of proof, and further agree that such breach would cause Officer
irreparable harm. Accordingly, Corporation and Officer agree that Officer shall
be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
The Corporation and Officer further agree that Officer shall be entitled to such
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting bond or
other undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by Corporation, and Corporation acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
14. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Officer to continue as an officer of Corporation, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
(b) In the event Officer is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Corporation shall reimburse Officer for all of Officer's reasonable fees
and expenses in bringing and pursuing such action.
15. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any or all of
the provisions hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Officer to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the internal laws of the State of Delaware.
17. CONSENT TO JURISDICTION. The Corporation and Officer each irrevocably
consent to jurisdiction of the courts of the State of Delaware for all purposes
in connection with any action or proceeding which arises out of or relates to
this Agreement and agree that any action instituted under this Agreement shall
be brought only in the state courts of the State of Delaware.
18. BINDING EFFECT. This Agreement shall be binding upon Officer and upon
Corporation, its successors and assigns, and shall inure to the benefit of
Officer, his or her heirs, executors, administrators, personal representatives
and assigns and to the benefit of Corporation, its successors and assigns.
19. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
8
<PAGE>
20. AMENDMENT AND TERMINATION. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
21. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Officer, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
22. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Officer by this
Agreement shall not be exclusive of any other right which Officer may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding office.
23. SURVIVAL OF RIGHTS. The rights conferred on Officer by this Agreement
shall continue after Officer has ceased to be a director, officer, employee or
other agent of Corporation or such other entity and shall inure to the benefit
of Officer's heirs, executors and administrators.
24. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Officer or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either party
to the other, and shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (ii) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
OFFICER: CORPORATION:
DURA PHARMACEUTICALS, INC.
By:
- -------------------- ---------------------------------------
(Signature) (Signature)
Cam L. Garner, Chairman, President & CEO
- -------------------- --------------------------------------------
Printed Name Printed Name and Title
9
<PAGE>
EXHIBIT 11
DURA PHARMACEUTICALS, INC.
STATEMENTS RE COMPUTATIONS OF NET INCOME PER SHARE
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------
1996 1997 1996 1997
------------ ------------------------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net Income . . . . . . . . . . . . . . . . . . . $ 5,806 $ 11,325 $ 14,471 $ 29,395
-------- -------- -------- --------
-------- -------- -------- --------
Weighted Average Number of Common and Common
Equivalent Shares:
Common stock . . . . . . . . . . . . . . . . . 37,543 43,875 34,258 43,633
Stock options. . . . . . . . . . . . . . . . . 1,725 1,124 1,785 1,138
Warrants . . . . . . . . . . . . . . . . . . . 2,998 2,607 2,847 2,621
-------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . 42,266 47,606 38,890 47,392
-------- -------- -------- --------
-------- -------- -------- --------
Net Income per share . . . . . . . . . . . . . . $ 0.14 $ 0.24 $ 0.37 $ 0.62
-------- -------- -------- --------
-------- -------- -------- --------
FULLY DILUTED NET INCOME PER SHARE:
Net Income . . . . . . . . . . . . . . . . . . . $ 5,806 $ 11,325 $ 14,471 $ 29,395
-------- -------- -------- --------
-------- -------- -------- --------
Weighted Average Number of Common and Common
Equivalent Shares Assuming Issuance of All
Dilutive Contingent Shares:
Common stock . . . . . . . . . . . . . . . . . 37,543 43,875 34,258 43,633
Stock options. . . . . . . . . . . . . . . . . 1,842 1,195 1,987 1,212
Warrants . . . . . . . . . . . . . . . . . . . 3,312 2,722 3,412 2,767
-------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . 42,697 47,792 39,657 47,612
-------- -------- -------- --------
-------- -------- -------- --------
Net Income per share . . . . . . . . . . . . . . $ 0.14 $ 0.24 $ 0.36 $ 0.62
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997, AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 166,583
<SECURITIES> 288,127
<RECEIVABLES> 27,849
<ALLOWANCES> 0
<INVENTORY> 15,858
<CURRENT-ASSETS> 498,417
<PP&E> 48,946
<DEPRECIATION> 4,798
<TOTAL-ASSETS> 821,105
<CURRENT-LIABILITIES> 41,141
<BONDS> 287,500
0
0
<COMMON> 533,047
<OTHER-SE> (50,750)
<TOTAL-LIABILITY-AND-EQUITY> 821,105
<SALES> 0
<TOTAL-REVENUES> 127,867
<CGS> 23,373
<TOTAL-COSTS> 67,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 45,752
<INCOME-TAX> 16,357
<INCOME-CONTINUING> 29,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,395
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
