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As filed with the Securities and Exchange Commission on May 10, 2000
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROTEIN DESIGN LABS, INC.
Exact name of Registrant as
specified in its charter)
DELAWARE 94-3023969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34801 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
(510) 574-1400
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
----------------
DOUGLAS O. EBERSOLE
34801 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
(510) 574-1400
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Gregory M. Gallo, Esq.
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
=============================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Aggregate Price Per Aggregate Offering Registration
Security Price Fee
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<S> <C> <C> <C> <C>
5.50% Convertible $150,000,000 (1) 100% (2)(3) $150,000,000 $39,600
Subordinated Notes due (2)
February 15, 2007
- -------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 993,377 shares (4) ----(5)
=============================================================================================================
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(1) Represents the aggregate principal amount of the notes issued by the
Registrant.
(2) Estimated solely for the purpose of calculating the Registration Fee
pursuant to Rule 457(i) under the Securities Act of 1933, as amended.
(3) Exclusive of accrued interest and distributions, if any.
(4) Such number represents the number of shares of Common Stock as are initially
issuable upon conversion of the 5.50% Convertible Subordinated Notes due
February 15, 2007 registered hereby and, pursuant to Rule 416 under the
Securities Act of 1933 as amended, such indeterminate number of shares of
Common Stock as may be issued from time to time upon conversion of the Notes
as a result of the antidilution provisions thereof.
(5) No additional consideration will be received for the common stock and
therefore, pursuant to Rule 457(i), no registration fee is required for
these shares.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PROSPECTUS
SUBJECT TO COMPLETION, DATED MAY 10, 2000
$150,000,000
PROTEIN DESIGN LABS, INC.
5.50% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 15, 2007
993,337 SHARES OF COMMON STOCK ISSUABLE ON CONVERSION OF THE NOTES
- --------------------------------------------------------------------------------
This prospectus relates to 5.50% Convertible Subordinated Notes due February 15,
2007 of Protein Design Labs, Inc., a Delaware corporation (PDL), held by certain
security holders who may offer for sale the notes and shares of our common stock
into which the notes are convertible at any time, at market prices prevailing at
the time of sale or at privately negotiated prices. The selling security holders
may sell the notes or the common stock directly to purchasers or through
underwriters, broker-dealers or agents, that may receive compensation in the
form of discounts, concessions or commissions. We will not receive any proceeds
from this offering.
You may convert the notes into shares of our common stock at any time before
their maturity unless we have previously redeemed or repurchased them. The notes
will be due on February 15, 2007. The conversion rate is 6.6225 shares per each
$1,000 principal amount of notes, subject to adjustment in certain
circumstances. This is equivalent to a conversion price of approximately $151.00
per share. The notes are not listed on any securities exchange or included in
any automated quotation system. The notes are eligible for trading in the
Private Offerings, Resale and Trading through Automated Linkages (PORTAL) Market
of the National Association of Securities Dealers, Inc. Our common stock is
quoted on The Nasdaq National Market under the symbol "PDLI." On April 25, 2000,
the last reported bid price for our common stock as quoted on The Nasdaq
National Market was $78.875 per share.
We will pay interest on the notes on February 15 and August 15 of each year. The
first interest payment will be made on August 15, 2000. The notes are
subordinated in right of payment to all senior debt of PDL. The notes will be
issued only in denominations of $1,000 and integral multiples of $1,000.
We have the right to redeem all or a portion of the notes that have not been
previously converted at the redemption prices set forth in this prospectus on or
after February 15, 2003. In the event of a Change in Control, as described in
this prospectus, you may require us to repurchase any notes held by you.
INVESTING IN THE NOTES AND THE COMMON STOCK INVOLVES RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May __, 2000.
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PRODUCTS IN DEVELOPMENT
The following table summarizes the potential therapeutic indications,
development status and commercial rights for our approved product and some of
our most advanced product candidates and is qualified in its entirety by the
more detailed information appearing elsewhere in this prospectus. The
development and commercialization of our product candidates is subject to
numerous risks and uncertainties. See "Risk Factors."
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ANTIBODY PRODUCT INDICATION(s) STATUS
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Zenapax(R)(1) Kidney transplant rejection Marketed
Psoriasis Phase II
Uveitis Phase I/II
SMART(TM) M195 Acute myeloid leukemia Phase III
SMART Anti-CD3 Transplantation Phase II(2)
Psoriasis Phase I/II
Graft-versus-host disease Phase I
SMART Anti-L-Selectin(3) Trauma Phase IIa
SMART 1D10 Non-Hodgkins B-cell lymphoma Phase I
SMART Anti-E/P-Selectin Stroke, asthma Phase I in healthy
volunteers complete
Humanized Anti-IL-4(4) Asthma Phase I
SMART Anti-Gamma Interferon Autoimmune diseases Phase I
</TABLE>
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(1) Hoffmann-La Roche Inc. and its affiliates (Roche) have marketing rights to
Zenapax for transplantation. PDL and Roche share marketing rights for
Zenapax's autoimmune indications.
(2) The U.S. Phase II clinical trials for kidney transplant rejection are
currently on hold.
(3) Scil Biomedicals GmbH (formerly BioNet Pharma) has European development and
marketing rights to the SMART Anti-L-Selectin Antibody and is conducting the
Phase IIa trial.
(4) PDL licensed the humanized anti-IL-4 antibody from SmithKline Beecham
Corporation, which has the right to opt in after the Phase II trial and
share development costs and profits from product sales.
Protein Design Labs, the PDL logo and SMART are registered trademarks of PDL.
Zenapax is a registered U.S. trademark of Roche. All other company names and
trademarks included in this prospectus are trademarks, registered trademarks or
trade names of their respective owners.
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RISK FACTORS AND INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS
SHOULD CAREFULLY CONSIDER THE RISK FACTORS DISCLOSED IN THIS PROSPECTUS,
INCLUDING THOSE BEGINNING ON PAGE 15, IN EVALUATING AN INVESTMENT IN THE NOTES
OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES.
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS ARE "FORWARD-LOOKING
STATEMENTS" FOR PURPOSES OF THESE PROVISIONS, INCLUDING ANY PROJECTIONS OF
EARNINGS, REVENUES OR OTHER FINANCIAL ITEMS, ANY STATEMENTS OF THE PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ANY STATEMENTS CONCERNING
PROPOSED NEW PRODUCTS OR SERVICES, ANY STATEMENTS REGARDING FUTURE ECONOMIC
CONDITIONS OR PERFORMANCE, AND ANY STATEMENT OF ASSUMPTIONS UNDERLYING ANY OF
THE FOREGOING. IN SOME CASES, FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY
THE USE OF TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECTS", "PLANS", "ANTICIPATES",
"ESTIMATES", "POTENTIAL", OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
COMPARABLE TERMINOLOGY. ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, THERE CAN BE NO
ASSURANCE THAT SUCH EXPECTATIONS OR ANY OF THE FORWARD-LOOKING STATEMENTS WILL
PROVE TO BE CORRECT, AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED OR ASSUMED IN THE FORWARD-LOOKING STATEMENTS. OUR FUTURE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, AS WELL AS ANY FORWARD-LOOKING STATEMENTS,
ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO
THE RISK FACTORS SET FORTH BELOW, AND FOR THE REASONS DESCRIBED ELSEWHERE IN
THIS PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS AND REASONS WHY RESULTS MAY
DIFFER INCLUDED IN THIS PROSPECTUS ARE MADE AS OF THE DATE HEREOF, AND WE ASSUME
NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS OR REASONS WHY ACTUAL
RESULTS MIGHT DIFFER.
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TABLE OF CONTENTS
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Page
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Summary ........................................................................... 6
Selected Financial Data............................................................ 13
Risk Factors....................................................................... 15
Use of Proceeds.................................................................... 30
Price Range of Common Stock........................................................ 30
Dividend Policy.................................................................... 30
Description of the Notes........................................................... 31
Description of Capital Stock....................................................... 49
Certain Federal Income Tax Considerations.......................................... 50
Selling Security Holders........................................................... 57
Plan of Distribution............................................................... 60
Legal Matters...................................................................... 61
Experts............................................................................ 61
Available Information.............................................................. 61
Incorporation of Certain Documents by Reference.................................... 61
Limitation of Liability and Indemnification Matters................................ 62
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We were incorporated in Delaware in 1986. Our principal executive offices are
located at 34801 Campus Drive, Fremont, California 94555 and our phone number is
(510) 574-1400. We maintain a home page at www.pdl.com.
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SUMMARY
This summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in the notes and common stock. You should read
the entire prospectus carefully.
PROTEIN DESIGN LABS, INC.
PDL is a leader in the development of humanized monoclonal antibodies for the
prevention and treatment of disease. We have licensed rights to our first
humanized antibody product, Zenapax, to Roche, which markets it for the
prevention of kidney transplant rejection. We are also testing Zenapax for the
treatment of autoimmune disease. In addition, we have announced seven other
humanized antibodies in clinical development for autoimmune and inflammatory
conditions, transplantation and cancer.
PDL has fundamental patents in the U.S., Europe and Japan, which we believe
cover most humanized antibodies. To date we have licensed eleven companies under
these patents for humanized antibodies that they have developed. We receive
royalties on sales of the two humanized antibodies developed by other companies
that are currently being marketed.
THE OPPORTUNITY
During the past several years, there has been a resurgence of interest in the
medical and commercial potential of monoclonal antibodies. The Food and Drug
Administration has approved eight therapeutic antibodies, six of them in the
last three years, with total sales in 1999 in excess of $1.0 billion. This
resurgence has been made possible by the use of genetic engineering to create
improved forms of antibodies. In particular, we developed and patented
computer-aided technology to make "humanized" antibodies, which are antibodies
that capture the benefits of traditional mouse-derived monoclonal antibodies
while avoiding their limitations in treating humans.
Three of the therapeutic antibodies approved for marketing by the FDA are
humanized antibodies, and more than 30 other humanized antibodies are currently
in clinical trials. These humanized antibodies address many large markets,
including cancer, stroke, heart disease, asthma, and autoimmune diseases such as
psoriasis, multiple sclerosis and rheumatoid arthritis. A number of these
antibodies have entered or completed the later phases of clinical development
and, depending on satisfactory clinical results, may reach the marketplace in
the next few years. As discussed further below, many of these antibodies are
licensed under our patents, or are being developed by our company.
In addition, with the sequencing of the human genome nearly complete, large
numbers of new, potentially important therapeutic targets are being identified.
Humanized antibodies can be routinely and reliably developed against almost any
cell surface or extracellular target. Hence, we believe that humanized
antibodies will be a key part of the next generation of pharmaceutical products.
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STRATEGY
Our objective is to leverage our product pipeline and patent portfolio in the
field of antibodies to become a fully-integrated, profitable, research-based
biopharmaceutical company. We derive revenues, and expect to derive revenues in
the future, from three major sources:
- Sales of products that we have developed. We receive royalties on sales
of Zenapax by our licensee, Roche. We have announced seven other
humanized antibodies in clinical development. We plan to market some of
our products, once approved, in North America, especially for specialty
markets such as cancer that we believe can be effectively serviced with
a relatively small sales force. We may license marketing rights for some
antibodies or some geographic areas to other pharmaceutical companies.
- Royalties from the sale of humanized antibodies developed by other
companies. We license our patents covering humanized antibodies in
return for license fees, annual maintenance payments and royalties on
product sales. The two humanized antibodies currently approved by the
FDA in addition to Zenapax are licensed under our patents, and we
receive royalties on their sales. These antibodies are Genentech's
Herceptin(R) and MedImmune's Synagis(R), which had reported sales
totaling approximately $480 million in 1999. We have licensed nine other
companies to date for humanized antibodies they are developing.
- Research and development contracts with other companies. We humanize
antibodies for other companies in return for upfront fees, milestone
payments and royalties on any product sales. In some cases we also
receive the right to co-promote these products in designated
territories. We also sometimes license out marketing rights to a
humanized antibody that we are developing, and then typically receive
upfront fees and milestone payments and/or research funding, in addition
to royalties on any product sales by our licensee.
PATENT OPPOSITION PROCEEDINGS
Our patents for humanized antibodies are being opposed in patent office
proceedings in Europe and Japan, and a successful challenge could limit our
future revenues from licensing these patents. At an oral hearing in March 2000,
the Opposition Division of the European Patent Office decided to revoke the
broad claims in our first European patent pertaining generally to antibody
humanization. We plan to appeal the decision of the Opposition Division to the
Technical Board of Appeals of the European Patent Office. See "Risk Factors --
Our humanization patents are being opposed and a successful challenge could
limit our future revenues."
PRODUCTS IN DEVELOPMENT
We have the following products under clinical development. We usually refer to
the humanized antibodies that we have made as SMART antibodies.
- Zenapax. The FDA approved Zenapax in December 1997 for the prevention of
kidney transplant rejection. Zenapax was the first humanized antibody to
be approved anywhere in the world. Our licensee Roche sells this product
in the U.S., Europe and other territories for the transplant indication.
Zenapax works by blocking the activation of T
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cells, which play a key role in both transplant rejection and autoimmune
disease. Because of its specificity, Zenapax is the first effective
immunosuppressive drug without significant side effects. As a result, we
believe Zenapax may be useful for the long-term treatment of autoimmune
diseases such as psoriasis and multiple sclerosis.
In 1999, we reacquired from Roche specific development and marketing rights
to Zenapax for autoimmune diseases. We will fund costs of clinical
trials for Zenapax in autoimmune diseases. In return, we have the right
to market Zenapax for approved autoimmune indications in the U.S. and
Canada, and will receive a major portion of the revenues from
sales for these diseases. Roche will continue to manufacture Zenapax and
pay for the cost of goods from its share of the revenues. In Europe and
other countries, Roche can elect to market Zenapax for approved
autoimmune indications or to allow us to market it, and revenues will be
shared.
Zenapax is currently in two Phase II trials in psoriasis, a common
autoimmune disease of the skin. We plan to conduct additional trials for
psoriasis and other autoimmune diseases. Also, in an early stage
clinical trial for uveitis, an autoimmune disease of the eye, Zenapax
was safely administered to patients for one year and was effective in
controlling the disease in most patients, some of whom have continued to
receive Zenapax for up to three years.
- SMART M195 Antibody. This antibody has completed a Phase II trial and is
now in a Phase III trial for the treatment of acute myeloid leukemia, a
disease that has approximately 10,000 new cases in the U.S. each year
and has a high mortality rate. If the results of the trial are positive,
we expect to file for marketing approval.
- SMART Anti-CD3 Antibody. We are developing this antibody for the
treatment of autoimmune diseases and for transplantation. SMART Anti-CD3
is directed to the same target as a mouse antibody, Orthoclone OKT(R)3,
which is currently marketed for transplantation, but SMART Anti-CD3 has
been humanized and engineered to induce fewer side effects. Although
both SMART Anti-CD3 and Zenapax may target some of the same diseases, we
believe they may have complementary roles in medical treatment. SMART
Anti-CD3 may be more potent than Zenapax, but may not be suitable for
chronic administration, so it may be most useful to treat acute episodes
of autoimmune disease and to induce remissions. Zenapax may be useful to
maintain the remissions for longer periods. SMART Anti-CD3 is currently
in clinical trials for psoriasis, transplant rejection and
graft-versus-host disease. The U.S. clinical trials for kidney
transplant indications are currently on hold pending resolution of
outstanding issues with the FDA.
- SMART Anti-L-Selectin Antibody. This antibody may be useful for
preventing the multiple organ failure and mortality that often follows
severe injury (trauma). In 1999, we licensed European marketing rights
for this antibody to Scil Biomedicals, a privately held European
biotechnology company. Scil paid us a licensing fee and agreed to
conduct and pay for clinical trials in Europe and to provide us with the
data; in return, we are making milestone payments to Scil on the
achievement of defined clinical and regulatory goals. Scil has completed
a Phase I trial of SMART Anti-L-Selectin and is now conducting a Phase
IIa trial for treatment of trauma. If the results from that Phase IIa
trial are encouraging, we may initiate clinical development in the U.S.
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- SMART 1D10 Antibody. The National Cancer Institute is sponsoring a Phase
I trial of this antibody for non-Hodgkins B-cell lymphoma. If the
results are sufficiently encouraging, we plan to conduct a potentially
pivotal Phase II trial. SMART 1D10 is directed to a different target on
B cells than Rituxan(R), the antibody currently marketed for
non-Hodgkins lymphoma, and thus may provide an alternative therapy. In
the U.S. and Europe, approximately 560,000 patients have this disease
and 100,000 new cases occur annually.
- Humanized Anti-IL-4 Antibody. We licensed this antibody, for the
potential treatment of asthma and allergy, from SmithKline Beecham (SB)
in 1999. The humanized anti-IL-4 antibody blocks the effects of
interleukin 4, which is believed to play a key role in initiating the
series of biological processes that lead to allergy and asthma. SB began
a Phase I trial of the humanized anti-IL-4 antibody, which we have
reinitiated. If Phase I is successfully completed, we then plan to
conduct a Phase II trial in asthma patients.
We will conduct and pay for initial clinical trials of the humanized
anti-IL-4 antibody and pay SB to manufacture the antibody. SB has agreed
to make milestone payments to us upon the achievement of specified
clinical goals. At the completion of a specified Phase II trial, SB may
choose to pay us an "opt-in" fee. In that case, we and SB will share
future development costs and profits from any product sales. If SB
elects not to opt in, we will have the right to develop and market the
antibody.
Concurrently, we granted SB an exclusive license under our humanization
patents for a humanized anti-IL-5 antibody that they are developing, for
which SB paid us a licensing fee. We also granted SB options to obtain
non-exclusive licenses under these patents for up to three additional
antibodies. These arrangements with SB illustrate our ability to
leverage our patent portfolio to obtain rights to a potentially
important product.
- SMART Anti-Gamma Interferon Antibody. This antibody targets gamma
interferon, a protein that stimulates several types of white blood cells
and that may be involved in some autoimmune diseases. In February 2000,
we began a Phase I trial of SMART Anti-Gamma Interferon in normal
volunteers. In the future, we may initiate clinical trials in one or
more autoimmune diseases, particularly Crohn's disease.
- SMART Anti-E/P-Selectin Antibody. This antibody targets substances on
the inside of blood vessels that may be involved in inflammation. We
have completed a Phase I of SMART Anti-E/P-Selectin in healthy
volunteers which showed that the antibody is safe in a range of doses.
We have retained worldwide rights to SMART Anti-E/P-Selectin and are
seeking a partner for its further development.
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THE OFFERING
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SECURITIES OFFERED.................... $150,000,000 aggregate principal amount of 5.50%
Convertible Subordinated Notes due February 15, 2007
and shares of Common Stock issuable upon conversion
of the notes.
INTEREST.............................. We will pay interest on the notes semi-annually on
February 15 and August 15 of each year, commencing
August 15, 2000.
CONVERSION............................ The notes will be convertible at the option of the
holder into shares of common stock at a conversion
rate of 6.6225 shares of common stock per $1,000
principal amount of notes, which is equivalent to a
conversion price of approximately $151.00 per share.
The conversion rate is subject to adjustment.
The notes will be convertible at any time before
the close of business on the maturity date, unless
we have previously redeemed or repurchased the
notes; provided, however, that if a note is called
for redemption or repurchase, a holder of the note
will be entitled to convert the note at any time
before the close of business on the date fixed for
redemption or repurchase, as the case may be. See
"Description of the Notes--Conversion Rights."
SUBORDINATION......................... The notes are subordinated to our present and future
Senior Debt, as that term is defined in this
prospectus. The notes are also effectively
subordinated in right of payment to all indebtedness
and other liabilities of our subsidiaries. As of
December 31, 1999, we had no Senior Debt outstanding,
and our subsidiaries' indebtedness and other
liabilities totalled approximately $10.1 million.
The indenture under which the notes will be issued
(the Indenture) will not restrict our incurrence of
indebtedness, including Senior Debt, or our
subsidiaries' incurrence of indebtedness. See
"Description of the Notes--Subordination."
GLOBAL NOTE; BOOK ENTRY
SYSTEM ........................... The notes may only be issued in fully registered form
without interest coupons and in minimum denominations
of $1,000. The notes are evidenced by one or more
global notes deposited with the trustee for the
notes, as custodian for The Depository Trust Company
(DTC). Beneficial interests in the global note are
shown on, and transfers of those beneficial interests
can only be made
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through, records maintained by DTC and its
participants. See "Description of the Notes--Form,
Denomination, Transfer, Exchange and
Book--Entry Procedures."
OPTIONAL REDEMPTION................... We may redeem the notes, at our option, in whole or
in part, on or after February 15, 2003, at the
redemption prices set forth in this prospectus plus
accrued interest to the redemption date. See
"Description of the Notes--Optional Redemption."
REPURCHASE AT OPTION OF HOLDERS
UPON A CHANGE OF CONTROL............ Upon a Change in Control, as that term is defined in
this prospectus, you will have the right, subject to
certain conditions and restrictions, to require us to
repurchase your notes, in whole or in part, at 100%
of their principal amount, plus accrued interest to
the repurchase date. The repurchase price is payable
in cash or, at our option, in shares of common
stock. However, we may pay the repurchase price in
common stock only if we satisfy prescribed
conditions. If we pay the repurchase price in common
stock, the common stock will be valued at 95% of the
average of the high and low sales prices of the
common stock for each of the five trading days ending
with the third trading day prior to the repurchase
date. A Change in Control could be an event of
default under the Senior Debt. In those
circumstances, the subordination provisions of the
Indenture would likely prevent us from repurchasing
the notes until the Senior Debt is paid in full. See
"Description of the Notes-Repurchase at Option of
Holders Upon a Change in Control."
USE OF PROCEEDS....................... We will not receive any proceeds from the sale of the
notes or the shares offered by this prospectus. See
"Selling Security Holders."
EVENTS OF DEFAULT..................... The following are events of default under the
Indenture:
- we fail to pay the principal of or any premium
on these notes when due, whether or not the
payment is prohibited by the Indenture's
subordination provisions
- we fail to pay any interest on these notes when
due and that default continues for 30 days, whether
or not the payment is prohibited by the Indenture's
subordination provisions
- we fail to give the notice that we are required to
give
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if there is a Change in Control, whether
or not the notice is prohibited by the Indenture's
subordination provisions
- we fail to perform any other covenant in the
Indenture and that failure continues for 60 days
after written notice to us by the trustee or the
holders of at least 25% in aggregate principal
amount of outstanding notes
- we fail to pay when due the principal of any
indebtedness for money borrowed by us or any of
our subsidiaries in excess of $10 million if the
indebtedness is not discharged and such failure
continues for 20 days or more, or, if such
indebtedness has been accelerated, such
acceleration is not annulled, within 30 days
after written notice to us by the trustee or the
holders of at least 25% in aggregate principal
amount of the outstanding notes, and
- events of bankruptcy, insolvency or
reorganization with respect to us and our
significant subsidiaries specified in the
Indenture.
See "Description of Notes--Events of
Default."
NASDAQ NATIONAL MARKET
SYMBOL FOR OUR COMMON STOCK......... PDLI
REGISTRATION RIGHTS................... Upon any failure by us to comply with certain of our
obligations under the Registration Rights Agreement,
additional interest will be payable on the notes.
LISTING............................... The notes are eligible for trading in the Private
Offerings, Resale and Trading through
Automated Linkages (PORTAL) Market of
the NASD.
RISK FACTORS.......................... You should read "Risk Factors", beginning on page 15
of this prospectus, so that you understand the risks
associated with an investment in the notes and the
common stock that is to be issued on conversion of
the notes.
</TABLE>
12
<PAGE> 13
SELECTED FINANCIAL DATA
The following selected financial data for each of the three years in the period
ended December 31, 1999, and as of December 31, 1998 and 1999 has been taken, or
is derived from, and should be read with our financial statements, including the
notes thereto, that have been audited by Ernst & Young LLP, independent
auditors, and are incorporated by reference herein and included in our Annual
Report on Form 10-K for the year ended December 31, 1999. The selected financial
data for the years ended December 31, 1995 and 1996, and as of December 31,
1995, 1996 and 1997, has been taken or is derived from our audited financial
statements that have not been included or incorporated by reference in this
prospectus.
Historical results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues (1):
Revenue under agreements with third
parties ................................................. $ 11,408 $ 16,500 $ 11,137 $ 21,325 $ 26,811
Interest and other income ............................... 6,205 6,100 9,118 9,503 8,943
-------- -------- -------- -------- --------
Total revenues ......................................... 17,613 22,600 20,255 30,828 35,754
Costs and expenses:
Research and development ................................ 20,803 28,795 25,614 31,645 36,090
General and administrative .............................. 5,163 5,601 6,629 8,685 9,842
Special charge(2) ....................................... -- -- 11,887 -- --
Interest expense ........................................ 1 -- -- -- 155
-------- -------- -------- -------- --------
Total costs and expenses .............................. 25,967 34,396 44,130 40,330 46,087
-------- -------- -------- -------- --------
Net loss .................................................. $ (8,354) $(11,796) $(23,875) $ (9,502) $(10,333)
======== ======== ======== ======== ========
Net loss per share(3) ..................................... $ (0.54) $ (0.76) $ (1.35) $ (0.51) $ (0.55)
======== ======== ======== ======== ========
Shares used in computation of net loss
per share ............................................... 15,343 15,604 17,649 18,525 18,698
Ratio of earnings to fixed charges(4) ..................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments .............. $ 107,065 $ 99,667 $ 163,655 $ 143,439 $ 137,237
Working capital ..................................... 43,522 74,221 66,490 82,394 22,669
Total assets ........................................ 116,412 110,331 175,026 171,850 182,551
Accumulated deficit ................................. (23,711) (35,507) (59,382) (68,884) (79,217)
Long-term obligations, exclusive of current
portion ........................................... -- -- -- -- --
Total stockholders' equity .......................... 112,856 105,112 168,468 162,496 164,743
</TABLE>
(1) In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). We are evaluating the effects, if any, that the adoption of SAB
101 in the second quarter of 2000 may have on the results of our operations
or our financial position. We have been advised that the Securities and
Exchange Commission intends to provide additional guidance during the second
quarter of 2000 with respect to the implementation of SAB 101. It is
currently unknown whether such guidance and
13
<PAGE> 14
implementation of SAB 101 will require us to revise our revenue recognition
practices or to restate revenues for the first quarter of 2000.
(2) Represents a non-cash special charge of approximately $11.9 million related
to the extensions of the term of all outstanding stock options held by
employees, officers, directors and consultants to PDL that were granted
prior to February 1995, with the single exception of stock options granted
to one non-employee director. The extension conforms the term of previously
granted stock options, which was six years, to those granted since February
1995, ten years.
(3) For a description of the computation of net loss per share, see Note 1 to
the Financial Statements included in our Annual Report on Form 10-K for the
year ended December 31, 1999, incorporated by reference in this prospectus.
(4) For the purposes of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges, amortization of
debt expense and discount or premium related to indebtedness, whether
expensed or capitalized, and that portion of rental payments under operating
leases we believe to be representative of interest. Earnings for the years
ended December 31, 1995, 1996, 1997, 1998 and 1999, were insufficient to
cover fixed charges by $8,354, $11,796, $23,875, $9,502, and $10,333,
respectively (in thousands).
14
<PAGE> 15
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the notes or the common stock
issuable upon conversion of the notes.
If any of the following risks actually occurs, it could materially harm our
business, financial condition or operating results. In such case, the trading
price of the notes and our common stock could decline and you may lose part or
all of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY.
Our expenses have generally exceeded revenues. As of December 31, 1999, we had
an accumulated deficit of approximately $79.2 million. We believe that our
losses may increase because of the extensive resource commitments required to
achieve regulatory approval and commercial success for any individual product.
For example, over the next several years, we will incur substantial additional
expenses as we continue to develop and manufacture our potential products,
invest in new research areas and improve and expand our manufacturing
capabilities. Since we or our collaborative partners or licensees may not be
able to successfully develop additional products, obtain required regulatory
approvals, manufacture products at an acceptable cost and with appropriate
quality, or successfully market such products with desired margins, we may never
achieve profitable operations. The amount of net losses and the time required to
reach sustained profitability are highly uncertain. We cannot assure you that we
will be able to achieve or sustain profitability.
Our commitment of resources to the development of Zenapax and the humanized
anti-IL-4 antibody, two humanized antibodies with respect to which we recently
obtained development rights, taken together with the continued development of
our existing products, will require significant additional funds for
development. Our operating expenses may also increase as:
- some of our earlier stage potential products move into later stage
clinical development
- additional potential products are selected as clinical candidates for
further development
- we invest in additional manufacturing capacity
- we defend or prosecute our patents and patent applications, and
- we invest in research or acquire additional technologies, product
candidates or businesses.
In the absence of substantial revenues from new corporate collaborations or
patent licensing or humanization agreements, significant royalties on sales of
products licensed under our intellectual property rights, product sales or other
uncertain sources of revenue, we will incur substantial operating losses.
15
<PAGE> 16
OUR REVENUES, EXPENSES AND OPERATING RESULTS WILL LIKELY FLUCTUATE IN FUTURE
PERIODS.
Our revenues have varied in the past and will likely continue to fluctuate
considerably from quarter to quarter and from year to year. As a result, our
revenues in any period may not be predictive of revenues in any subsequent
period. Our royalty revenues may be unpredictable and may fluctuate since they
depend upon:
- the seasonality of sales of licensed products
- the existence of competing products
- the marketing efforts of our licensees
- potential reductions in royalties payable to us due to credits for prior
payments to us
- the timing of royalty reports, some of which are required quarterly and
others semi-annually
- our method of accounting for royalty revenues from our licensees, and
- our ability to successfully defend and enforce our patents.
Other revenue may also be unpredictable and may fluctuate due to the timing of
payments of non-recurring licensing and signing fees and payments for
manufacturing services and achievement of milestones under new and existing
collaborative, humanization, and patent licensing agreements. Revenue
historically recognized under our prior agreements may not be an indicator of
non-royalty revenue from any future collaborations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). We
are evaluating the effects, if any, that the adoption of SAB 101 in the second
quarter of 2000 may have on the results of our operations or our financial
position. We have been advised that the Securities and Exchange Commission
intends to provide additional guidance during the second quarter of 2000 with
respect to the implementation of SAB 101. It is currently unknown whether such
guidance and implementation of SAB 101 will require us to revise our revenue
recognition practices or to restate revenues for the first quarter of 2000.
In addition, our expenses may be unpredictable and may fluctuate from quarter to
quarter due to the timing of expenses, which may include payments owed by us
under licensing arrangements.
OUR HUMANIZATION PATENTS ARE BEING OPPOSED AND A SUCCESSFUL CHALLENGE COULD
LIMIT OUR FUTURE REVENUES.
PDL's two humanization patents issued by the European Patent Office (EPO) apply
in the United Kingdom, Germany, France, Italy and eight other European
countries. The EPO procedures provide for an opposition period in which other
parties may submit arguments as to why a patent was incorrectly granted and
should be withdrawn or limited. Eighteen notices of opposition to our first
European patent were filed during the opposition period for the patent,
including oppositions by major pharmaceutical and biotechnology companies. At an
oral hearing in March 2000, the
16
<PAGE> 17
Opposition Division (OD) of the EPO decided to revoke the broad claims in our
first European patent based on formal matters of European patent law,
specifically that there had been an impermissible addition of subject matter
after the filing of the original European patent application, but did not
provide the rationale behind its decision. The decision upheld claims that
protect Zenapax. The OD did not otherwise announce a decision on the issue of
whether the claims in our patent are inventive in light of the prior art or
other issues of patentability. We plan to appeal the OD's decision to the
Technical Board of Appeals at the EPO. The Technical Board of Appeals will
consider all issues anew. The appeal suspends the decision of the OD during the
appeals process, which is likely to take several years.
Until our appeal regarding our first European patent is resolved, we may be
limited in our ability to collect royalties or to negotiate future licensing or
collaborative research and development arrangements based on this and our other
humanization patents. Moreover, if our appeal is unsuccessful, our ability to
collect royalties on European sales of antibodies humanized by others would
depend on the scope and validity of our second European patent, whether the
antibodies are manufactured in a country outside of Europe where they are
covered by one of our patents, and in that case the terms of our license
agreements with respect to that situation. Also, the OD's decision could
encourage challenges of our related patents in other jurisdictions, including
the U.S. The OD's decision may lead some of our licensees to stop making royalty
payments or lead potential licensees not to take a license, which might result
in us initiating formal legal actions to enforce our rights under our various
humanization patents. In such a situation, a likely defensive strategy to our
action would be to challenge our patents in that jurisdiction. During the
appeals process with respect to our first European patent, if we were to
commence an infringement action to enforce that patent, such an action would
likely be stayed until the appeal is decided by the EPO. We have no assurance
that we will successfully enforce our rights under our European or related U.S.
and Japanese patents. The nine month opposition period for our second European
antibody humanization patent ends in May 2000, and we expect that a significant
number of notices of opposition will be filed with respect to this patent. We
have also been advised that three opposition statements have been filed with the
Japanese Patent Office with respect to our humanization patent issued in Japan
in late 1998.
We intend to vigorously defend the European patents and the Japanese patent in
these proceedings; however, we may not prevail in the opposition proceedings or
any litigation contesting the validity of these patents. If our appeal with
respect to our first European patent is unsuccessful or if the outcome of the
other European or Japanese opposition proceedings or any litigation involving
our antibody humanization patents were to be unfavorable, our ability to collect
royalties on existing licensed products and to license our patents relating to
humanized antibodies may be materially harmed. In addition, these proceedings or
any other litigation to protect our intellectual property rights or defend
against infringement claims by others, could result in substantial costs and
diversion of management's time and attention, which could materially harm our
business and financial condition.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY TECHNOLOGY, WE MAY NOT
BE ABLE TO COMPETE SUCCESSFULLY.
Our success depends significantly on our ability to obtain and maintain patent
protection for our products and technologies, to preserve our trade secrets and
to operate without infringing on the proprietary rights of third parties. While
we file and prosecute patent applications to protect our
17
<PAGE> 18
inventions, our pending patent applications may not result in the issuance of
valid patents or our issued patents may not provide competitive advantages.
Also, our patent protection may not prevent others from developing competitive
products using related or other technology.
A number of companies, universities and research institutions have filed patent
applications or received patents in the areas of antibodies and other fields
relating to our programs. Some of these applications or patents may be
competitive with our applications or contain material that could prevent the
issuance of patents to us or result in a significant reduction in the scope of
our issued patents.
The scope, enforceability and effective term of patents issued to companies,
universities and research institutions can be highly uncertain and often involve
complex legal and factual questions. No consistent policy has emerged regarding
the breadth of claims in biotechnology patents, so that even issued patents may
later be modified or revoked by the relevant patent authorities or courts.
Moreover, the issuance of a patent in one country does not assure the issuance
of a patent with similar claims in another country, and claim interpretation and
infringement laws vary among countries, so we are unable to predict the extent
of any patent protection in different countries.
In addition to seeking the protection of patents and licenses, we also rely upon
trade secrets, know-how and continuing technological innovation which we seek to
protect, in part, by confidentiality agreements with employees, consultants,
suppliers and licensees. If these agreements are not honored, we might not have
adequate remedies for any breach. Additionally, our trade secrets might
otherwise become known or patented by our competitors.
WE MAY REQUIRE ADDITIONAL PATENT LICENSES IN ORDER TO MANUFACTURE OR SELL OUR
POTENTIAL PRODUCTS.
Other companies, universities and research institutions may obtain patents that
could limit our ability to use, import, manufacture, market or sell our products
or impair our competitive position. As a result, we might be required to obtain
licenses from others before we could continue using, importing, manufacturing,
marketing, or selling our products. We may not be able to obtain required
licenses on terms acceptable to us, if at all. If we do not obtain required
licenses, we may encounter significant delays in product development while we
redesign potentially infringing products or methods or may not be able to market
our products at all.
Celltech Chiroscience plc has been granted a patent by the EPO covering
humanized antibodies (European Adair Patent), which we have opposed. Celltech
has also been issued a corresponding U.S. patent (U.S. Adair Patent) that
contains claims that may be considered broader in scope than the European Adair
Patent. Recently, we entered into an agreement with Celltech providing each
company with the right to obtain nonexclusive licenses for up to three antibody
targets under the other company's humanization patents. Nevertheless, if our
SMART antibodies were covered by the European or U.S. Adair Patent and if we
were to need more than the three licenses under those patents currently
available to us under the agreement, we would be required to negotiate
additional licenses under those patents or to significantly alter our processes
or products. We might not be able to successfully alter our processes or
products to avoid conflict with these patents or to obtain the required
additional licenses on commercially reasonable terms, if at all.
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<PAGE> 19
In addition, if U.S. Adair Patent or any related patent applications conflict
with our U.S. patents or patent applications, we may become involved in
proceedings to determine which company was the first to invent the products or
processes contained in the conflicting patents. These proceedings could be
expensive, last several years and either prevent issuance of additional patents
to us relating to humanization of antibodies or result in a significant
reduction in the scope or invalidation of our patents. Any limitation would
reduce our ability to negotiate or collect royalties or to negotiate future
collaborative research and development agreements based on these patents.
Lonza Biologics, Inc. has a patent issued in Europe to which we do not have a
license (although we have been advised by Roche that it has a license covering
Zenapax) that may cover a process that we use to produce our potential products.
If our processes were covered by this patent, we might be required to obtain a
license under this patent or to significantly alter our processes or products in
Europe. We might not be able to successfully alter our processes or products to
avoid conflict with this patent or to obtain a license on commercially
reasonable terms.
We do not have a license to an issued U.S. patent assigned to Stanford
University and Columbia University, which may cover a process we use to produce
our potential products. We have been advised that an exclusive license has been
previously granted to a third party under this patent. If our processes were
covered by this patent, we might be required to obtain a license or to
significantly alter our processes or products in the U.S. We might not be able
to successfully alter our processes or products to avoid conflict with this
patent or to obtain a license on acceptable terms. Moreover, if we do not obtain
the required licenses, any alteration of processes or products to avoid conflict
with a competitive patent could result in a significant delay in our achieving
regulatory approval for the products affected by these alterations.
IF WE CANNOT SUCCESSFULLY COMPLETE OUR CLINICAL TRIALS, WE WILL BE UNABLE TO
OBTAIN REGULATORY APPROVALS REQUIRED TO MARKET OUR PRODUCTS.
To obtain regulatory approval for the commercial sale of any of our potential
products or to promote these products for expanded indications, we must
demonstrate through preclinical testing and clinical trials that each product is
safe and effective for use in indications for which approval is requested. We
have conducted only a limited number of clinical trials to date. We may not be
able to successfully commence and complete all of our planned clinical trials
without significant additional resources and expertise. Our potential inability
to commence or continue clinical trials, to complete the clinical trials on a
timely basis or to demonstrate the safety and efficacy of our potential
products, further adds to the uncertainty of regulatory approval for our
potential products.
Larger and later stage clinical trials may not produce the same results as early
stage trials. Many companies in the pharmaceutical and biotechnology industries,
including PDL, have suffered significant setbacks in clinical trials, including
advanced clinical trials, even after promising results had been obtained in
earlier trials.
Research, preclinical testing and clinical trials may take many years to
complete and the time required can vary depending on the indication being
addressed and the nature of the product. We may at times elect to use aggressive
clinical strategies in order to advance potential products through clinical
development as rapidly as possible. For example, we may commence clinical trials
without conducting preclinical animal testing, where an appropriate animal
testing model does not exist, or we may conduct later stage trials based on
limited early stage data. As a result, we anticipate that
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<PAGE> 20
only some of our potential products may show safety and efficacy in clinical
trials and some may encounter difficulties or delays during clinical
development.
For example, we have entered the SMART M195 Antibody into a Phase III clinical
trial in acute myelogenous leukemia with a clinical regimen that has not been
tested previously with this antibody. Results from our prior Phase II and Phase
II/III studies showed only a limited number of complete and partial remissions.
In addition, we initiated a Phase III study without a meeting with the FDA or
European regulatory authorities to discuss the protocol and its adequacy to
support approval of the SMART M195 Antibody. We believe that our Phase III
program is reasonable in view of the nature and severity of the disease. We
cannot assure you that the study will be successful or that the FDA or European
regulatory authorities will agree that the study will be adequate to obtain
regulatory approval, even if the study is successful. In addition, the protocol
for our Phase III trial includes an interim review by an independent data safety
monitoring board. It is possible that the trial could be terminated upon such a
review if the interim data do not show a sufficient probability of the trial
being successful or if specified safety criteria are not met.
As a second example, the FDA recently placed a clinical hold on clinical trials
of our SMART Anti-CD3 Antibody for kidney transplant indications due to their
belief that we have not supplied adequate data from our prior trials to support
our proposed dosage modifications to the Phase II study for prevention of kidney
transplant rejection. Although our clinical trials of this antibody in other
indications, such as psoriasis, are not affected by this hold, our clinical
studies of this potential product for prevention or treatment of kidney
transplant rejection will be delayed in the U.S. until we supply sufficient data
to the FDA to justify our desired clinical study designs. Also, we may be
required to further modify our clinical study designs to comply with FDA
requirements and possibly to conduct additional Phase I trials before proceeding
with Phase II trials. Accordingly, there can be no assurance that we will be
able, or will choose, to proceed with development of this antibody for either or
both of the transplant indications.
WE MAY BE UNABLE TO ENROLL SUFFICIENT PATIENTS TO COMPLETE OUR CLINICAL TRIALS.
The rate of completion of our clinical trials, and those of our collaborators,
is significantly dependent upon the rate of patient enrollment. Patient
enrollment is a function of many factors, including:
- the size of the patient population
- perceived risks and benefits of the drug under study
- availability of competing therapies
- availability of clinical trial sites
- design of the protocol
- proximity of and access by patients to clinical sites
- patient referral practices of physicians
- eligibility criteria for the study in question, and
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<PAGE> 21
- efforts of the sponsor of and clinical sites involved in the trial to
facilitate timely enrollment.
We may have difficulty obtaining sufficient patient enrollment or clinician
support to conduct our clinical trials as planned, and we may have to expend
substantial additional funds to obtain access to resources or delay or modify
our plans significantly. These considerations may lead us to consider the
termination of ongoing clinical trials or development of a product for a
particular indication.
WE MAY BE UNABLE TO OBTAIN OR MAINTAIN REGULATORY APPROVAL FOR OUR PRODUCTS.
The manufacturing, testing and marketing of our products are subject to
regulation by numerous governmental authorities in the U.S. and other countries.
In the U.S., pharmaceutical products are subject to rigorous FDA regulation.
Additionally, other federal, state and local regulations govern the manufacture,
testing, clinical and nonclinical studies to assess safety and efficacy,
approval, advertising and promotion of pharmaceutical products. The process of
obtaining approval for a new pharmaceutical product or for additional
therapeutic indications within this regulatory framework requires a number of
years and the expenditure of substantial resources. Companies in the
pharmaceutical and biotechnology industries, including us, have suffered
significant setbacks in various stages of clinical trials, even in advanced
clinical trials after promising results had been obtained in earlier trials.
In addition to the requirement for FDA approval of each pharmaceutical product,
each pharmaceutical product manufacturing facility must be registered with, and
approved by, the FDA. The manufacturing and quality control procedures must
conform to rigorous guidelines in order to receive FDA approval. Pharmaceutical
product manufacturing establishments are subject to inspections by the FDA and
local authorities as well as inspections by authorities of other countries. To
supply pharmaceutical products for use in the U.S., foreign manufacturing
establishments must comply with these FDA approved guidelines. These foreign
manufacturing establishments are subject to periodic inspection by the FDA or by
corresponding regulatory agencies in these countries under reciprocal agreements
with the FDA. Moreover, pharmaceutical product manufacturing facilities may also
be regulated by state, local and other authorities.
For the marketing of pharmaceutical products outside the U.S., we and our
collaborative partners are subject to foreign regulatory requirements and, if
the particular product is manufactured in the U.S., FDA and other U.S. export
provisions. Requirements relating to the manufacturing, conduct of clinical
trials, product licensing, promotion, pricing and reimbursement vary widely in
different countries. Difficulties or unanticipated costs or price controls may
be encountered by us or our licensees or marketing partners in our respective
efforts to secure necessary governmental approvals. This could delay or prevent
us or our licensees or our marketing partners from marketing potential
pharmaceutical products.
Both before and after approval is obtained, a pharmaceutical product, its
manufacturer and the holder of the Biologics License Application (BLA) for the
pharmaceutical product are subject to comprehensive regulatory oversight. The
FDA may deny a BLA if applicable regulatory criteria are not satisfied.
Moreover, even if regulatory approval is granted, such approval may be subject
to limitations on the indicated uses for which the pharmaceutical product may be
marketed. Further, marketing approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems with the pharmaceutical
product occur following approval. In addition, under a BLA,
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<PAGE> 22
the manufacturer continues to be subject to facility inspection and the
applicant must assume responsibility for compliance with applicable
pharmaceutical product and establishment standards. Violations of regulatory
requirements at any stage may result in various adverse consequences, which may
include, among other adverse actions, withdrawal of the previously approved
pharmaceutical product or marketing approvals and/or the imposition of criminal
penalties against the manufacturer and/or BLA holder.
OUR REVENUES FROM LICENSED TECHNOLOGIES DEPEND ON THE EFFORTS AND SUCCESSES OF
OUR LICENSEES.
In those instances where we have licensed rights to our technologies, the
product development and marketing efforts and successes of our licensees will
determine the amount and timing of royalties we may receive, if any. We have no
assurance that any licensee will successfully complete the product development,
regulatory and marketing efforts required to sell products. The success of
products sold by licensees, such as Roche, will be affected by competitive
products, including potential competing therapies that are marketed by the
licensee or others.
IF OUR COLLABORATIONS ARE NOT SUCCESSFUL, WE MAY NOT BE ABLE TO EFFECTIVELY
DEVELOP AND MARKET SOME OF OUR PRODUCTS.
We have collaborative agreements with several pharmaceutical and other companies
to develop, manufacture and market Zenapax and some of our potential products.
In some cases, we are relying on our collaborative partners to manufacture such
products, to conduct clinical trials, to compile and analyze the data received
from these trials, to obtain regulatory approvals and, if approved, to market
these licensed products. As a result, we may have little or no control over the
manufacturing, development and marketing of these potential products and little
or no opportunity to review clinical data prior to or following public
announcement.
Our collaborative agreements can generally be terminated by our partners on
short notice. A collaborator may terminate its agreement with us or separately
pursue alternative products, therapeutic approaches or technologies as a means
of developing treatments for the diseases targeted by us or our collaborative
effort. Even if a collaborator continues its contributions to the arrangement,
it may nevertheless determine not to actively pursue the development or
commercialization of any resulting products. In these circumstances, our ability
to pursue potential products could be severely limited.
Continued funding and participation by collaborative partners will depend on the
timely achievement of our research and development objectives, the retention of
key personnel performing work under those agreements and on each collaborative
partner's own financial, competitive, marketing and strategic considerations.
Such considerations include:
- the commitment of management of the collaborative partners to the
continued development of the licensed products or technology
- the relationships among the individuals responsible for the
implementation and maintenance of the collaborative efforts, and
- the relative advantages of alternative products or technology being
marketed or developed by the collaborators or by others, including their
relative patent and
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proprietary technology positions, and their ability to manufacture
potential products successfully.
Our ability to enter into new collaborations and the willingness of our existing
collaborators to continue development of our potential products depends upon,
among other things, our patent position with respect to such products. If we are
unable to successfully maintain our patents we may be unable to collect
royalties on existing licensed products or enter into additional collaborations
and agreements.
OUR LACK OF EXPERIENCE IN SALES, MARKETING AND DISTRIBUTION MAY HAMPER MARKET
INTRODUCTION AND ACCEPTANCE OF OUR PRODUCTS.
We intend to market and sell a number of our products either directly or through
sales and marketing partnership arrangements with collaborative partners. To
market products directly, we must either establish a marketing group and direct
sales force or obtain the assistance of another company. We may not be able to
establish marketing, sales and distribution capabilities or succeed in gaining
market acceptance for our products. If we were to enter into co-promotion or
other marketing arrangements with pharmaceutical or biotechnology companies, our
revenues would be subject to the payment provisions of these arrangements and
dependent on the efforts of third parties.
MANUFACTURING DIFFICULTIES COULD DELAY COMMERCIALIZATION OF OUR PRODUCTS.
Of the products that we currently have in clinical development, Roche is
responsible for manufacturing Zenapax, SmithKline Beecham is responsible for
manufacturing the humanized anti-IL-4 antibody and Scil is responsible for
manufacturing the SMART Anti-L-Selectin Antibody. We are responsible for
manufacturing our other products for our own development. We intend to continue
to manufacture potential products for use in preclinical and clinical trials
using our manufacturing facility in accordance with standard procedures that
comply with appropriate regulatory standards. The manufacture of sufficient
quantities of antibody products that comply with these standards is an
expensive, time-consuming and complex process and is subject to a number of
risks that could result in delays. For example, we and our collaborative
partners have experienced some manufacturing difficulties. Product supply
interruptions could significantly delay clinical development of our potential
products, reduce third party or clinical researcher interest and support of
proposed clinical trials, and possibly delay commercialization and sales of
these products. Manufacturing difficulties can even interrupt the supply of
marketed products, thereby reducing revenues and risking loss of market share.
For example, Roche has received a warning letter from the FDA regarding
deficiencies in the manufacture of various products. Although the letter
primarily related to products other than Zenapax, at least two deviations in the
manufacture of Zenapax were noted. If Roche were not able to correct these and
any other deficiencies in the manufacture of Zenapax in a timely manner, Zenapax
supplies could be interrupted, which could cause a delay or termination of our
clinical trials of Zenapax in autoimmune disease and could force Roche to
withdraw Zenapax from the market temporarily or permanently, resulting in loss
of revenue to us. These occurrences could materially impair our competitive
position.
We do not have experience in manufacturing commercial quantities of our
potential products, nor do we currently have sufficient capacity to manufacture
all of our potential products on a commercial scale. In order to obtain
regulatory approvals and to create capacity to produce our products for
commercial sale at an acceptable cost, we will need to improve and expand our
existing
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manufacturing capabilities. We are reviewing plans to expand our manufacturing
capacity, including possible acquisition and conversion of an existing building
into a manufacturing plant. If we implement these plans we will incur
substantial costs. Any construction delays could impair our ability to produce
adequate supplies of our potential products for clinical use or commercial sale
on a timely basis. Further, we may be unable to improve and expand our
manufacturing capability sufficiently to obtain necessary regulatory approvals
and to produce adequate commercial supplies of our potential products on a
timely basis. Failure to do so could delay commercialization of these products
and could impair our competitive position.
MANUFACTURING CHANGES MAY RESULT IN DELAYS IN OBTAINING REGULATORY APPROVAL OR
MARKETING FOR OUR PRODUCTS.
Manufacturing of antibodies for use as therapeutics in compliance with
regulatory requirements is complex, time-consuming and expensive. If we make
changes in the manufacturing process, we may be required to demonstrate to the
FDA and corresponding foreign authorities that the changes have not caused the
resulting drug material to differ significantly from the drug material
previously produced. This is particularly important if we want to rely on
results of prior preclinical studies and clinical trials performed using the
previously produced drug material. Depending upon the type and degree of
differences between the newer and older drug material, we may be required to
conduct additional animal studies or human clinical trials to demonstrate that
the newly produced drug material is sufficiently similar to the previously
produced drug material. We have made manufacturing changes and are likely to
make additional manufacturing changes for the production of our products
currently in clinical development, such as the SMART M195 and SMART Anti-CD3
Antibodies. These manufacturing changes could result in delays in development or
regulatory approvals or in reduction or interruption of commercial sales and
could impair our competitive position.
OUR BUSINESS MAY BE HARMED IF WE CANNOT OBTAIN SUFFICIENT QUANTITIES OF RAW
MATERIALS.
We depend on outside vendors for the supply of raw materials used to produce our
product candidates. Once a supplier's materials have been selected for use in
our manufacturing process, the supplier in effect becomes a sole or limited
source of that raw material due to regulatory compliance procedures. If the
third party suppliers were to cease production or otherwise fail to supply us
with quality raw materials and we were unable to contract on acceptable terms
for these services with alternative suppliers, our ability to produce our
products and to conduct preclinical testing and clinical trials of product
candidates would be adversely affected. This could impair our competitive
position.
OUR REVENUE MAY BE ADVERSELY AFFECTED BY COMPETITION AND RAPID TECHNOLOGICAL
CHANGE.
We are aware that potential competitors have developed and are developing human
and humanized antibodies or other compounds for treating autoimmune diseases,
transplantation, inflammatory conditions and cancers. In addition, a number of
academic and commercial organizations are actively pursuing similar
technologies, and several companies have developed or may develop technologies
that may compete with our SMART antibody technology. Competitors may succeed in
more rapidly developing and marketing technologies and products that are more
effective than our products or that would render our products or technology
obsolete or noncompetitive. Our collaborative partners may also independently
develop products that are competitive with products
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that we have licensed to them. This could reduce our revenues under our
agreements with these partners.
Any product that we or our collaborative partners succeed in developing and for
which regulatory approval is obtained must then compete for market acceptance
and market share. The relative speed with which we and our collaborative
partners can develop products, complete the clinical testing and approval
processes, and supply commercial quantities of the products to the market
compared to competitive companies will affect market success. For example,
Novartis, which has a significant marketing and sales force directed to the
transplantation market, has received approval to market Simulect(R), a product
competitive with Zenapax, in the U.S. and Europe. Since Novartis launched
Simulect in the European Union earlier than Roche, Zenapax may have a smaller
market share than Simulect and other available products.
Other competitive factors include:
- the capabilities of our collaborative partners
- product efficacy and safety
- timing and scope of regulatory approval
- product availability, marketing and sales capabilities
- reimbursement coverage
- the amount of clinical benefit of our products relative to their cost
- method of and frequency of administration of our products
- price of our products, and
- patent protection of our products.
IF WE DO NOT ATTRACT AND RETAIN KEY EMPLOYEES, OUR BUSINESS COULD BE IMPAIRED.
To be successful, we will have to retain our qualified clinical, manufacturing,
scientific and management personnel. Because we are located in a high technology
area, we face competition for personnel from other companies, academic
institutions, government entities and other organizations. We are currently
conducting a search for a chief financial officer and a vice president of
marketing, as well as other senior management personnel. If we are unsuccessful
in filling these positions or retaining qualified personnel, our business could
be impaired.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS, AND OUR INSURANCE COVERAGE MAY
NOT BE ADEQUATE TO COVER THESE CLAIMS.
We face an inherent business risk of exposure to product liability claims in the
event that the use of products during research and development efforts or after
commercialization results in adverse effects. This risk will exist even with
respect to any products that receive regulatory approval for commercial sale.
While we have obtained liability insurance for our products, it may not be
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sufficient to satisfy any liability that may arise. Also, adequate insurance
coverage may not be available in the future at acceptable cost, if at all.
WE MAY REQUIRE ADDITIONAL FUNDS THAT MAY BE DIFFICULT TO OBTAIN IN ORDER TO
CONTINUE OUR BUSINESS ACTIVITIES AS PLANNED.
Our operations to date have consumed substantial amounts of cash. We will be
required to spend substantial funds in conducting clinical trials, to expand our
marketing capabilities and efforts, to expand existing research and development
programs, to develop and expand our development and manufacturing capabilities
and to defend or prosecute our patents and patent applications.
In order to develop and commercialize our products, we may need to raise
substantial additional funds through equity or debt financings, collaborative
arrangements, the use of sponsored research efforts or other means. Additional
financing may not be available on acceptable terms, if at all, and may only be
available on terms dilutive to existing stockholders or that would increase the
amount of our indebtedness. Our inability to secure adequate funds on a timely
basis could result in the delay or cancellation of programs that we might
otherwise pursue.
WE MAY INCUR SIGNIFICANT COSTS IN ORDER TO COMPLY WITH ENVIRONMENTAL REGULATIONS
OR TO DEFEND CLAIMS ARISING FROM ACCIDENTS INVOLVING THE USE OF HAZARDOUS
MATERIALS.
We are subject to federal, state and local laws and regulations governing the
use, discharge, handling and disposal of materials and wastes used in our
operations. As a result, we may be required to incur significant costs to comply
with these laws and regulations. We cannot eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident,
we could be held liable for any resulting damages and incur liabilities which
exceed our resources. In addition, we cannot predict the extent of the adverse
effect on our business or the financial and other costs that might result from
any new government requirements arising out of future legislative,
administrative or judicial actions.
CHANGES IN THE U.S. AND INTERNATIONAL HEALTH CARE INDUSTRY COULD ADVERSELY
AFFECT OUR REVENUES.
The U.S. and international health care industry is subject to changing
political, economic and regulatory influences that may significantly affect the
purchasing practices and pricing of pharmaceuticals. Cost containment measures,
whether instituted by health care providers or imposed by government health
administration regulators or new regulations, could result in greater
selectivity in the purchase of drugs. As a result, third-party payors may
challenge the price and cost effectiveness of our products. In addition, in many
major markets outside the U.S., pricing approval is required before sales can
commence. As a result, significant uncertainty exists as to the reimbursement
status of approved health care products.
We may not be able to obtain or maintain our desired price for our products. Our
products may not be considered cost effective relative to alternative therapies.
As a result, adequate third-party reimbursement may not be available to enable
us to maintain prices sufficient to realize an appropriate return on our
investment in product development. Also, the trend towards managed health care
in the U.S. and the concurrent growth of organizations such as health
maintenance organizations, as well as legislative proposals to reform health
care or reduce government insurance programs, may all result in lower prices,
reduced reimbursement levels and diminished markets for
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our products. These factors will also affect the products that are marketed by
our collaborative partners.
AS A RESULT OF OUR SALE OF THE NOTES, WE WILL HAVE A SIGNIFICANT AMOUNT OF DEBT
AND MAY HAVE INSUFFICIENT CASH TO SATISFY OUR DEBT SERVICE OBLIGATIONS. IN
ADDITION, THE AMOUNT OF OUR DEBT COULD IMPEDE OUR OPERATIONS AND FLEXIBILITY.
As a result of our sale of the notes, we have a significant amount of debt and
debt service obligations. If we are unable to generate sufficient cash flow or
otherwise obtain funds necessary to make required payments on the notes,
including from cash and cash equivalents on hand, we will be in default under
the terms of the indenture which could, in turn, cause defaults under our other
existing and future debt obligations.
Even if we are able to meet our debt service obligations, the amount of debt we
have could adversely affect us in a number of ways, including by:
- limiting our ability to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or
other purposes
- limiting our flexibility in planning for, or reacting to, changes in our
business
- placing us at a competitive disadvantage relative to our competitors who
have lower levels of debt
- making us more vulnerable to a downturn in our business or the economy
generally, and
- requiring us to use a substantial portion of our cash to pay principal
and interest on our debt, instead of applying those funds to other
purposes such as working capital and capital expenditures.
WE MAY BE UNABLE TO REPURCHASE THE NOTES UPON THE OCCURRENCE OF A CHANGE IN
CONTROL.
Upon the occurrence of a Change in Control of PDL, we will be required to offer
to repurchase all outstanding notes. Although the Indenture allows us, subject
to satisfaction of certain conditions, to repurchase the notes using shares of
our common stock, if a Change in Control were to occur, our ability to
repurchase the notes with cash will depend on the availability of sufficient
funds and compliance with the terms of any debt ranking senior to the notes. Our
failure to repurchase tendered notes upon a Change in Control would constitute
an event of default under the Indenture, which could result in the acceleration
of the maturity of the notes and all of our other outstanding debt. These
repurchase requirements may also delay or make it harder for others to obtain
control of us.
CLAIMS BY HOLDERS OF THE NOTES WILL BE SUBORDINATED TO CLAIMS BY HOLDERS OF OUR
SENIOR DEBT.
The notes rank behind all of our Senior Debt. The notes are effectively
subordinated in right of payment to all indebtedness and other liabilities of
our subsidiaries. As a result, if we declare bankruptcy, liquidate, reorganize,
dissolve or otherwise wind up our affairs or are subjected to
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similar proceedings, we must repay all Senior Debt before we will be able to
make any payments on the notes. Likewise, upon a default in payment with respect
to any of our debt or an event of default with respect to this debt resulting in
its acceleration, our assets will be available to pay the amounts due on the
notes only after all Senior Debt has been paid in full. The Indenture does not
prohibit us from incurring additional Senior Debt, other debt or other
liabilities or our subsidiaries from incurring any indebtedness. Our ability to
pay our obligations on the notes could be adversely affected if we incur more
debt. As of December 31, 1999, one of our subsidiaries had outstanding
approximately $10.1 million of indebtedness to which the notes are effectively
subordinated. See "Description of the Notes--Subordination."
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES.
While the outstanding notes are eligible for trading in the PORTAL Market, there
is no public market for the notes. The Initial Purchasers, as that term is
defined in this prospectus, informed us that they intend to make a market in the
notes, but they may cease their market-making at any time.
We do not intend to apply for a listing of any of the notes on any securities
exchange. We do not know if an active public market has developed or will
develop for the notes or, if developed, will continue. If an active market is
not developed or maintained, the market price and the liquidity of the notes may
be adversely affected.
In addition, the liquidity and the market price of the notes may be adversely
affected by changes in the overall market for convertible securities and by
changes in our financial performance or prospects, or in the prospects for
companies in our industry. As a result, you cannot be sure that an active
trading market will develop for these notes.
OUR COMMON STOCK PRICE IS VOLATILE AND AN INVESTMENT IN OUR COMPANY COULD
DECLINE IN VALUE.
Market prices for securities of biotechnology companies (including PDL) have
been highly volatile so that investment in our securities involves substantial
risk. Additionally, the stock market from time to time has experienced
significant price and volume fluctuations that may be unrelated to the operating
performance of particular companies. The following are some of the factors that
may have a significant effect on the market price of our common stock:
- developments or disputes as to patent or other proprietary rights
- disappointing sales of approved products
- approval or introduction of competing products and technologies
- results of clinical trials
- failures or unexpected delays in obtaining regulatory approvals or FDA
advisory panel recommendations
- delays in manufacturing or clinical trial plans
- fluctuations in our operating results
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- disputes or disagreements with collaborative partners
- market reaction to announcements by other biotechnology or
pharmaceutical companies
- announcements of technological innovations or new commercial therapeutic
products by us or our competitors
- initiation, termination or modification of agreements with our
collaborative partners
- loss of key personnel
- litigation or the threat of litigation
- public concern as to the safety of drugs developed by us
- sales of our common stock held by collaborative partners or insiders
- comments and expectations of results made by securities analysts, and
- general market conditions.
If any of these factors causes us to fail to meet the expectations of securities
analysts or investors, or if adverse conditions prevail or are perceived to
prevail with respect to our business, the price of the common stock would likely
drop significantly. A significant drop in the price of a company's common stock
often leads to the filing of securities class action litigation against the
company. This type of litigation against us could result in substantial costs
and a diversion of management's attention and resources.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE AND THE PRICE
OF THE NOTES TO FALL.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, the market prices of the
notes and our common stock could fall. Such sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. Substantially all of our outstanding
shares of common stock can be sold at any time without limitation.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or the shares of
common stock issuable on conversion of the notes. See "Selling Security
Holders."
PRICE RANGE OF COMMON STOCK
Our common stock trades on The Nasdaq National Market under the symbol "PDLI."
The following table sets forth for the periods indicated the high and low
closing bid prices for our common stock as quoted on The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C>
1998
First Quarter ............................... $ 46 1/4 $ 34 5/8
Second Quarter .............................. 39 1/2 20 1/8
Third Quarter ............................... 26 1/4 16 3/4
Fourth Quarter .............................. 27 1/4 16 1/2
1999
First Quarter ............................... $ 26 1/2 $ 13 1/4
Second Quarter .............................. 22 14 3/8
Third Quarter ............................... 36 1/8 22 1/8
Fourth Quarter .............................. 72 5/8 32 1/4
2000
First Quarter ............................... $ 327 1/4 $ 59 7/16
Second Quarter (through April 25, 2000) ..... 110 13/16 59 5/16
</TABLE>
On April 25, 2000, the closing bid price quoted on The Nasdaq National Market
for the common stock was $78.875 per share. On March 31, 2000, there were
approximately 127 holders of record of our common stock. Because many of these
shares are held by brokers and other institutions on behalf of stockholders, we
are unable to estimate the total number of stockholders represented by these
record holders.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently
intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Payment of future dividends, if any, will
be at the discretion of our board of directors after taking into account various
factors, including our financial condition, operating results and current and
anticipated cash needs.
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DESCRIPTION OF THE NOTES
The 5.50% Convertible Subordinated Notes due February 15, 2007 were issued under
an indenture (the Indenture) between us and Chase Manhattan Bank and Trust
Company, National Association, as trustee. The Indenture and the notes are
governed by New York law. Because this section is a summary, it does not
describe every aspect of the notes. This summary is subject to and qualified in
its entirety by reference to all the provisions of the Indenture, including
definitions of certain terms used in the Indenture. For example, we use
capitalized words to signify defined terms that have been given special meaning
in the Indenture. We describe the meaning for only the more important terms.
Wherever we refer to particular defined terms, those terms are incorporated
herein by reference. In this section, references to "PDL", "we" or "us" refer
solely to PDL and not to any of our subsidiaries.
GENERAL
The notes are general, unsecured obligations of PDL. The notes are subordinated,
which means that they rank behind certain of our other indebtedness as described
below. The aggregate principal amount of the notes is $150,000,000.
The notes bear interest at 5.50% per year from February 15, 2000. We will pay
interest twice a year, on each February 15 and August 15 (each, an Interest
Payment Date), beginning August 15, 2000, until the principal is paid or made
available for payment or the notes have been converted. Interest will be paid to
the person in whose name the note is registered at the close of business on the
preceding February 1 or August 1, as the case may be (each, a Regular Record
Date). Interest payable per $1,000 principal amount of notes for the period from
February 15, 2000 to August 15, 2000, will be $27.50. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
You may convert the notes into shares of our common stock at any time before the
close of business on February 15, 2007 unless the notes have been previously
redeemed or repurchased. The initial conversion rate is 6.6225 shares per each
$1,000 principal amount of notes. This is equivalent to a conversion price of
approximately $151.00 per share. The conversion rate may be adjusted as
described below.
We may redeem the notes at our option at any time on or after February 15, 2003,
in whole or in part, at the redemption prices set forth below under "Optional
Redemption", plus accrued and unpaid interest to the redemption date. If there
is a Change in Control (as defined below), you may have the right to require us
to repurchase your notes as described below under "Repurchase at Option of
Holders Upon a Change in Control."
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
The notes will be issued:
- only in fully registered form
- without interest coupons, and
- in denominations of $1,000 and integral multiples thereof.
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Principal of, premium, if any, and interest (and Liquidated Damages (as defined
below), if any) on the notes will be payable, and the notes may be presented for
registration or exchange, at the office or agency we maintain for such purpose
in the Borough of Manhattan, The City of New York. Until we designate otherwise,
our office or agency will be the trustee's corporate trust office now located in
the Borough of Manhattan, The City of New York.
The notes are currently evidenced by one or more global notes that have been
deposited with the trustee as custodian for DTC and registered in the name of
Cede & Co. (Cede), as nominee of DTC. Except as set forth below, record
ownership of the global note may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee.
The global note will not be registered in the name of any person, or exchanged
for notes that are registered in the name of any person, other than DTC or its
nominee unless either of the following occurs:
- DTC has notified us that it is unwilling or unable to continue as
depositary for the global note or has ceased to be a clearing agency
registered as such under the Securities Exchange Act of 1934, as amended
(the Exchange Act), or announces an intention permanently to cease
business or does in fact do so, or
- an Event of Default (as defined below) with respect to the notes
represented by the global note has occurred and is continuing.
In those circumstances, DTC will determine in whose names any securities issued
in exchange for the global note will be registered.
DTC or its nominee is considered the sole owner and holder of the global note
for all purposes, and as a result:
- you cannot receive notes registered in your name if they are represented
by the global note
- you cannot receive certificated (physical) notes in exchange for your
beneficial interest in the global notes
- you will not be considered to be the owner or holder of the global note
or any note it represents for any purpose, and
- all payments on the global note will be made to DTC or its nominee.
The laws of some jurisdictions require that certain kinds of purchasers (for
example, certain insurance companies) can only own securities in definitive
(certificated) form. These laws may limit your ability to transfer your
beneficial interests in the global note to these types of purchasers.
Only institutions (such as a securities broker or dealer) that have accounts
with DTC or its nominee (called "participants") and persons that may hold
beneficial interests through participants can own a beneficial interest in the
global note. The only place where the ownership of beneficial interests in the
global note will appear and the only way the transfer of those interests can be
made is on the
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records kept by DTC (for its participants' interests) and the records kept by
those participants (for interests of persons participants hold on their behalf).
Secondary trading in bonds and notes of corporate issuers is generally settled
in clearinghouse (that is, next-day) funds. In contrast, beneficial interests in
a global note usually trade in DTC's same-day funds settlement system, and
settle in immediately available funds. We make no representations as to the
effect that settlement in immediately available funds will have on trading
activity in those beneficial interests.
We will make cash payments of interest on, and principal of, and the redemption
or repurchase price of, the global note, as well as any payment of Liquidated
Damages, to Cede, the nominee for DTC, as the registered owner of the global
note. We will make these payments by wire transfer of immediately available
funds on each payment date.
We have been informed that, with respect to any cash payment of interest on,
principal of, or the redemption or repurchase price of, the global note, as well
as any payment of Liquidated Damages, DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global note as
shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on that payment date. Payments by participants to owners of
beneficial interests in notes represented by the global note held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in "street
name."
We will send any redemption notices to the trustee. If fewer than all of the
notes are being redeemed, the particular ratio to be redeemed will be selected
by the trustee by a method that the trustee deems to be fair and appropriate. We
understand that if less than all of a global note is being redeemed, DTC's
current practice is to determine by lot the amount of the holdings of each
participant in the global note to be redeemed.
We also understand that neither DTC nor Cede will consent or vote with respect
to the notes. We have been advised that under its usual procedures, DTC will
mail an "omnibus proxy" to us as soon as possible after the record date. The
omnibus proxy assigns Cede's consenting or voting rights to those participants
to whose accounts the notes are credited on the record date identified in a
listing attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on behalf of
indirect participants, the ability of a person having a beneficial interest in
the principal amount represented by the global note to pledge the interest to
persons or entities that do not participate in the DTC book entry system, or
otherwise take actions in respect of that interest, may be affected by the lack
of a physical certificate evidencing its interest.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes (including the presentation of notes for exchange) only at the
direction of one or more participants to whose account with DTC interests in the
global note are credited and only in respect of such portion of the principal
amount of the notes represented by the global note as to which such participant
has, or participants have, given such direction.
DTC has also advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation"
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within the meaning of the Uniform Commercial Code, as amended, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Certain of
such participants (or their representatives), together with other entities, own
DTC. Indirect access to the DTC system is available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. DTC's
policies and procedures, which may change periodically, will apply to payments,
transfers, exchanges and other matters relating to beneficial interests in the
global note. The trustee and we have no responsibility or liability for any
aspect of DTC's or any participant's records relating to beneficial interests in
the global note, including for payments made on the global note, and we and the
trustee are not responsible for maintaining, supervising or reviewing any of
those records.
CONVERSION RIGHTS
You may, at your option, convert any portion of the principal amount of a note
that is an integral multiple of $1,000 into shares of our common stock at any
time prior to the close of business on the maturity date; provided, however,
that if a note is called for redemption or repurchase, you may convert such note
at any time before the close of business on the date fixed for redemption or
repurchase, as the case may be, unless we default in making the payment due upon
redemption or repurchase. In either case, the conversion rate is equal to 6.6225
shares per $1,000 principal amount of notes, which is equivalent to a conversion
price of approximately $151.00 per share. The conversion rate is subject to
adjustment as described below.
The holder of a note can convert the note by delivering the note at the
trustee's corporate trust office, accompanied by a duly signed and completed
notice of conversion, a copy of which may be obtained from the trustee. In the
case of a global note, DTC will effect the conversion upon notice from the
holder of a beneficial interest in the global note in accordance with DTC's
rules and procedures. The conversion date will be the date on which the note and
the duly signed and completed notice of conversion are so delivered to the
trustee. As promptly as practicable on or after the conversion date, we will
issue and deliver to the trustee a certificate or certificates for the number of
full shares of common stock issuable upon conversion, together with payment in
lieu of any fraction of a share, and the trustee shall deliver the
certificate(s) to the conversion agent for delivery to the holder of the note
being converted. The shares of common stock issuable upon conversion of the
notes will be fully paid and nonassessable and will also rank equally with other
shares of our common stock outstanding from time to time.
If you surrender a note for conversion on a date that is not an Interest Payment
Date, you will not be entitled to receive any interest for the period from the
preceding Interest Payment Date to the date of conversion, except as described
below. However, if you are a holder of a note on a Regular Record Date,
including a note that is subsequently surrendered for conversion after the
Regular Record Date, you will receive the interest payable on such note on the
next Interest Payment Date. To correct for this resulting overpayment of
interest, we will require that any note surrendered for conversion during the
period from the close of business on a Regular Record Date to the opening of
business on the next Interest Payment Date be accompanied by payment of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of notes being surrendered for
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conversion. However, you will not be required to make that payment if you are
converting a note, or a portion of a note, that we have called for redemption,
or that you are entitled to require us to repurchase from you, if your
conversion right would terminate because of the redemption or repurchase between
the Regular Record Date and the close of business on the next Interest Payment
Date.
If we distribute rights or warrants (other than those referred to in paragraph
(2) below) pro rata to holders of common stock, so long as any such rights or
warrants have not expired or been redeemed by us, the holder of any note
surrendered for conversion will be entitled to receive upon such conversion, in
addition to the shares of common stock issuable upon such conversion (the
Conversion Shares), a number of rights or warrants to be determined as follows:
- if such conversion occurs on or prior to the date for the distribution
to the holders of rights or warrants of separate certificates evidencing
such rights or warrants (the Distribution Date), the same number of
rights or warrants to which a holder of a number of shares of common
stock equal to the number of Conversion Shares is entitled at the time
of such conversion in accordance with the terms and provisions of, and
applicable to, the rights or warrants, and
- if such conversion occurs after such Distribution Date, the same number
of rights or warrants to which a holder of the number of shares of
common stock into which such note was convertible immediately prior to
such Distribution Date would have been entitled on such Distribution
Date in accordance with the terms and provisions of, and applicable to,
the rights or warrants.
No other payment or adjustment for interest, or for any dividends on our common
stock, will be made upon conversion. If you receive common stock upon conversion
of a note, you will not be entitled to receive any dividends payable to holders
of common stock as of any record date before the close of business on the
conversion date. We will not issue fractional shares upon conversion of notes.
Instead, we will pay an amount in cash based on the average of the high and low
sales price of the common stock on the conversion date.
If you deliver a note for conversion, you will not be required to pay any taxes
or duties in respect of the issuance or delivery of common stock on conversion.
However, you will be required to pay any tax or duty that may be payable in
respect of any transfer involved in the issuance or delivery of the common stock
in a name other than that of the holder of the note. We will not issue or
deliver certificates representing shares of common stock unless the person
requesting the issuance or delivery has paid to us the amount of any such tax or
duty or has established to our satisfaction that no such tax or duty is payable.
The conversion rate is subject to adjustment if, among other things:
(1) there is a dividend or other distribution payable in common stock on shares
of our common stock,
(2) we issue to all holders of common stock rights, options or warrants
entitling them to subscribe for or purchase common stock at less than the
then current market price, calculated as described in the Indenture, of our
common stock; however, if those rights, options or
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warrants are only exercisable upon the occurrence of specified triggering
events, then the conversion rate will not be adjusted until the triggering
events occur,
(3) we subdivide, reclassify or combine our common stock,
(4) we distribute to all holders of our common stock evidences of our
indebtedness, shares of capital stock, cash or assets, including securities,
but excluding:
- those dividends, rights, options, warrants and distributions referred to
in paragraphs (1) and (2) above
- dividends and distributions paid in cash (except as set forth in
paragraphs (5) and (6) below), and
- distributions upon a merger or consolidation as discussed below,
(5) we make a distribution consisting exclusively of cash (excluding cash
distributed upon a merger or consolidation as discussed below) to all
holders of our common stock if the aggregate amount of the distribution
combined together with (A) other such all cash distributions made within the
preceding 365-day period in respect of which no adjustment has been made and
(B) any cash and the fair market value of other consideration payable in
respect of any tender offer by us or any of our subsidiaries for our common
stock concluded within the preceding 365-day period in respect of which no
adjustment has been made, exceeds 10% of our market capitalization, being
the product of the current market price per share of our common stock on the
record date for such distribution and the number of shares of common stock
then outstanding, or
(6) the successful completion of a tender offer made by us or any of our
subsidiaries for our common stock that involves aggregate consideration
that, together with (A) any cash and the fair market value of other
consideration payable in a tender offer by us or any of our subsidiaries for
our common stock concluded within the 365-day period preceding the
completion of such tender offer in respect of which no adjustment has been
made and (B) the aggregate amount of any such all cash distributions
referred to in paragraph (5) above to all holders of common stock within the
365-day period preceding the expiration of such tender offer in respect of
which no adjustments have been made, exceeds 10% of our market
capitalization on the expiration of such tender offer.
We reserve the right to make such increases in the conversion rate in addition
to those required by the provisions described above as we may consider to be
advisable so that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. No adjustment of the conversion rate will be required to be made
until the cumulative adjustments amount to 1.0% or more of the conversion rate.
We will compute any adjustments to the conversion rate and give notice to the
holders of any such adjustments.
If we merge or consolidate with another person or sell or transfer all or
substantially all of our assets, each note then outstanding will, without the
consent of the holder of any note, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of,
common stock into which the note was convertible immediately prior to the
merger, consolidation or sale. This
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calculation will be made based on the assumption that the holder of common stock
failed to exercise any fights of election that the holder may have had to select
a particular type of consideration. The adjustment will not be made for a merger
that does not result in any reclassification, conversion, exchange or
cancellation of our common stock.
We may, from time to time, increase the conversion rate by any amount for any
period of at least 20 days if our board of directors has determined that such
increase would be in our best interests. Any such determination will be
conclusive. We will give holders of notes at least 15 days' notice of such an
increase in the conversion rate. No such increase will be taken into account for
purposes of determining whether the closing price of the common stock exceeds
the conversion price by 105% in connection with an event which otherwise would
be a Change in Control.
If at any time we make a distribution of property to our stockholders that would
be taxable to them as a dividend for United States federal income tax purposes
(for example, distributions of evidences of indebtedness or assets of PDL, but
generally not stock dividends on common stock or rights to subscribe for common
stock) and, pursuant to the anti-dilution provisions of the Indenture, the
number of shares into which notes are convertible is increased, that increase
may be deemed for United States federal income tax purposes to be the payment of
a taxable dividend to holders of notes. For more details, see "Certain Federal
Income Tax Consequences."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the notes
(including any Liquidated Damages and any amounts payable upon the redemption or
repurchase of the notes that the Indenture permits) will be subordinated in
right of payment to the extent set forth in the Indenture to the prior payment
in full of all of our Senior Debt. "Senior Debt" means the principal of, and
premium, if any, and interest, including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding, on, and
all fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date of the Indenture or thereafter created, incurred or assumed:
- all our indebtedness evidenced by a credit or loan agreement, note,
bond, debenture or other similar instrument
- all our obligations for money borrowed
- all our obligations as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting
principles
- all our obligations to our subsidiaries as lessee under facility leases
- all our obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts or similar
agreements or arrangements
- all our obligations with respect to letters of credit, bankers'
acceptances and similar facilities, including related reimbursement
obligations
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- all our obligations issued or assumed as the deferred purchase price of
property or services, but excluding trade accounts payable and accrued
liabilities arising in the ordinary course of business
- all our obligations of the type referred to above of another person and
all dividends of another person, the payment of which, in either case,
we have assumed or guaranteed, or for which we are responsible or
liable, directly or indirectly, jointly or severally, as obligor,
guarantor or otherwise, or which are secured by a lien on our property,
and
- renewals, extensions, modifications, replacements, restatements and
refundings of, or any indebtedness or obligation issued in exchange for
any indebtedness or obligation described in the bullets above.
Senior Debt will not include any indebtedness or obligation if the terms of the
indebtedness or obligation, or the terms of the instrument under which the
indebtedness or obligation is issued, expressly provide that the indebtedness or
obligation is not superior in right of payment to the notes. In addition, Senior
Debt will not include trade payables and any indebtedness or obligation that we
may owe to any of our direct or indirect subsidiaries, except for our
obligations as lessee under facility leases.
We will not make any payment on account of principal, premium or interest on the
notes (including any Liquidated Damages and any amounts payable upon the
redemption or repurchase of the notes) if either of the following occurs:
- we default in our obligations to pay principal, premium, interest or
other amounts on our Senior Debt, including a default under any
redemption or repurchase obligation (a Payment Default), and the default
continues beyond any grace period that we may have to make those
payments, or
- a default (other than a Payment Default) occurs and is continuing on any
Designated Senior Debt (as defined below) and (1) the default permits
the holders of the Designated Senior Debt to accelerate its maturity and
(2) the trustee has received a notice (a Payment Blockage Notice) of the
default from a holder of the Designated Senior Debt (or, in the case of
a syndicated credit facility, the agent or representative of the lenders
thereunder).
If payments of the notes have been blocked by a Payment Default, payments on the
notes may resume (including missed payments, if any) when the Payment Default
has been cured or waived. If payments on the notes have been blocked by a
default, other than a Payment Default, payments on the notes may resume
(including missed payments, if any) on the earlier of (1) the date on which such
default is cured or waived and (2) 179 days after the date on which the trustee
receives the Payment Blockage Notice if the maturity of the Designated Senior
Debt has not been accelerated, unless the Indenture otherwise prohibits payment
at that time.
No non-payment default that existed on the day a Payment Blockage Notice was
delivered to the trustee can be used as the basis for any subsequent Payment
Blockage Notice unless that existing non-payment default has been cured for a
period of at least 90 days. In addition, once a holder of
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Designated Senior Debt has blocked payment on the notes by giving a Payment
Blockage Notice, no new period of payment blockage can be commenced until both
of the following are satisfied:
- 365 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice, and
- all scheduled payments of principal, any premium and interest (and
Liquidated Damages, if any) on the notes that have come due have been
paid in full in cash.
"Designated Senior Debt" means our obligations under any particular Senior Debt
in which the instrument creating or evidencing the debt, or the assumption or
guarantee of the debt, or related agreements or documents to which we are a
party, expressly provides that the indebtedness will be Designated Senior Debt
for purposes of the Indenture. That instrument, agreement or other document may
place limitations and conditions on the right of that Senior Debt to exercise
the rights of Designated Senior Debt.
In addition, upon any acceleration of the principal due on the notes as a result
of an Event of Default or payment or distribution of our assets to creditors
upon any dissolution, winding up, liquidation or reorganization, whether
voluntary or involuntary, marshaling of assets, assignment for the benefit of
creditors, or in bankruptcy, insolvency, receivership or other similar
proceedings, all principal, premium, interest and other amounts due on all
Senior Debt must be paid in full in cash or cash equivalents before you will be
entitled to receive any payment. Because of this subordination, in the event of
insolvency, our creditors who are holders of Senior Debt may recover more,
ratably, than you would, and this subordination may reduce or eliminate payments
to you.
The notes will be "structurally subordinated" to all indebtedness and other
liabilities, including trade payables and lease obligations, of any of our
subsidiaries. This occurs because any right we have to receive any assets of our
subsidiaries upon their liquidation or reorganization, and the consequent right
of the holders of the notes to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors, except to the extent that we are recognized as a creditor of the
subsidiary, in which case our claims would still be subordinate to any security
interest in the subsidiary's assets and any indebtedness of the subsidiary
senior to that which we hold. As of December 31, 1999, our subsidiaries had
indebtedness and other liabilities totaling approximately $10.1 million.
The Indenture does not limit our ability to incur indebtedness, including Senior
Debt, or the ability of any of our subsidiaries to incur indebtedness.
OPTIONAL REDEMPTION
On or after February 15, 2003, we may redeem the notes, in whole or in part, at
our option, at the redemption prices specified below. The redemption price,
expressed as a percentage of principal amount, is as follows for the 12-month
periods beginning on February 15 of the following years:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003 102.75%
2004 101.83%
2005 100.92%
</TABLE>
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and thereafter is equal to 100% of the principal amount. In each case, we will
also pay accrued interest to the redemption date. The Indenture requires us to
give notice of redemption not more than 60 and not less than 30 days before the
redemption date.
No "sinking fund" is provided for the notes, which means that the Indenture does
not require us to redeem or retire the notes periodically.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control occurs, you will have the right, at your option, to
require us to repurchase all of your notes not called for redemption, or any
portion of the principal amount of your notes that is equal to $1,000 or any
greater integral multiple of $1,000. The price we are required to pay is 100% of
the principal amount of the notes to be repurchased, together with interest
accrued to the repurchase date.
At our option, instead of paying the repurchase price in cash, we may pay the
repurchase price in our common stock, valued at 95% of the average of the high
and low sales prices of the common stock for each of the five trading days
ending with the third trading day prior to the repurchase date. We may only pay
the repurchase price in common stock if we satisfy conditions provided in the
Indenture. Because the number of shares of common stock to be delivered to
holders of notes in payment of the repurchase price (should we elect such
payment option) is determined on the basis of the market price of our common
stock after we have given notice of the occurrence of the Change in Control and
prior to the repurchase date, the value of the shares of common stock on the
date of delivery thereof to such holders may be more or less than the repurchase
price had we elected to pay such price in cash.
Within 30 days after the occurrence of a Change in Control, we are obligated to
give you notice of the Change in Control and of your repurchase right arising as
a result of the Change in Control. We must also deliver a copy of this notice to
the trustee. To exercise the repurchase right, you must deliver, on or before
the 30th day (or such greater period as may be required by applicable law) after
the date of our notice, irrevocable written notice to the trustee of your
exercise of your repurchase right, together with the notes with respect to which
that right is being exercised. We are required to make the repurchase on a date
that is no later than 45 days after your notice to the trustee.
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A Change in Control will be deemed to have occurred if any of the following
occurs:
(1) any person, including any syndicate or group deemed to be a "person" under
Section 13 (d) (3) of the Exchange Act, (A) acquires beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of our capital stock
entitling that person to exercise more than 50% of the total voting power of
all shares of our capital stock entitled to vote generally in elections of
directors; however, any acquisition by us, any of our subsidiaries or any of
our employee benefit plans will not trigger this provision or (B) succeeds
in having sufficient of its nominees (who are not supported by a majority of
the then current board of directors) elected to the board of directors such
that such nominees, when added to any existing directors remaining on the
board of directors after such election who are affiliates of or acting in
concert with such person, shall constitute a majority of the board of
directors,
(2) we consolidate with or merge with or into any other person or another person
merges into us, except if the transaction satisfies any of the following:
- the transaction is a merger (A) that does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of our capital stock and (B) pursuant to which holders of our
common stock immediately prior to the transaction have, directly or
indirectly, 50% or more of the total voting power of all shares of
capital stock or other ownership interest of the continuing or surviving
person entitled to vote generally in elections of directors of the
continuing or surviving person immediately after the transaction, or
- the transaction is a merger effected only to change our jurisdiction of
incorporation and it results in a reclassification, conversion or
exchange of outstanding shares of our common stock only into shares of
common stock of us or another corporation, or
(3) we convey, transfer, sell, lease or otherwise dispose of all or
substantially all of our assets to another person.
However, a Change in Control will not be deemed to have occurred if the average
of the high and low sales price per share of our common stock for any five
trading days within (A) the period of 10 consecutive trading days ending
immediately after the later of the Change in Control and the public announcement
of the Change in Control, in the case of a Change in Control relating to an
acquisition of capital stock not involving a merger or consolidation covered by
clause (B) below, or (B) the period of 10 consecutive trading days ending
immediately before the Change in Control, in the case of Change in Control
relating to a merger, consolidation or asset sale, in each case, equals or
exceeds 105% of the conversion price of the notes in effect on each of those
trading days.
For purposes of these provisions:
- the conversion price is equal to $1,000 divided by the conversion rate,
and
- whether a person is a "beneficial owner" will be determined in
accordance with Rule 13d-3 under the Exchange Act.
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Any repurchase of notes arising as a result of the Change in Control will be
made in compliance with all applicable laws, rules and regulations, including,
if applicable, Regulation 14E under the Exchange Act and the rules thereunder
and all other applicable federal and state securities laws. To the extent the
provisions of any securities laws or regulations conflict with the provisions of
this covenant, our compliance with such laws and regulations shall not be deemed
to cause a breach of our obligations under the Indenture.
We may, to the extent permitted by applicable law, at any time purchase notes in
the open market or by tender at any price or by private agreement. Any note that
we so purchase may, to the extent permitted by applicable law, be reissued or
resold or may, at our option, be surrendered to the trustee for cancellation.
Any notes surrendered may not be reissued or resold and will be canceled
promptly.
The definition of Change in Control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, your ability to require
us to repurchase your notes as a result of conveyance, transfer, sale, lease or
other disposition of less than all of our assets may be uncertain.
The foregoing provisions would not necessarily provide you with protection if we
are involved in a highly leveraged or other transaction that may adversely
affect you.
Our ability to repurchase notes upon the occurrence of a Change in Control is
subject to important limitations. Some of the events constituting a Change in
Control could cause an event of default or be prohibited or limited by the terms
of Senior Debt. As a result, any repurchase of the notes would, absent a waiver,
be prohibited under the Indenture's subordination provisions until the Senior
Debt is paid in full. Further, we may not have the financial resources, or would
be unable to arrange financing to pay the repurchase price for all the notes
that holders seeking to exercise their repurchase right deliver to us. If we
were to fail to repurchase the notes when required following a Change in
Control, an Event of Default would occur, whether or not such repurchase is
permitted by the Indenture's subordination provisions. Any such default may, in
turn, cause a default under our Senior Debt. For more details, see
"Subordination."
MERGERS AND SALES OF ASSETS
Pursuant to the terms of the Indenture, we may not consolidate with or merge
into any other person or convey, transfer, sell or lease our properties and
assets substantially as an entirety to any person, and we may not permit any
person to consolidate with or merge into us or convey, transfer, sell or lease
such person's properties and assets substantially as an entirety to us, unless
each of the following requirements is met:
- the person formed by the consolidation or into or with which we merge or
the person to which our properties and assets are conveyed, transferred,
sold or leased, is (A) a corporation, limited liability company,
partnership or trust organized and existing under the laws of the United
States, any State or the District of Columbia or (B) organized under the
laws of a jurisdiction outside the U.S. and has (x) common stock or
American Depositary Shares representing such common stock traded on a
national securities exchange in the U.S., including The Nasdaq Stock
Market, Inc.
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and (y) a worldwide total market capitalization of its equity securities
(before giving effect to such consolidation or merger) of at least US$5
billion and, in each case, if other than us, expressly assumes the due
and punctual payment of the principal of, any premium, and interest (and
Liquidated Damages, if any) on the notes and the performance of our
other covenants under the Indenture
- immediately after giving effect to that transaction, no Event of
Default, and no event that, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing, and
- an officer's certificate and legal opinion relating to these conditions
is delivered to the trustee.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture:
- we fail to pay principal of or any premium on any note when due, whether
or not the payment is prohibited by the Indenture's subordination
provisions
- we fail to pay any interest on any note when due and that default
continues for 30 days, whether or not the payment is prohibited by the
Indenture's subordination provisions
- we fail to give the notice that we are required to give if there is a
Change in Control, whether or not the notice is prohibited by the
Indenture's subordination provisions
- we fail to perform any other covenant in the Indenture and that failure
continues for 60 days after written notice to us by the trustee or the
holders of at least 25% in aggregate principal amount of outstanding
notes
- we fail to pay when due the principal of any indebtedness for money
borrowed by us or any of our subsidiaries, if any, in excess of $10
million if the indebtedness is not discharged and such failure continues
for 20 days or more, or, if such indebtedness has been accelerated, such
acceleration is not annulled, within 30 days after written notice to us
by the trustee or the holders of at least 25% in aggregate principal
amount of the outstanding notes, and
- events of bankruptcy, insolvency or reorganization with respect to us
and our significant subsidiaries specified in the Indenture.
Subject to the provisions of the Indenture relating to the trustee's duties, if
an Event of Default exists, the trustee will not be obligated to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the holders, unless they have offered to the trustee reasonable indemnity.
Subject to such trustee indemnification provisions, the holders of a majority in
aggregate principal amount of the outstanding notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee, provided that such direction does not conflict with any rule of law or
with
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the Indenture, and the trustee may take any other action the trustee deems
proper which is not inconsistent with such direction.
If an Event of Default, other than an Event of Default arising from events of
bankruptcy, insolvency or reorganization, occurs and is continuing, either the
trustee or the holders of at least 25% in principal amount of the outstanding
notes may accelerate the maturity of all notes. After acceleration, but before a
judgment or decree based on acceleration, the holders of a majority in aggregate
principal amount of outstanding notes may, under circumstances set forth in the
Indenture, rescind the acceleration if all Events of Default, other than the
non-payment of principal of the notes which have become due solely because of
the acceleration, have been cured or waived as provided in the Indenture. If an
Event of Default arising from events of bankruptcy, insolvency or reorganization
occurs and is continuing, then the principal of, and accrued interest (and
Liquidated Damages, if any) on, all of the notes will automatically become
immediately due and payable without any declaration or other act an the part of
the holders of the notes or the trustee.
Before you may take any action to institute any proceeding relating to the
Indenture, or to appoint a receiver or a trustee, or for any other remedy, each
of the following must occur:
- you must have given the trustee written notice of a continuing Event of
Default
- the holders of at least 25% of the aggregate principal amount of all
outstanding notes must make a written request of the trustee to take
action because of the default and must have offered reasonable
indemnification to the trustee against the cost, liabilities and
expenses of taking such action, and
- the trustee must not have taken action for 60 days after receiving such
notice and offer of indemnification.
These limitations do not apply to a suit for the enforcement of payment of the
principal of, or any premium or interest (and Liquidated Damages, if any) on, a
note, or the repurchase price payable for a note on or after the due dates for
such payments, or of the right to convert the note in accordance with the
Indenture.
We will furnish to the trustee annually a statement as to our performance of our
obligations under the Indenture and as to any default in performance.
MODIFICATION AND WAIVER
The Indenture will contain provisions permitting us and the trustee to enter
into a supplemental indenture for certain limited purposes without the consent
of the holders of the notes. With the consent of the holders of not less than a
majority in aggregate principal amount of the notes at the time outstanding, we
and the trustee are permitted to amend or supplement the Indenture or any
supplemental indenture or modify the rights of the holders, provided, that no
such modification may, without the consent of each holder affected thereby:
- change the stated maturity of the principal or interest of a note
- reduce the principal amount, any premium or interest on any note
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- reduce the amount payable upon a redemption at our option
- amend or modify our obligation to make or consummate a repurchase offer
upon a Change in Control after our obligation to make a Change in
Control repurchase offer arises
- change the place or currency of payment on a note
- impair the right to institute suit for the enforcement of any payment on
any note
- modify the subordination provisions in a manner that is adverse to the
holders of the notes
- adversely affect the right of holders of notes to convert any of the
notes
- reduce the percentage of holders whose consent is needed to modify,
amend or waive any provision in the Indenture, or
- modify the provisions dealing with modification and waiver of the
Indenture, except to increase any required percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived
without the consent of the holder of each outstanding note affected
thereby.
The holders of a majority in principal amount of the outstanding notes must
consent to waive our compliance with certain restrictive provisions of the
Indenture. The holders of a majority in principal amount of the outstanding
notes may waive any past default, except a default in the payment of principal,
any premium, interest or the repurchase price (or Liquidated Damages, if any).
Notes will not be considered outstanding if money for their payment or
redemption has been deposited or set aside in trust for the holders.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect (except
as to any surviving rights of conversion, or registration of transfer or
exchange, or replacement of notes, any right to receive Liquidated Damages and
our obligations to the trustee) as to all outstanding notes when:
(1) either
(A) all notes theretofore authenticated and delivered (other than (x)
notes that have been destroyed, lost or stolen and which have
been replaced or paid as provided in the Indenture and (y) notes
for which payment money has theretofore been deposited in trust
or segregated and held in trust by us and thereafter repaid to us
or discharged from such trust, as provided in the Indenture) have
been delivered to the trustee for cancellation, or
(B) all such notes not theretofore delivered to the trustee or its
agent for cancellation (other than notes referred to in clauses
(x) and (y) of clause (1) (A) above)
(I) have become due and payable, or
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(II) will become due and payable within one year, or
(III) are to be called for redemption within one year under
arrangements satisfactory to the trustee for the giving of
notice of redemption by the trustee in our name, and at
our expense,
and we, in the case of clause (I), (II) or (III) above, have
deposited with the trustee as trust funds (immediately available
to the holders of the notes in the case of clause (I)) an amount
sufficient to pay and discharge the entire principal, premium, if
any, and interest (and Liquidated Damages, if any) on such notes
to the date of deposit (in the case of notes which have become
due and payable) or to the final maturity or redemption date, as
the case may be, and
(2) we have paid all other sums payable by us under the Indenture.
In addition, we must deliver an officers' certificate stating that all
conditions precedent to satisfaction and discharge have been complied with.
REGISTRATION RIGHTS
We entered into a registration rights agreement (the Registration Rights
Agreement) with CIBC World Markets Corp., Credit Suisse First Boston
Corporation, SG Cowen Securities Corporation and Warburg Dillon Read LLC (the
Initial Purchasers) on February 15, 2000. In the Registration Rights Agreement
we agreed, for the benefit of the holders of the notes and the shares of common
stock issuable upon conversion of the notes (together, the Registrable
Securities, but excluding securities that are eligible for disposition under
Rule 144 of the Securities Act) that we would, at our expense:
- file with the SEC, on or prior to 90 days following February 15, 2000,
the date the notes were originally issued, a shelf registration
statement covering resales of the Registrable Securities
- use all reasonable efforts to cause the shelf registration statement to
be declared effective under the Securities Act on or prior to 180 days
following February 15, 2000, the date the notes were originally issued,
and
- use all reasonable efforts to keep effective the shelf registration
statement until the earlier of (1) the sale under the shelf registration
statement of all the securities registered thereunder and (2) the
expiration of the holding period applicable to such securities held by
persons that are not our affiliates under Rule 144(k) under the
Securities Act or any successor provision, subject to specific permitted
exceptions (the Effectiveness Period).
We agreed to provide to each holder of Registrable Securities copies of the
prospectus that is a part of the shelf registration statement, notify each
holder when the shelf registration statement has become effective and take
certain other actions required to permit public resales of the Registrable
Securities.
Upon written notice to all the holders of notes, we will be permitted to suspend
the use of the prospectus that is part of the shelf registration statement in
connection with sales of Registrable
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Securities during prescribed periods of time if we possess material non-public
information the disclosure of which would have a material adverse effect on us.
The periods during which we can suspend the use of the prospectus may not exceed
a total of 60 consecutive days. Upon receipt of such notice, the holders of
notes are required to cease disposing of securities under the prospectus and to
keep the notice confidential.
Liquidated damages (Liquidated Damages) will accrue if any of the following
events (Registration Defaults) occurs:
- on or prior to 90 days following February 15, 2000, the date the notes
were originally issued, a shelf registration statement has not been
filed with the SEC
- on or prior to 180 days following February 15, 2000, the date the notes
were originally issued, the SEC does not declare the shelf registration
statement effective, or
- the shelf registration statement ceases to be effective, or we otherwise
prevent or restrict holders of Registrable Securities from making sales
under the shelf registration statement, for more than 60 consecutive
days.
In any case, Liquidated Damages will accrue at a rate of 0.5% of the principal
amount per annum from and including the day following the Registration Default
to but excluding the day on which the Registration Default is cured. Liquidated
Damages will be paid semi-annually in arrears, with the first semi-annual
payment due on the first Interest Payment Date following the date on which the
Liquidated Damages begin to accrue.
A holder who elects to sell any Registrable Securities pursuant to the shelf
registration statement will be required to be named as a selling security holder
in the related prospectus, may be required to deliver a prospectus to
purchasers, may be subject to certain civil liability provisions under the
Securities Act in connection with those sales and will be bound by the
provisions of the Registration Rights Agreement that apply to a holder making
such an election, including certain indemnification provisions.
We mailed a notice and questionnaire to the holders of Registrable Securities
not less than 30 calendar days prior to the time we intended in good faith to
have the shelf registration statement declared effective (the Effective Time).
No holder of Registrable Securities was entitled to be named as a selling
security holder in the shelf registration statement as of the Effective Time,
and no holder of Registrable Securities was entitled to use the prospectus
forming a part of the shelf registration statement for offers and resales of
Registrable Securities at any time, unless such holder had returned a completed
and signed notice and questionnaire to us by the deadline for response set forth
in the notice and questionnaire. Holders of Registrable Securities, however, had
at least 20 calendar days from the date on which the notice and questionnaire
was first mailed to them to return a completed and signed notice and
questionnaire to us.
Beneficial owners of Registrable Securities who had not returned a notice and
questionnaire by the questionnaire deadline described above may receive another
notice and questionnaire from us upon request. When we receive a completed and
signed notice and questionnaire prior to the Effective
47
<PAGE> 48
Date of the Registration Statement, we will include the Registrable Securities
covered thereby in the shelf registration statement, subject to restrictions on
the timing and number of supplements to the shelf registration statement
provided in the Registration Rights Agreement.
We agreed in the Registration Rights Agreement to use our reasonable efforts to
cause the shares of common stock issuable upon conversion of the notes to be
quoted on The Nasdaq National Market. However, if the common stock is not then
quoted on The Nasdaq National Market, we will use our reasonable efforts to
cause the shares of common stock issuable upon conversion of the notes to be
quoted or listed on whichever market or exchange the common stock is then quoted
or listed, if any, on or prior to the effectiveness of the shelf registration
statement.
This summary of certain provisions of the Registration Rights Agreement is not
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Registration Rights Agreement, a copy of which we will
make available to beneficial owners of the notes upon request to us.
We gave notice to holders of the notes by mail to the addresses of the holders
as they appear in the Security Register. Notices are deemed to have been given
on the date of mailing.
REPLACEMENT OF NOTES
We will replace, at the holders' expense, notes that become mutilated,
destroyed, stolen or lost upon delivery to the trustee of the mutilated notes or
evidence of the loss, theft or destruction thereof satisfactory to us and the
trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of the note
before a replacement note will be issued.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES
No direct or indirect stockholder, officer, director or employee, as such, past,
present or future of PDL, or any successor entity, shall have any personal
liability in respect of our obligations under the Indenture or the notes solely
by reason of his or its status as such stockholder, officer, director or
employee.
THE TRUSTEE
The trustee for the holders of notes issued under the Indenture is Chase
Manhattan Bank and Trust Company, N. A. If an Event of Default occurs, and is
not cured, the trustee will be required to use the degree of care of a prudent
person in the conduct of his own affairs in the exercise of its powers. Subject
to these provisions, the trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any holders of notes,
unless they have offered the trustee reasonable security or indemnity.
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<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
This summary does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of our certificate of incorporation, as amended,
and all applicable provisions of Delaware law.
GENERAL
We are authorized to issue 40,000,000 shares of common stock, $.01 par value,
and 10,000,000 shares of preferred stock, $.01 par value.
COMMON STOCK
As of March 31, 2000, we had issued and outstanding approximately 19,573,677
shares of common stock held of record by approximately 127 stockholders. Holders
of common stock are entitled to one vote per share for the election of directors
and all other matters submitted to a vote of our stockholders. Subject to the
rights of any holders of preferred stock that may be issued in the future, the
holders of common stock are entitled to share ratably in such dividends as may
be declared by our board of directors out of funds legally available therefor.
In the event of our dissolution, liquidation or winding up, holders of common
stock are entitled to share ratably in all assets remaining after payment of all
liabilities and liquidation preferences of any preferred stock. Holders of
common stock have no preemptive, subscription, redemption, conversion rights or
similar rights. Our certificate of incorporation does not provide for cumulative
voting rights with respect to the election of directors. All outstanding common
stock is, and the common stock issuable on conversion of the notes will be,
fully paid and nonassessable. Shares of the Company's common stock are reserved
for issuance under the Company's option and employee stock purchase plans, and
there are options outstanding under the Company's stock plans for shares of
common stock.
PREFERRED STOCK
Our board of directors has the authority, without any action by our
stockholders, to issue preferred stock in one or more series with such
designations, rights and preferences (including dividend, conversion, voting or
other rights or liquidation preferences) as determined by our board of
directors. The issuance of preferred stock could delay, defer or prevent a
change of control of PDL and could decrease the amount of earnings and assets
available for distribution to, or adversely affect the voting power or other
rights of, holders of common stock. In addition, the issuance of preferred stock
could have the effect of decreasing the market price of our common stock. At
present, there are no shares of preferred stock outstanding.
TRANSFER AGENT
The transfer agent for our common stock is ChaseMellon Shareholder Services,
L.L.C. Its address is 235 Montgomery Street, 23rd Floor, San Francisco,
California 94104. Its telephone number is (415) 743-1444.
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<PAGE> 50
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the notes,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on laws, regulations,
rulings and decisions now in effect, all of which are subject to change. This
summary deals only with holders that will hold notes as "capital assets" within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended,
which we sometimes refer to as the Code and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, persons that will hold notes as a position in a hedging transaction,
"straddle" or "conversion transaction" for tax purposes or persons deemed to
sell notes under the constructive sale provisions of the Code.
For purposes of this summary, the term "U.S. Holder" means a holder that is, as
determined for United States federal income tax purposes, either (1) a citizen
or resident of the United States, or U.S.; (2) an entity formed under the laws
of the U.S. or a state of the U.S.; (3) an estate the income of which is subject
to U.S. federal income tax regardless of its source; or (4) a trust subject to
the primary supervision of a court within the U.S. and the control of a U.S.
fiduciary as described in Section 7701(a)(30). A "Non-U.S. Holder" is any holder
other than a U.S. Holder.
We have not sought any ruling from the Internal Revenue Service with respect to
the statements made and the conclusions reached in the following summary, and
there can be no assurance that the IRS will agree with such statements and
conclusions. In addition, the IRS is not precluded from successfully adopting a
contrary position. This summary does not consider the effect of any applicable
foreign, state, local or other tax laws.
HOLDERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
U.S. HOLDERS
Taxation of Interest
Interest paid on the notes will be included in the income of a holder as
ordinary income at the time it is treated as received or accrued, in accordance
with the holder's regular method of tax accounting.
Our failure to maintain the effectiveness of the registration statement will
cause additional interest to accrue on the notes in the manner described under
"Description of the Notes -- Registration Rights." According to Treasury
Regulations, the possibility of a change in the interest rate due to our
obligation to pay Liquidated Damages (see "Description of the
Notes--Registration Rights") will not affect the amount of interest income
recognized by a holder, or the timing of such recognition, if the likelihood of
the change, as of the date the notes are issued, is remote. We believe that the
likelihood of a change in the interest rate on the notes is remote and do not
intend to treat the possibility of a change in the interest rate as affecting
the yield to maturity of any note. Similarly, we intend to take the position
that the occurrence of an event requiring us to repurchase the notes is remote
under the Treasury Regulations, and likewise does not intend to treat the
possibility of the
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<PAGE> 51
occurrence of an event requiring us to repurchase the notes as affecting the
yield to maturity of any note.
Market Discount
"Market discount" will exist if the stated redemption price at maturity exceeds
the U.S. Holder's initial tax basis in the note. If the market discount is less
than 0.25% of the stated redemption price of the note at maturity multiplied by
the number of complete years to maturity, then the market discount will be
deemed to be zero.
A U.S. Holder may elect to include market discount in income currently as it
accrues. Any such election will apply to all market discount bonds acquired
during or after the year for which the election is made, and the election may be
terminated only with the consent of the Internal Revenue Service.
If a U.S. Holder does not make an election to include market discount in income
currently as it accrues, any principal amount received or gain realized by a
U.S. Holder on the sale, exchange, retirement or other taxable disposition of a
note will be treated as ordinary income to the extent of any accrued market
discount on the note. Unless a U.S. holder irrevocably elects to accrue market
discount under a constant-interest method, accrued market discount is the total
market discount multiplied by a fraction, the numerator of which is the number
of days the U.S. Holder has held the note and the denominator of which is the
number of days from the date the holder acquired the note until its maturity. If
a U.S. Holder exchanges or converts a note into our common stock in a
transaction that is otherwise tax free, any accrued market discount will carry
over and generally be recognized upon a disposition of our common stock.
A U.S. Holder may be required to defer a portion of such holder's interest
deductions for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry a note purchased with market discount. Any such
deferred interest expense may not exceed the market discount that accrues during
a taxable year and is, in general, allowed as a deduction not later than the
year in which the market discount is includible in income. This interest expense
deferral will not apply if a U.S. Holder makes an election to include market
discount in income currently as it accrues.
Market Premium
A "market premium" will exist if a U.S. Holder's initial tax basis in a note is
greater than the stated redemption price at maturity of such note. If an
election is made, the market premium may be amortized using a constant yield
method, over the remaining term of the note, or, if shorter, over the period
from the date of purchase to the date of an assumed redemption option exercise.
We will be presumed to exercise our option to redeem the notes if, by using the
date of exercise of the call option as the maturity date and the redemption
price as the stated redemption price at maturity, the yield on the notes would
be lower than such yield would be if the option were not exercised. A U.S.
Holder may deduct any remaining market premium upon redemption if a note is
redeemed prior to the time at which it is assumed that the note would be
redeemed.
Interest otherwise required to be included in income with respect to the note
during any tax year may be offset by the amount of any amortized market premium.
An election to amortize market premium will apply to all market premium bonds
acquired during or after the year for which the election is made, and the
election may be terminated only with the consent of the Internal Revenue
Service.
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<PAGE> 52
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange, retirement or other taxable disposition of a note, a
holder will recognize gain or loss equal to the difference between the amount
received on such disposition (other than amounts received in respect of accrued
and unpaid interest, which will be taxable as such) and the holder's tax basis
in the note. A holder's tax basis in a note will be, in general, the cost of the
note to the holder, increased by any accrued market discount and decreased by
any principal payments received and any amortizable market premium accrued.
Except to the extent of any accrued market discount, gain or loss realized on
the sale, exchange or retirement of a note generally will be capital gain or
loss, and will be long-term capital gain or loss if, at the time of such sale,
exchange or retirement, the note had been held for more than one year. Long-term
capital gain recognized by an individual holder is generally subject to a
maximum U.S. federal rate of 20%; an individual's ability to offset capital
losses against ordinary income is, however, limited.
Conversion of the Notes
A holder will generally not recognize income, gain or loss upon conversion of
the note into our common stock, except with respect to any cash received in lieu
of a fractional share (which will generally result in capital gain or loss). The
holder's tax basis in the common stock received upon conversion will be the same
as the holder's tax basis in the note at the time of conversion (exclusive of
any tax basis allocable to a fractional share), and the holding period for the
our common stock received upon conversion will include the holding period of the
note converted.
Adjustment to Conversion Price
Holders of convertible debt instruments such as the notes may, in certain
circumstances, be deemed to have received constructive distributions where the
conversion ratio of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments provided
in the notes, including, without limitation, adjustments in respect of taxable
dividends to our stockholders, will not qualify as being pursuant to a bona fide
reasonable adjustment formula. If such adjustments are made, the holders of
notes might be deemed to have received constructive distributions taxable as
dividends. Moreover, in certain other circumstances, the failure to adjust the
conversion ratio on the notes may result in a deemed taxable dividend to holders
of our common stock.
Sale of Common Stock:
Upon the sale or exchange of our common stock, a holder generally will recognize
capital gain or loss equal to the difference between
- the amount of cash and the fair market value of any property received
upon the sale or exchange, and
- such holder's adjusted tax basis in the our common stock.
Such capital gain or loss will be long-term capital gain or loss if the holder's
holding period in our common stock is more than one year at the time of the sale
or exchange. A holder's basis and
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<PAGE> 53
holding period in our common stock received upon conversion of a note are
determined as discussed above under "Conversion of the Notes."
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a note, payments of dividends on our
common stock, payments of the proceeds of the sale of a note and payments of the
proceeds of the sale of our common stock, and a 31% backup withholding tax may
apply to such payments if the holder either:
- fails to demonstrate that the holder comes within certain exempt
categories of holders or
- fails to furnish or certify his correct taxpayer identification number
to the payor in the manner required,
- is notified by the IRS that he has failed to report payments of interest
and dividends properly, or
- under certain circumstances, fails to certify that he has not been
notified by the IRS that he is subject to backup withholding for failure
to report interest and dividend payments.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a credit against such holder's United States federal
income tax and may entitle the holder to a refund, provided that the required
information is furnished to the IRS.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax consequences
relevant to a Non-U.S. Holder.
For purposes of withholding tax on interest and dividends discussed below, a
Non-U.S. Holder (as defined above) includes a non-resident fiduciary of an
estate or trust. For purposes of the following discussion, interest, dividends
and gain on the sale, exchange or other disposition of a note or common stock
will be considered to be "U.S. trade or business income" if such income or gain
is (1) effectively connected with the conduct of a U.S. trade or business or (2)
in the case of a treaty resident, attributable to a permanent establishment (or,
in the case of an individual, a fixed base) in the United States.
Taxation of Interest
Generally any interest paid to a Non-U.S. Holder of a note that is not U.S.
trade or business income will not be subject to U.S. tax if the interest
qualifies as "portfolio interest." Generally interest on the notes will qualify
as portfolio interest if:
- the Non-U.S. Holder does not actually or constructively own 10% or more
of the total voting power of all PDL voting stock and is not a
"controlled foreign
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<PAGE> 54
corporation" with respect to which PDL is a "related person" within the
meaning of the Code
- the beneficial owner, under penalty of perjury, certifies that the
beneficial owner is not a U.S. person and such certificate provides the
beneficial owner's name and address, and
- the Non-U.S. Holder is not a bank receiving interest on an extension of
credit made pursuant to a loan agreement made in the ordinary course of
its trade or business.
The gross amount of payments of interest to a Non-U.S. Holder that do not
qualify for the portfolio interest exemption and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed at regular U.S. rates rather than the 30%
gross rate. In the case of a Non-U.S. Holder that is a corporation, such U.S.
trade or business income may also be subject to the branch profits tax (which is
generally imposed on a foreign corporation on the actual or deemed repatriation
from the United States of earnings and profits attributable to U.S. trade or
business income) at a 30% rate. The branch profits tax may not apply (or may
apply at a reduced rate) if a recipient is a qualified resident of certain
countries with which the United States has an income tax treaty. To claim the
benefit of a tax treaty or to claim exemption from withholding because the
income is U.S. trade or business income, the Non-U.S. Holder must provide a
properly executed Form W-8 BEN or W-8 ECI (or such successor forms as the IRS
designates), as applicable, prior to the payment of interest. These forms must
be periodically updated. Under new regulations which are effective with respect
to payments made after December 31, 2000, a Non-U.S. Holder who is claiming the
benefits of a treaty may be required to obtain a U.S. taxpayer identification
number, which may require providing certain documentary evidence issued by
foreign governmental authorities to prove residence in the foreign country.
Certain special procedures are provided in such new regulations for payments
through qualified intermediaries.
Sales, Exchange or Redemption of the Notes
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a note generally will not be subject to U.S. federal income tax,
unless:
- such gain is U.S. trade or business income
- subject to certain exceptions, the Non-U.S. Holder is an individual who
holds the note as a capital asset and is present in the United States
for 183 days or more in the taxable year of the disposition
- the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates (including certain former
citizens or residents of the United States, or
- in the case of the disposition of PDL common stock, PDL is a U.S. real
property holding corporation.
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<PAGE> 55
PDL does not believe that it is currently a "United States real property holding
corporation," or that it will become one in the future.
Conversion of the Notes
A Non-U.S. Holder generally will not be subject to U.S. federal income tax on
the conversion of notes into our common stock, except with respect to cash (if
any) received in lieu of a fractional share or interest which does not qualify
for the portfolio interest exemption, is not U.S. trade or business income and
has not previously included in income. Cash received in lieu of a fractional
share may give rise to gain that would be subject to the rules described below
for the sale of notes. Cash or common stock treated as issued for accrued
interest would be treated as interest under the rules described above.
Information Reporting and Backup Withholding Tax
We must report annually to the IRS and to each Non-U.S. Holder any interest or
dividend that is subject to withholding or is exempt from U.S. withholding tax
pursuant to a tax treaty, or interest that is exempt from U.S. tax under the
portfolio interest exception. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. Holder resides.
Treasury Regulations provide that backup withholding and additional information
reporting will not apply to payments of principal on the notes by us to a
Non-U.S. Holder if the holder certifies as to its Non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither we nor our paying agent have actual knowledge that the holder is a U.S.
person or that the conditions of any other exemption are not, in fact,
satisfied).
As a general matter, information reporting and backup withholding will not apply
to a payment of the proceeds of a sale of notes or common stock effected outside
the United States by a foreign office of a foreign broker. However, information
reporting requirements (but not backup withholding) will apply to a payment of
the proceeds of a sale of notes or common stock effected outside the United
States by a foreign office of a broker if the broker:
- is a U.S. person
- derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States
- is a "controlled foreign corporation" as to the United States, or
- with respect to payments made after December 31, 2000, is a foreign
partnership that, at any time during its taxable year is 50% or more (by
income or capital interest) owned by U.S. persons or is engaged in the
conduct of a U.S. trade or business unless the broker has documentary
evidence in its records that the holder is a non-U.S. holder and certain
conditions are met, or the holder otherwise establishes an exemption.
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<PAGE> 56
Payment by a United States office of a broker of the proceeds of a sale of notes
or common stock will be subject to both backup withholding and information
reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.
New regulations, generally effective with respect to payments made after
December 31, 2000, make certain modifications to the withholding, backup
withholding and information reporting rules described above. The new regulations
generally attempt to unify certification requirements and modify reliance
standards. Prospective investors are urged to consult their own tax advisors
regarding the new regulations.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
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<PAGE> 57
SELLING SECURITY HOLDERS
The notes offered hereby were issued by us and sold by the Initial Purchasers in
a transaction exempt from the registration requirements of the Securities Act to
persons reasonably believed by the Initial Purchasers to be "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act). The
selling security holders (which term includes the Initial Purchasers'
transferees, pledgees, donees or their successors) may from time to time offer
and sell pursuant to this prospectus any or all of the notes and common stock
issued upon conversion of the notes.
The following table sets forth information, as of March 30, 2000, with respect
to the selling security holders and the respective principal amounts of notes
beneficially owned by each selling security holder that may be offered pursuant
to this prospectus. Such information has been obtained from the selling security
holders. None of the selling security holders has, or within the past three
years has had, any position, office or other material relationship with us or
any of our predecessors or affiliates. Because the selling security holders may
offer all or some portion of the notes or the common stock issuable upon
conversion of the notes pursuant to this prospectus, no estimate can be given as
to the amount of the notes or the common stock issuable upon conversion of the
notes that will be held by the selling security holders upon termination of any
such sales. In addition, the selling security holders identified below may have
sold, transferred or otherwise disposed of all or a portion of their notes since
the date on which they provided the information regarding their notes in
transactions exempt from the registration requirements of the Securities Act.
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<TABLE>
<CAPTION>
Principal Amount Number of Shares of
of Notes Common Stock
---------------- ---------------------------------------------
Beneficially
Owned and
Offered Beneficially Offered Owned After
Selling Security Holder (1) Hereby (1) Owned(1)(2) Hereby the Offering
- ------------------------------------------------------- ----------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
AIG/National Union Fire Insurance $ 1,100,000 7,284 7,284 --
AIG SoundShore Strategic Holdings Fund $ 300,000 1,986 1,986 --
Ltd.
AIG SoundShore Opportunity Holding Fund $ 3,500,000 23,178 23,178 --
Ltd.
AIG Soundshore Holdings Ltd. $ 2,700,000 17,880 17,880 --
Allstate Insurance Company $ 500,000 11,911 3,311 8,600
Aloha Airlines Non-Pilots Pension Trust $ 75,000 496 496 --
Aloha Airlines Pilots Retirement Trust $ 45,000 298 298 --
Alta Partners Holdings, LDC $ 2,000,000 13,245 13,245 --
Argent Classic Convertible Arbitrage Fund $13,500,000 89,403 89,403 --
(Bermuda) L.P.
Associated Electric & Gas Insurance $ 370,000 2,450 2,450 --
Services Limited
BNP Arbitrage SNC $10,000,000 66,225 66,225 --
C&H Sugar Company, Inc. $ 120,000 794 794 --
Coastal Convertibles Ltd. $ 400,000 2,649 2,649 --
Clinton Riverside convertible Portfolio $ 2,000,000 13,245 13,245 --
Limited
CIBC World Markets $14,677,000 97,198 97,198 --
Deephaven Domestic Convertible Trading $ 6,500,000 43,046 43,046 --
Ltd.
Delaware Public Employees' Retirement $ 750,000 4,966 4,966 --
System
Deutsche Bank Securities, Inc. $29,670,000 196,490 196,490 --
Fidelity Financial Trust: Fidelity $ 3,640,000 24,105 24,105 --
Convertible Securities Fund
First Republic Bank $ 100,000 662 662 --
Grace Brothers, Ltd. $ 2,000,000 13,245 13,245 --
Hawaiian Airlines Employees Pension $ 65,000 430 430 --
Plan-IAM
Hawaiian Airlines Pension Plan for $ 15,000 99 99 --
Salaried Employees
Hawaiian Airlines Pilots Retirement Plan $ 100,000 662 662 --
ICI American Holdings Trust $ 600,000 3,973 3,973 --
Island Holdings $ 75,000 496 496 --
Janus Capital Corporation $16,000,000 105,960 105,960 --
Lincoln National Convertible Securities $ 3,000,000 19,867 19,867 --
Fund
Lipper Convertibles L.P. $ 4,000,000 26,490 26,490 --
Lord Abbett Bond Debenture Fund $ 3,000,000 19,867 19,867 --
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
Principal Amount Number of Shares of
of Notes Common Stock
---------------- ---------------------------------------------
Beneficially
Owned and
Offered Beneficially Offered Owned After
Selling Security Holder(1) Hereby(1) Owned(1)(2) Hereby the Offering
- ------------------------------------------------------- ----------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Museum of Fine Arts, Boston $ 26,000 172 172 --
Nalco Chemical Company $ 420,000 2,781 2,781 --
New Hampshire Retirement System $ 155,000 1,026 1,026 --
Parker-Hannifin Corporation $ 45,000 298 298 --
ProMutual $ 96,000 635 635 --
Putnam Asset Allocation Funds - Balanced $ 170,000 1,125 1,125 --
Portfolio
Putnam Asset Allocation Funds - $ 112,000 741 741 --
Conservative Portfolio
Putnam Balanced Retirement Fund $ 52,000 344 344 --
Putnam Convertible Income - Growth Trust $ 455,000 3,013 3,013 --
Putnam Convertible Opportunities and $ 69,000 456 456 --
Income Trust
Queen's Health Plan $ 25,000 165 165 --
Rhone-Poulenc Rorer Pension Plan $ 33,000 218 218 --
Salomon Smith Barney, Inc. $ 1,150,000 7,615 7,615 --
SG Cowen Securities Corporation $ 3,000,000 19,867 19,867 --
Starvest Combined Portfolio $ 1,390,000 9,205 9,205 --
State of Oregon Equity $ 3,095,000 20,496 20,496 --
State of Oregon/SAIF Corporation $ 3,550,000 23,509 23,509 --
Sun America Equity Income Fund $ 15,000 99 99 --
Tribeca Investments L.L.C. $ 7,700,000 50,993 50,993 --
University of Rochester $ 25,000 165 165 --
Zeneca Holdings Pension Trust $ 500,000 3,311 3,311 --
Highbridge International LLC $ 7,115,000 47,119 47,119 --
----------- ----------- ----------- -----------
Total: 150,000,000 1,001,953 993,353 8,600
=========== =========== =========== ===========
</TABLE>
(1) Information concerning the selling security holders may change from time to
time and any such changed information will be set forth in supplements to
this prospectus if and when necessary. In addition, the per share conversion
price, and therefore the number of shares issuable upon conversion of the
notes, is subject to adjustment under certain circumstances. Accordingly,
the aggregate principal amount of notes and the number of shares of common
stock issuable upon conversion of the notes offered hereby may increase or
decrease.
(2) Assumes a conversion price of $151.00 per share, and a cash payment in lieu
of any fractional share interest.
59
<PAGE> 60
PLAN OF DISTRIBUTION
The notes and common stock offered hereby may be sold from time to time to
purchasers directly by the selling security holders. Alternatively, the selling
security holders may from time to time offer the notes and common stock to or
through underwriters, broker/dealers or agents, who may receive compensation in
the form of underwriting discounts, concessions or commissions from the selling
security holders or the purchasers of notes and common stock for whom they may
act as agents. The selling security holders and any underwriters, broker/dealers
or agents that participate in the distribution of notes and common stock may be
deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of notes and common stock by them and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The notes and common stock offered hereby may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices at the time of
sale, any varying prices determined at the time of sale or at negotiated prices.
The sale of the notes and the common stock issuable upon conversion of the notes
may be effected in transactions (which may involve crosses or block
transactions) (i) on any national securities exchange or quotation service on
which the notes or the common stock may be listed or quoted at the time of sale,
(ii) in the over-the-counter market, (iii) in transactions otherwise than on
such exchanges or in the over-the-counter market; or (iv) through the settlement
of short sales. At the time a particular offering of the notes and the common
stock is made, a prospectus supplement, if required, will be distributed that
will set forth the aggregate amount and type of notes and common stock being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, if any, any discounts, commissions and
other terms constituting compensation from the selling security holders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable, the
notes and common stock will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the notes and common stock may not be offered or sold unless they
have been registered or qualified for sale in such jurisdictions or an exemption
from registration or qualification is available and is complied with.
The selling security holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the notes and common stock by
the selling security holders. The foregoing may affect the marketability of the
notes and the common stock.
Pursuant to the Registration Rights Agreement, all expenses of the registration
of the notes and common stock will be paid by us, including, without limitation,
Commission filing fees and expenses of compliance with state securities or "blue
sky" laws; however, the selling security holders will pay all underwriting
discounts and selling commissions, if any. The selling security holders will be
indemnified by us against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
60
<PAGE> 61
LEGAL MATTERS
The legality of the notes is being passed upon by Graham James LLP, New York,
New York. The legality of the common stock issuable on conversion of the notes
is being passed upon by Gray Cary Ware & Freidenrich LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of PDL appearing in our Annual Report on
Form 10-K for the year ended December 31, 1999, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the Exchange Act), and in accordance therewith we file
reports, proxy statements and other information with the Securities and Exchange
Commission (the SEC). Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549-1004, and at the
SEC's following Regional Offices: New York Regional Office, 7 World Trade
Center, New York, New York 10048; and Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material may also be obtained at prescribed rates from the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549-1004.
Information on the operation of the Public Reference Room can be obtained by
calling the SEC at 1-800-SEC-0330. Our Common Stock is listed on the Nasdaq
National Market and such reports and other information concerning us may also be
inspected at the offices of The Nasdaq Stock Market, 1735 K Street, N.W.,
Washington DC 20006-1506. The SEC also maintains a web site at
http://www.sec.gov that contains reports, proxy and other information statements
and other information regarding registrants, including us, that file such
information electronically with the SEC.
We have also filed with the SEC a registration statement on Form S-3 (together
with all amendments and exhibits thereto, the Registration Statement) under the
Securities Act of 1933, as amended. This prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington DC 20549, upon payment of the fees prescribed by
the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents we filed with the SEC pursuant to the Exchange Act are
incorporated herein by reference and made a part hereof:
- Annual Report on Form 10-K for the year ended December 31, 1999 filed on
March 30, 2000
61
<PAGE> 62
- Current Reports on Form 8-K filed on February 14, 2000 and March 1,
2000, and
- The description of our Common Stock which is contained in our
Registration Statement on Form 8-A under the Exchange Act on December
23, 1991, including any amendment or reports filed for the purpose of
updating such description.
All documents and reports filed by us with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference into this prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such earlier statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
Upon written or oral request, we will provide without charge to each person to
whom this prospectus is delivered, a copy of any or all documents incorporated
by reference in this prospectus (other than any exhibits to those documents not
specifically incorporated in those documents by reference). Requests for such
documents should be submitted to Protein Design Labs, Inc., 34801 Campus Drive,
Fremont, California 94555, Attention: Corporate Communications, or made by
telephone at (510) 574-1400.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, which the
Delaware General Corporation Law permits, that provide that our directors shall
not be personally liable to us or our stockholders for monetary damages
resulting from a violation of the directors' duty to act with care and in the
best interests of the stockholders, except for liability:
- for any breach of a director's duty of loyalty to us or our stockholders
- for acts or omissions that are not in good faith, or involve intentional
misconduct or a knowing violation of the law
- under Section 174 of the Delaware General Corporation Law relating to
improper dividends or distributions, and
- for any transaction from which the director obtained an improper
personal benefit.
This limitation of liability does not affect the availability of equitable
remedies, including injunctive relief or rescission.
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the fullest extent permitted by the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law empowers us to enter into
indemnification agreements with our officers, directors, employees and agents.
62
<PAGE> 63
We have entered into separate indemnification agreements with each of our
current directors and executive officers which, in some cases, are broader than
the specific indemnification provisions allowed by the Delaware General
Corporation Law. The indemnification agreements require us to indemnify the
executive officers and directors against liabilities that may arise by reason of
status or service as directors or executive officers and to advance expenses
they spend as a result of any proceeding against them for which they could be
indemnified to the fullest extent permitted by the Delaware General Corporation
Law.
At present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted, and we are not aware of any threatened litigation or proceeding
that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, executive officers or persons controlling us as
described above, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is therefore unenforceable.
63
<PAGE> 64
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PDL, ANY SELLING SECURITY HOLDER
OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF PDL SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
PAGE
Summary.......................................................................6
Selected Financial Data......................................................13
Risk Factors.................................................................15
Use of Proceeds..............................................................30
Price Range of Common Stock..................................................30
Dividend Policy..............................................................30
Description of Notes.........................................................31
Description of Capital Stock.................................................49
Certain Federal Income Tax
Considerations...............................................................50
Selling Security Holders.....................................................57
Plan of Distribution.........................................................60
Legal Matters................................................................61
Experts......................................................................61
Available Information........................................................61
================================================================================
================================================================================
PROSPECTUS
------------------
$150,000,000
PROTEIN DESIGN LABS, INC.
5.50% CONVERTIBLE SUBORDINATED NOTES DUE 2007
May __, 2000
------------------
================================================================================
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee, all amounts are estimates.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
<S> <C>
SEC registration fee $ 39,600
- ------------------------------------------------------------------------
Accounting fees and expenses $ 10,000
- ------------------------------------------------------------------------
Legal fees and expenses $ 25,000
- ------------------------------------------------------------------------
Blue Sky fees and expenses (including counsel fees) $ 0
- ------------------------------------------------------------------------
Printing and engraving expenses $ 0
- ------------------------------------------------------------------------
Transfer agent's and registrar's fees and expenses $ 0
- ------------------------------------------------------------------------
Miscellaneous expenses, including Listing Fees $ 17,500
- ------------------------------------------------------------------------
$ 92,100
Total
- ------------------------------------------------------------------------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes a court
to award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances for liabilities incurred in connection
with their activities in such capacities (including reimbursement for expenses
incurred). The Registrant's Restated Certificate of Incorporation provides that
the Registrant will indemnify its directors and officers to the fullest extent
permitted by law and that directors shall not be liable for monetary damages to
the Registrant or its stockholders for breach of fiduciary duty, except to the
extent that the DGCL prohibits elimination or limitation of such liability.
The Registrant's Restated Certificate of Incorporation provides that no director
of the Registrant will be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Registrant or to its stockholders, (ii) for acts or omissions not made in good
faith or involving intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the DGCL, or (iv) for any transactions from which the
director derives an improper personal benefit. In addition, the Registrant's
Amended and Restated Bylaws provide that any director or officer who was or is a
party or is threatened to be made a party to any action or proceeding by reason
of his or her services to the Registrant will be indemnified to the fullest
extent permitted by the DGCL.
The Registrant has entered into agreements with each of its executive officers
and directors under which the Registrant has agreed to indemnify each of them
against expenses and losses incurred for claims brought against them by reason
of their being an officer or director of the Registrant. There is no pending
litigation or proceeding involving a director or officer of the Registrant as to
which indemnification is being sought, nor is the Registrant aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or executive officer.
II-1
<PAGE> 66
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
5.1 Opinion of Gray Cary Ware & Freidenrich LLP as to legality of
shares
5.2 Opinion of Graham & James LLP as to legality of notes
10.33* Indenture between the Company and Chase Manhattan Bank And Trust
Company, National Association, a national banking association,
dated February 15, 2000
10.34* Registration Rights Agreement for the Company's 5.50%
Convertible Subordinated Notes due February 15, 2007, between
the Company and the Initial Purchasers dated February 15, 2000
12 Statements Regarding Computations of Ratios
23.1 Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, independent auditors
24 Power of Attorney (contained in the signature page hereof)
25 Statement of Eligibility of the Trustee on Form T-1
* Incorporated herein by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999
filed March 30, 2000.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 ("Securities Act").
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
II-2
<PAGE> 67
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Notwithstanding the foregoing, paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities and Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 68
(d) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act ("TIA") in accordance with the
rules and regulations prescribed by the commission under Section 305(b)(2) of
the Act.
II-4
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Alameda, State of California on May 9, 2000.
PROTEIN DESIGN LABS, INC.
By: /s/ LAURENCE JAY KORN
----------------------------------------
Laurence Jay Korn
Chief Executive Officer and
Chairperson of the Board of Directors
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Laurence Jay
Korn and Cary L. Queen, and each of them, with full power of substitution and
resubstitution and each with full power to act without the other, his or her
true and lawful attorney-in-fact and agent, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission or any state, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their, his or her
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Date: May 9, 2000 /s/ LAURENCE JAY KORN
-----------------------------------------
Laurence Jay Korn
Chief Executive Officer and
Chairperson of the Board of Directors
Date: May 9, 2000 /s/ ROBERT L. KIRKMAN
-----------------------------------------
Robert L. Kirkman
Vice President, Business Development and
Corporation Communications (Principal
Accounting Officer)
<PAGE> 70
Date: May 9, 2000 /s/ JON S. SAXE
------------------------------------------
Jon S. Saxe
Director
Date: May 9, 2000 /s/ CARY L. QUEEN
------------------------------------------
Cary L. Queen
Director
Date: May 9, 2000 /s/ GEORGE M. GOULD
------------------------------------------
George M. Gould
Director
Date: May 9, 2000 /s/ MAX LINK
------------------------------------------
Max Link
Director
Date: May 9, 2000 /s/ JURGEN DREWS
------------------------------------------
Jurgen Drews
Director
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
5.1 Opinion of Gray Cary Ware & Freidenrich LLP as to legality of
shares
5.2 Opinion of Graham & James LLP as to legality of notes
10.33* Indenture between the Company and Chase Manhattan Bank And Trust
Company, National Association, a national banking association,
dated February 15, 2000
10.34* Registration Rights Agreement for the Company's 5.50%
Convertible Subordinated Notes due February 15, 2007 between the
Company and the Initial Purchasers, dated February 15, 2000
12 Statements Regarding Computations of Ratios
23.1 Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, independent auditors
24 Power of Attorney (contained in the signature page hereof)
25 Statement of Eligibility of the Trustee on Form T-1
* Incorporated herein by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999
filed March 30, 2000.
</TABLE>
<PAGE> 1
Exhibit 5.1
[GRAY CARY LETTERHEAD]
May 9, 2000
Protein Design Labs, Inc.
34801 Campus Drive
Fremont, California 94555
Re: PROTEIN DESIGN LABS, INC.
REGISTRATION STATEMENT ON FORM S-3
Dear Ladies and Gentlemen:
As counsel to Protein Design Labs, Inc., a Delaware corporation (the
"Company"), we are rendering this opinion in connection with the registration
by the Company pursuant to the above-referenced Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Act"), of $150,000,000 aggregate principal amount of the Company's 5.50%
Convertible Subordinated Notes due February 15, 2007 (the "Notes") and the
common stock, par value $0.01 per share (the "Stock"), of the Company issuable
upon conversion thereof. The Notes were issued pursuant to the Indenture (the
"Indenture"), dated as of February 15, 2000, between the Company and Chase
Manhattan Bank and Trust Company, National Association, as Trustee thereunder
(the "Trustee").
As such counsel and in connection with the opinions expressed below, we have
examined a copy of (a) the Registration Statement, (b) the Indenture, (c) a
specimen of the Stock and (d) the originals, or copies identified to our
satisfaction, of such corporate records of the Company, certificates of public
officials, officers of the Company and other persons, and such other documents,
agreements and instruments as we have deemed necessary as a basis for the
opinions hereinafter expressed. In our examinations, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals and the conformity with the originals of all documents
submitted to us as copies. In expressing the opinions set forth below, we have
also relied on certain certificates of officers of the Company and certificates
of public officials.
Our opinions expressed below are limited to the laws of the State of California
and the federal law of the United States, and we do not express any opinion
herein concerning any other law.
Based on such examination and review and subject to the foregoing, we are of
the opinion that the shares of Stock initially issuable upon conversion of the
Notes have been duly and validly authorized and reserved for issuance and, when
issued and delivered in accordance with the provisions of the Notes and the
Indenture, will be duly and validly issued and fully paid and non-assessable.
<PAGE> 2
PROTEIN DESIGN LABS, INC.
APRIL 28, 2000
PAGE TWO
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters"
therein. In giving this consent, we do not thereby agree that we come within
the category of persons whose consent is required by the Act or the rules and
regulations promulgated thereunder.
Very truly yours,
/s/ GRAY CARY WARE & FREIDENRICH LLP
- ------------------------------------
Gray Cary Ware & Freidenrich LLP
<PAGE> 1
EXHIBIT 5.2
[GRAHAM & JAMES LLP LETTERHEAD]
April 20, 2000
Protein Design Labs, Inc.
34801 Campus Drive
Fremont, California 94555
RE: PROTEIN DESIGN LABS CONVERTIBLE SUBORDINATED NOTE OFFERING
Ladies and Gentlemen:
We have acted as special New York counsel for Protein Design Labs, Inc., a
Delaware corporation (the "Company"), in connection with the registration by the
Company of 5.50% Convertible Subordinated Notes due February 15, 2007 (the
"Notes") pursuant to a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), and rules
and regulations promulgated thereunder (the "Rules").
In connection with the opinion expressed herein, we have examined (i) the
Registration Statement, (ii) the form of the Notes, and (iii) a final execution
copy of the Indenture dated as of February 15, 2000 (the "Indenture") between
the Company and Chase Manhattan Bank and Trust Company, National Association. In
addition, we have assumed the due authorization, execution, authentication,
issuance and delivery of the Notes. We have made no independent investigation of
fact. We have made such investigations of law as we have deemed necessary. In
providing the opinion hereafter set forth, we have also assumed the due
authorization, execution and delivery of the Indenture by each party named
therein (including the Company) and that the Indenture so executed and
delivered is identical to the final execution copy delivered to us. In addition,
we have assumed that the Indenture is enforceable against each of the parties
thereto other than the Company.
Based upon the foregoing and subject to the matters hereinafter set forth we are
of the opinion that:
(i) The Notes, insofar as they are governed by the laws of the State of
New York, when duly authorized, executed, authenticated, issued and delivered in
accordance with the provisions of the Indenture will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms, except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar laws relating to or
affecting enforcement of creditors rights or by the availability of equitable
<PAGE> 2
April 20, 2000
Page 2
remedies.
We are not admitted to practice in any jurisdiction other than the State of New
York and do not purport to be expert on, and we are not expressing an opinion
with respect to, laws other than the laws of the State of New York. This opinion
is furnished for your benefit, and no other person or entity is entitled to rely
on this opinion without our express written consent. This opinion may not be
published or reproduced in any manner or distributed or circulated to any person
or entity without our express written consent; provided, however, that we
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters"
therein. In giving this consent, we do not thereby agree that we come within the
category of persons whose consent is required by the Act or the Rules. This
opinion is limited to the matters stated herein, and no opinion is implied or
may be inferred beyond the matters expressly stated herein. This opinion speaks
as of the date hereof, and we undertake no obligation to update this opinion
after the date hereof.
Very truly yours,
/s/ GRAHAM & JAMES LLP
- ----------------------------------------
Graham & James LLP
<PAGE> 1
EXHIBIT 10.33 Indenture between the Company and Chase Manhattan
Bank And Trust Company, National Association, a national
banking association, dated February 15, 2000 (Incorporated
herein by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999
filed March 30, 2000, and accompanied by its table of
contents and the following cross-reference sheet)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<S> <C> <C>
SECTION 1.1 Definitions..................................................................1
SECTION 1.2 Compliance Certificates and Opinions........................................12
SECTION 1.3 Form of Documents Delivered to the Trustee..................................13
SECTION 1.4 Acts of Holders of Securities...............................................13
SECTION 1.5 Notices, Etc., to Trustee and Company.......................................15
SECTION 1.6 Notice to Holders of Securities; Waiver.....................................16
SECTION 1.7 Effect of Headings and Table of Contents....................................16
SECTION 1.8 Successors and Assigns......................................................16
SECTION 1.9 Separability Clause.........................................................17
SECTION 1.10 Benefits of Indenture.......................................................17
SECTION 1.11 Governing Law...............................................................17
SECTION 1.12 Legal Holidays..............................................................17
SECTION 1.13 Conflict with Trust Indenture Act...........................................17
SECTION 1.14 Counterparts................................................................18
ARTICLE TWO
THE SECURITIES
SECTION 2.1 Form Generally..............................................................18
SECTION 2.2 Title and Terms.............................................................19
SECTION 2.3 Denominations...............................................................20
SECTION 2.4 Execution, Authentication, Delivery and Dating..............................20
SECTION 2.5 Global Securities; Non-Global Securities....................................20
SECTION 2.6 Registration, Registration of Transfer and Exchange; Restrictions on
Transfer....................................................................22
SECTION 2.7 Mutilated, Destroyed, Lost or Stolen Securities.............................25
SECTION 2.8 Payment of Interest; Interest Rights Preserved..............................26
SECTION 2.9 Persons Deemed Owners.......................................................27
SECTION 2.10 Cancellation................................................................27
SECTION 2.11 Computation of Interest.....................................................27
SECTION 2.12 CUSIP Numbers...............................................................27
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE THREE
SATISFACTION AND DISCHARGE
<S> <C> <C>
SECTION 3.1 Satisfaction and Discharge of Indenture......................................28
SECTION 3.2 Application of Trust Money...................................................29
ARTICLE FOUR
REMEDIES
SECTION 4.1 Events of Default............................................................29
SECTION 4.2 Acceleration of Maturity; Rescission and Annulment...........................31
SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by Trustee..............32
SECTION 4.4 Trustee May File Proofs of Claim.............................................33
SECTION 4.5 Trustee May Enforce Claims without Possession of Securities..................34
SECTION 4.6 Application of Money Collected...............................................34
SECTION 4.7 Limitation on Suits..........................................................34
SECTION 4.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert...............................................35
SECTION 4.9 Restoration of Rights and Remedies...........................................35
SECTION 4.10 Rights and Remedies Cumulative...............................................35
SECTION 4.11 Delay or Omission Not Waiver.................................................36
SECTION 4.12 Control by Holders of Securities.............................................36
SECTION 4.13 Waiver of Past Defaults......................................................36
SECTION 4.14 Undertaking for Costs........................................................37
SECTION 4.15 Waiver of Stay, Usury or Extension Laws......................................37
ARTICLE FIVE
THE TRUSTEE
SECTION 5.1 Certain Duties and Responsibilities..........................................37
SECTION 5.2 Notice of Defaults...........................................................39
SECTION 5.3 Certain Rights of Trustee....................................................39
SECTION 5.4 Not Responsible for Recitals or Issuance of Securities.......................40
SECTION 5.5 May Hold Securities, Act as Trustee under Other Indentures...................41
SECTION 5.6 Money Held in Trust..........................................................41
SECTION 5.8 Corporate Trustee Required; Eligibility......................................42
SECTION 5.9 Resignation and Removal; Appointment of Successor............................42
SECTION 5.10 Acceptance of Appointment by Successor.......................................44
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business..................44
SECTION 5.12 Authenticating Agents........................................................44
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5.13 Disqualification; Conflicting Interests......................................46
SECTION 5.14 Preferential Collection of Claims against Company............................46
ARTICLE SIX
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 6.1 Company May Consolidate, Etc., Only on Certain Terms
SECTION 6.2 Successor Substituted........................................................47
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES
SECTION 7.1 Supplemental Indentures without Consent of Holders of Securities.............47
SECTION 7.2 Supplemental Indentures with Consent of Holders of Securities................48
SECTION 7.3 Execution of Supplemental Indentures.........................................49
SECTION 7.4 Effect of Supplemental Indentures............................................50
SECTION 7.5 Reference in Securities to Supplemental Indentures...........................50
SECTION 7.6 Notice of Supplemental Indentures............................................50
ARTICLE EIGHT
COVENANTS
SECTION 8.1 Payment of Principal, Premium and Interest...................................50
SECTION 8.2 Maintenance of Offices or Agencies...........................................51
SECTION 8.3 Money for Security Payments to Be Held in Trust..............................51
SECTION 8.4 Existence 52
SECTION 8.5 Maintenance of Properties....................................................53
SECTION 8.6 Payment of Taxes and Other Claims............................................53
SECTION 8.7 Registration and Listing.....................................................53
SECTION 8.8 Statement by Officers as to Default..........................................54
SECTION 8.9 Delivery of Certain Information..............................................54
SECTION 8.10 Resale of Certain Securities; Reporting Issuer...............................55
SECTION 8.11 Waiver of Certain Covenants..................................................55
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE NINE
REDEMPTION OF SECURITIES
<S> <C> <C>
SECTION 9.1 Right of Redemption..........................................................55
SECTION 9.2 Applicability of Article.....................................................55
SECTION 9.3 Election to Redeem; Notice to Trustee........................................55
SECTION 9.4 Selection by Trustee of Securities to Be Redeemed............................56
SECTION 9.5 Notice of Redemption.........................................................56
SECTION 9.6 Deposit of Redemption Price..................................................57
SECTION 9.7 Securities Payable on Redemption Date........................................57
SECTION 9.8 Securities Redeemed in Part..................................................58
SECTION 9.9 Conversion Arrangement on Call for Redemption................................58
ARTICLE TEN
CONVERSION OF SECURITIES
SECTION 10.1 Conversion Privilege and Conversion Rate.....................................59
SECTION 10.2 Exercise of Conversion Privilege.............................................59
SECTION 10.3 Fractions of Shares..........................................................61
SECTION 10.4 Adjustment of Conversion Rate................................................61
SECTION 10.5 Notice of Adjustments of Conversion Rate.....................................66
SECTION 10.6 Notice of Certain Corporate Action...........................................67
SECTION 10.7 Company to Reserve Common Stock..............................................68
SECTION 10.8 Taxes on Conversions.........................................................68
SECTION 10.9 Covenant as to Common Stock..................................................68
SECTION 10.10 Cancellation of Converted Securities.........................................68
SECTION 10.11 Provision in Case of Consolidation, Merger or Sale of Assets.................69
SECTION 10.12 Responsibility of Trustee for Conversion Provisions..........................70
ARTICLE ELEVEN
SUBORDINATION OF SECURITIES
SECTION 11.1 Securities Subordinate to Senior Debt........................................70
SECTION 11.2 No Payments in Certain Circumstances; Payment Over of Proceeds Upon
Dissolution, Etc.....................................................70
SECTION 11.3 Trustee to Effectuate Subordination..........................................72
SECTION 11.4 No Waiver of Subordination Provisions........................................73
SECTION 11.5 Notice to Trustee............................................................73
SECTION 11.6 Reliance on Judicial Order or Certificate of Liquidating Agent...............74
SECTION 11.7 Trustee Not Fiduciary for Holders of Senior Debt.............................74
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 11.8 Reliance by Holders of Senior Debt on Subordination Provisions...............74
SECTION 11.9 Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's
Rights..............................................................75
SECTION 11.10 Article Applicable to Paying Agents..........................................75
SECTION 11.11 Certain Conversions and Repurchases Deemed Payment...........................75
ARTICLE TWELVE
REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL
SECTION 12.1 Right to Require Repurchase..................................................76
SECTION 12.2 Conditions to the Company's Election to Pay the Repurchase Price in
Common Stock........................................................77
SECTION 12.3 Notices; Method of Exercising Repurchase Right, Etc..........................77
ARTICLE THIRTEEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE
SECTION 13.1 Company to Furnish Trustee Names and Addresses of Holders....................80
SECTION 13.2 Preservation of Information..................................................81
SECTION 13.3 No Recourse against Others...................................................81
SECTION 13.4 Reports by Trustee...........................................................81
SECTION 13.5 Reports by Company...........................................................82
</TABLE>
<PAGE> 7
Certain Sections of the Indenture relating to
Sections 310 through 318 of
the Trust Indenture Act of 1989:
--------------------------------------------------
TIA Indenture Section Section
--------------------------------------------------
310(a)(1) 5.8
--------------------------------------------------
(a)(2) 5.8
--------------------------------------------------
(a)(3) N/A
--------------------------------------------------
(a)(4) N/A
--------------------------------------------------
(a)(5) 5.8
--------------------------------------------------
(b) 5.13
--------------------------------------------------
(c) N/A
--------------------------------------------------
311(a) 5.14
--------------------------------------------------
(b) 5.14
--------------------------------------------------
(c) N/A
--------------------------------------------------
312(a) 13.1, 13.2
--------------------------------------------------
(b) 13.2(b)
--------------------------------------------------
(c) 13.2(c)
--------------------------------------------------
313(a) 13.4
--------------------------------------------------
(b)(1) N/A
--------------------------------------------------
(b)(2) 13.4
--------------------------------------------------
(c) 13.4
--------------------------------------------------
(d) 13.4
--------------------------------------------------
314(a) 13.5
--------------------------------------------------
(b) N/A
--------------------------------------------------
(c)(1) 1.2
--------------------------------------------------
(c)(2) 1.2
--------------------------------------------------
(c)(3) N/A
--------------------------------------------------
(d) N/A
--------------------------------------------------
(e) 1.2
--------------------------------------------------
(f) N/A
--------------------------------------------------
315(a) 5.1(a)
--------------------------------------------------
(b) 5.2
--------------------------------------------------
(c) 5.1(b)
--------------------------------------------------
(d) 5.1, 5.3
--------------------------------------------------
(e) 4.14
--------------------------------------------------
316(a)(last sentence) 1.1, 5.1
--------------------------------------------------
(a)(1)(A) 4.12
--------------------------------------------------
(a)(1)(B) 4.13
--------------------------------------------------
(a)(2) N/A
--------------------------------------------------
<PAGE> 8
--------------------------------------------------
TIA Indenture Section Section
--------------------------------------------------
(b) 4.8
--------------------------------------------------
(c) 1.4(e)
--------------------------------------------------
317(a)(1) 4.3
--------------------------------------------------
(a)(2) 4.4
--------------------------------------------------
(b) 8.3
--------------------------------------------------
318(a) 1.13
--------------------------------------------------
- ----------------------
N/A means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed as part
of the Indenture
<PAGE> 1
EXHIBIT 12. Statement Regarding Computations of Ratios
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES(1):
Interest charges $ 1 $ -- $ -- $ -- $ 155
Interest portion of rental expense 472 485 563 788 894
------- -------- -------- ------- --------
Total Fixed Charges $ 473 $ 485 $ 563 $ 788 $ 1,049
EARNINGS(1):
Net loss $(8,354) $(11,796) $(23,875) $(9,502) $(10,333)
Plus fixed charges 473 485 563 788 1,049
------- -------- -------- ------- --------
Total Earnings $(7,881) $(11,311) $(23,312) $(8,714) $ (9,284)
RATIO OF EARNINGS TO FIXED CHARGES(2) -- -- -- -- --
</TABLE>
(1) For the purposes of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges, amortization
of debt expense and discount or premium related to indebtedness, whether
expensed or capitalized, and that portion of rental payments under
operating leases we believe to be representative of interest.
(2) Earnings for the years ended December 31, 1995, 1996, 1997, 1998 and
1999, were insufficient to cover fixed charges by $8,354, $11,796,
$23,875, $9,502, and $10,333, respectively (in thousands).
<PAGE> 1
EXHIBIT 23.2 Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Protein Design Labs,
Inc. for the registration of $150,000,000 principal amount of 5.5% Convertible
Subordinated Notes Due February 15, 2007 and the 993,377 shares of Common Stock
issuable upon conversion of the Notes and to the incorporation by reference
therein of our report dated February 1, 2000 with respect to the consolidated
financial statements of Protein Design Lab, Inc. included in its Annual Report
on Form 10-K for the year ended December 31, 1999, filed with the Securities and
Exchange Commission.
/S/ ERNST & YOUNG LLP
Palo Alto, California
May 9, 2000
<PAGE> 1
EXHIBIT NO. 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM T-1
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
-----------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)____
-------------------------
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4655078
(I.R.S. Employer Identification No.)
101 California Street, San Francisco, California
(Address of principal executive offices)
94111
(Zip Code)
------------------
PROTEIN DESIGN LABS, INCORPORATED
(Exact name of Obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
94-3023969
(I.R.S. Employer Identification No.)
34801 Campus Drive
Fremont, CA
(Address of principal executive offices)
94555
(Zip Code)
--------------------------------
5.50% Convertible Subordinated Notes Due February 15, 2007
(Title of Indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
None.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1. Articles of Association of the Trustee as Now in Effect (see
Exhibit 1 to Form T-1 filed in connection with Registration
Statement No. 333-41329, which is incorporated by reference).
Exhibit 2. Certificate of Authority of the Trustee to Commence Business
(see Exhibit 2 to Form T-1 filed in connection with
Registration Statement No. 333-41329, which is incorporated by
reference).
Exhibit 3. Authorization of the Trustee to Exercise Corporate Trust
Powers (contained in Exhibit 2).
Exhibit 4. Existing By-Laws of the Trustee (see Exhibit 4 to Form T-1
filed in connection with Registration Statement No. 333-41329,
which is incorporated by reference).
Exhibit 5. Not Applicable
Exhibit 6. The consent of the Trustee required by Section 321 (b) of the
Act (see Exhibit 6 to Form T-1 filed in connection with
Registration Statement No. 333-41329, which is incorporated by
reference).
Exhibit 7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not Applicable
Exhibit 9. Not Applicable
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of San
Francisco, and State of California, on the 24th day of March, 2000.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ James V. Myers
---------------------------------
James V. Myers
Vice President
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT 7. Report of Condition of the Trustee.
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CONSOLIDATED REPORT OF CONDITION OF Chase Manhattan Bank and Trust Company, N.A.
----------------------------------------------------
(Legal Title)
LOCATED AT 1800 Century Park East, Ste. 400 Los Angeles, CA 94111
-----------------------------------------------------------------------------
(Street) (City) (State) (Zip)
AS OF CLOSE OF BUSINESS ON December 31, 1999
-------------------
=========================================================================================
=========================================================================================
ASSETS DOLLAR AMOUNTS IN THOUSANDS
1. Cash and balances due from
a. Noninterest-bearing balances and currency and coin(1,2) 4,258
b. Interest bearing balances(3) 0
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 0
b. Available-for-sale securities (from Schedule RC-B, column D) 1,089
3. Federal Funds sold (4) and securities purchased agreements to resell 82,900
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) 68
b. LESS: Allowance for loan and lease losses 0
c. LESS: Allocated transfer risk reserve 0
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) 68
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 142
7. Other real estate owned (from Schedule RC-M) 0
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 0
9. Customers liability to this bank on acceptances outstanding 0
10. Intangible assets (from Schedule RC-M) 1,026
11. Other assets (from Schedule RC-F) 1,996
12a. TOTAL ASSETS 91,479
(1) includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the
sum of Schedule RC-M, items 3.a and 3.b
(3) includes time certificates of deposit not held for trading.
</TABLE>
<PAGE> 5
(4) Report "term federal funds sold" in Schedule RC, item 4.a "Loans and
leases, net of unearned income" and in Schedule RC-C, part 1.
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E) 59,457
(1) Noninterest-bearing 7,509
(2) Interest-bearing 51,948
b. In foreign offices, Edge and Agreement subsidiaries, and IBF
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased (2) and securities sold under agreements to
repurchase 0
15. a. Demand notes issued to the U.S. Treasury 0
b. Trading liabilities 0
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less 0
b. With a remaining maturity of more than one year through three years 0
c. With a remaining maturity of more than three years 0
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 0
19. Subordinated notes and Debentures(3) 0
20. Other liabilities (from Schedule RC-G) 5,756
21. Total liabilities (sum of items 13 through 20) 65,213
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 0
24. Common stock-- 600
25. Surplus (exclude all surplus related to preferred stock) 12,590
26. a. Undivided profits and capital reserves 13,076
b. Net unrealized holding gains (losses) on available-for-sale
securities 0
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 26,266
29. Total liabilities, equity capital, and losses deferred pursuant
to 12 U.S.C. 1823 (j) (sum of items 21 and 28.c) 91,479
</TABLE>
