<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1999
REGISTRATION NO. 333-85319
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HUMAN GENOME SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-3178468
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
9410 KEY WEST AVENUE
ROCKVILLE, MARYLAND 20850
(301) 309-8504
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM A. HASELTINE PH.D.
CHIEF EXECUTIVE OFFICER
HUMAN GENOME SCIENCES, INC.
9410 KEY WEST AVENUE
ROCKVILLE, MARYLAND 20850
(301) 309-8504
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
------------------------
Copies to:
R.W. SMITH, JR., ESQUIRE
PIPER & MARBURY L.L.P.
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
(410) 539-0489
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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, as amended (the "Securities Act") 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH OF TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE PRICE(1) REGISTRATION FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5 1/2% Convertible Subordinated Notes due
2006....................................... $125,000,000 100% $125,000,000 $0
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 (3) (4)......... 2,394,636 shares -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equals the aggregate principal amount of the securities being registered.
(2) A registration fee of $34,750 was previously paid in connection with this
registration statement.
(3) Such number represents the number of shares of common stock that are
currently issuable upon conversion of the notes. Pursuant to Rule 416 under
the Securities Act, we are also registering 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 protections of the notes. Pursuant
to Rule 457(i), no registration fee is required for these shares.
(4) We will issue one right to purchase one share of our junior participating
preferred stock as a dividend on each share of our common stock being
registered. The rights initially are attached to and trade with the shares
of our common stock being registered. Value attributable to such rights, if
any, is reflected in the market price of our common stock.
------------------------
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OF SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1999
HUMAN GENOME SCIENCES, INC.
------------------
$125,000,000
5 1/2% Convertible Subordinated Notes Due 2006
and
2,394,636 Shares of Common Stock
Issuable Upon Conversion of the Notes
------------------
Noteholders may offer for sale the notes and the underlying shares of our
common stock. See "Plan of Distribution." The notes have the following terms:
- We will pay interest on the notes on July 1 and January 1 of each year,
commencing on January 1, 2000.
- The notes will mature on July 1, 2006.
- The notes are subordinated to all of our existing and future senior
indebtedness.
- Holders may convert their notes at any time prior to maturity into shares
of our common stock at a conversion price of $52.20 per share, which is
subject to adjustment.
- We may redeem the notes on or after July 6, 2002.
- Holders may require us to repurchase their notes upon a change in
control.
- Our common stock is listed on The Nasdaq National Market under the symbol
"HGSI."
- The last reported bid price of our common stock on the Nasdaq National
Market on October 13, 1999 was $83.75 per share.
INVESTING IN THE NOTES OR THE COMMON STOCK INTO WHICH THE NOTES ARE
CONVERTIBLE INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY........................ 1
RATIO OF EARNINGS TO FIXED
CHARGES...................... 4
RISK FACTORS................... 5
USE OF PROCEEDS................ 15
DESCRIPTION OF NOTES........... 16
U.S. FEDERAL TAX
CONSIDERATIONS............... 29
DESCRIPTION OF OUR CAPITAL
STOCK........................ 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SELLING HOLDERS................ 37
PLAN OF DISTRIBUTION........... 40
LEGAL MATTERS.................. 41
EXPERTS........................ 41
WHERE YOU CAN FIND MORE
INFORMATION.................. 42
INCORPORATION BY REFERENCE..... 43
</TABLE>
-------------------------
-i-
<PAGE> 4
SUMMARY
This summary highlights information about Human Genome Sciences, Inc.
Because this is a summary, it may not contain all the information you should
consider before investing in the notes or the common stock into which the notes
are convertible. You should read this entire prospectus carefully.
HUMAN GENOME SCIENCES, INC.
We research and develop novel compounds for treating and diagnosing human
diseases based on the discovery and understanding of the medical usefulness of
genes. The sequence in which chemicals appear in a gene controls the function of
the gene. We have used automated, high speed technology to discover the
sequences of chemicals in genes and generate a large collection of partial human
gene sequences. We believe that our collection includes most of the genes
responsible for producing proteins in the human body. We also possess one of the
largest databases of the genes of humans and microbes, which we refer to as our
"genomic database." We believe we have created a broad base of product
opportunities based on our genomic database.
We began our work in the genetics industry by identifying and cataloging
genes. We have since focused primarily on the research and development of
proteins for the treatment of human disease. We use our advanced computer system
to identify the most promising product candidates. We are able to analyze
partial gene sequences, identify the genes corresponding to partial and full
length gene sequences and the proteins made by those genes. As of June 30, 1999,
we had isolated and characterized several thousand full-length genes and
purified more than 300 potential proteins for the treatment of human disease.
STRATEGY
We have a two-pronged commercialization strategy:
- Product Development and Commercialization. We use our internal
capabilities to research and develop proteins that can be produced on a
large scale and used as drugs to treat diseases. Generally, our strategy
is to develop potential products to a late stage of testing in the
laboratory or an early stage of studies in humans, and then to
collaborate with pharmaceutical or biotechnology companies for further
development and commercialization of our products.
- Corporate Collaborations. We increase our capabilities by collaborating
with pharmaceutical companies for the development and commercialization
of new products. We believe that these arrangements enable us to focus
our internal resources on a select number of product candidates while
still exploiting the broader product opportunities created by our genomic
database.
PRODUCTS IN HUMAN TRIALS
We have produced three drugs currently undergoing studies in humans. We
believe these drugs are among the pharmaceutical industry's first
genomics-derived drugs to reach the stage of testing on humans.
- Myeloid Progenitor Inhibitory Factor-1, known as MPIF-1, is a protein
designed to protect cells that develop into blood cells from the toxic
effects of several chemotherapy drugs. We began the second phase of human
studies of MPIF-1 for the treatment of breast and ovarian cancer in
November 1998.
-1-
<PAGE> 5
- Keratinocyte Growth Factor-2, known as KGF-2, is a protein designed to
speed the repair of damage to the mouth, throat and related tissues and
to heal serious chronic wounds to the skin. KGF-2 may also be useful in
treating a number of other conditions involving injury to skin cells. We
began the second phase of human studies of KGF-2 for the treatment of
venous ulcers, a type of chronic wound, in February 1999.
- Vascular Endothelial Growth Factor-2, known as VEGF-2, is a gene-therapy
drug designed to regenerate the blood vessels of, or revascularize, the
heart and limbs. The first and second phases of human studies of VEGF-2
for the treatment of insufficient circulation in limbs and heart disease
are ongoing. These trials are being conducted through Vascular Genetics
Inc., a joint venture in which we hold a substantial interest.
INTELLECTUAL PROPERTY
We vigorously pursue patents to protect our intellectual property. As of
September 30, 1999, we had 82 issued U.S. patents covering 72 full-length human
genes and had filed U.S. patent applications covering more than 6,700 human
genes and the proteins they make. In addition, we have filed patent applications
with respect to a substantial number of the large collection of partial gene
sequences we have discovered.
-------------------------
We are a Delaware corporation. Our headquarters are located at 9410 Key
West Avenue, Rockville, Maryland 20850-3338. Our telephone number is (301)
309-8504.
OFFERING
We present below a summary of this offering:
Securities Offered.............. $125,000,000 aggregate principal amount of
5 1/2% subordinated notes due 2006
convertible into an aggregate of 2,394,636
shares of our common stock.
Maturity Date................... July 1, 2006.
Interest Payment Dates.......... July 1 and January 1 of each year,
commencing January 1, 2000.
Conversion Rights............... Holders may convert some or all of their
notes at any time prior to the close of
business on the business day immediately
preceding the maturity date at a conversion
price of $52.20 per share. The initial
conversion price is equivalent to a
conversion rate of 19.1571 shares per
$1,000 principal amount of notes. The
conversion price is subject to adjustment.
See "Description of Notes -- Conversion
Rights."
Sinking Fund.................... None.
Optional Redemption............. We may redeem some or all of the notes at
any time on or after July 6, 2002 at the
redemption price described in the
"Description of Notes --
-2-
<PAGE> 6
Optional Redemption" section of this
prospectus, plus accrued and unpaid
interest.
Repurchase Right of Holders Upon a
Change in Control............... If a change in control of Human Genome
Sciences occurs, holders may require us to
give them the opportunity to sell their
notes to us at a purchase price equal to
100% of their face amount, plus accrued and
unpaid interest to the date of redemption.
This repurchase right does not apply to
every transaction that you may consider to
be a change in control. See "Description of
Notes -- Right to Require Purchase of Notes
Upon a Change in Control."
Ranking......................... The notes are our unsecured obligations and
rank junior to our existing and future
senior indebtedness. At June 30, 1999, our
senior indebtedness was approximately $2.2
million, all of which was secured. The
indenture does not restrict our ability to
incur additional senior indebtedness. See
"Description of Notes -- Subordination."
Form and Denomination of
Notes........................... The notes are represented by a global note
which has been deposited with a custodian
for, and registered in the name of a
nominee of, DTC in New York City.
Beneficial interests in the global notes
are shown on, and transfers of the global
notes will be effected only through,
records maintained by DTC and its
participants. See "Description of
Notes -- Book-Entry, Delivery and Form."
Use of Proceeds................. We will not receive any proceeds from the
sale of the notes or the common stock into
which the notes are convertible by the
selling holders. We will pay all expenses
of the registration and sale of the notes
and the common stock, other than selling
commissions and fees and stock transfer
taxes.
-3-
<PAGE> 7
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
We present below the ratio of our earnings to our fixed charges. Earnings
consist of net loss plus fixed charges. Fixed charges consist of interest
expense, including amortization of debt issuance costs, and that portion of
rental expense we believe to be representative of interest.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998
-------- -------
<S> <C> <C>
Deficiency of earnings available to cover fixed charges..... $(14,276) $(8,285)
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Deficiency of earnings available to
cover fixed charges............... $(22,957) $(21,148) $(7,559) $(32,719) $9,740
</TABLE>
-4-
<PAGE> 8
RISK FACTORS
You should carefully consider the following risk factors and the other
information in this prospectus before investing in the notes.
BECAUSE OUR BUSINESS STRATEGY IS UNTESTED, WE DO NOT KNOW WHETHER WE WILL BE
ABLE TO COMMERCIALIZE ANY OF OUR PRODUCTS AND GENERATE REVENUE
We do not know whether we can implement our business strategy successfully
because we are in the early stages of development. We try to find as many genes
as possible and then use this information to develop potential products. We use
automated high speed gene sequencing technology to:
- rapidly identify and obtain proprietary rights to a substantial number of
genes; and
- select from those genes promising candidates to develop compounds for
treating and diagnosing human diseases.
Other companies target particular diseases and then try to find cures
through gene-based therapies. Nobody has tested our strategy. If our strategy
does not result in the development of products that we can sell profitably, we
will be unable to generate revenue.
IF WE ARE UNABLE TO IDENTIFY THOSE GENES WITH POTENTIAL VALUE, THEN WE MAY NOT
BE ABLE TO RECOVER OUR INVESTMENT IN OUR GENE DISCOVERY EFFORT
Our success depends on our ability and that of our collaborators to
determine which genes have potential value. To select potential product
candidates, we invest significant time and resources to isolate and sequence
full-length genes, test and analyze the genes, and determine their functions. We
devote an increasing portion of our resources to identifying and developing
proteins for the treatment of human disease. We have recently made substantial
capital expenditures and hired additional personnel to foster these activities.
Before we can commercialize a product, we must extensively test the product in
the laboratory and complete several phases of study of its effects on humans. We
incur expenses for testing and study before we know whether we can sell a
product successfully. We will incur additional costs to continue these
activities. Ultimately, we may not be successful in identifying genes which we
can develop commercially.
BECAUSE WE ARE AN EARLY STAGE COMPANY, WE DO NOT KNOW WHETHER WE CAN DEVELOP OUR
BUSINESS AND ACHIEVE PROFITABILITY
We expect to incur continued and increasing losses and may not become
profitable. We are in the early stages of development, and it will be a number
of years, if ever, before we are likely to receive revenue from product sales or
royalties. We expect to continue to incur substantial expenses relating to
research and development efforts. We anticipate that we will increase these
efforts as we focus on the laboratory testing and studies in humans that are
required before we can sell a product. The development of our products requires
significant further research, development, testing and regulatory approvals. We
may not succeed in developing products that will be commercially successful and
that will generate revenue in excess of the cost of development.
BECAUSE OUR PRODUCT DEVELOPMENT EFFORTS DEPEND ON NEW TECHNOLOGIES, WE DO NOT
KNOW WHETHER OUR EFFORTS WILL BE SUCCESSFUL
To date, companies have developed and commercialized relatively few
products based on genes. Commercialization involves risks of failure inherent in
the development of
-5-
<PAGE> 9
products based on innovative technologies and the risks associated with drug
development generally. These risks include the possibility that:
- these technologies or any or all of the products based on these
technologies will be ineffective or toxic, or otherwise fail to receive
necessary regulatory clearances;
- the products, if safe and effective, will be difficult to manufacture on
a large scale or uneconomical to market;
- proprietary rights of third parties will prevent us or our collaborators
from marketing products;
- third parties will market superior or equivalent products; and
- we may not be able to obtain gene sequencing machines using new and
superior technology which could render obsolete the gene sequencers we
use.
BECAUSE WE HAVE LIMITED EXPERIENCE IN DEVELOPING PRODUCTS, WE MAY BE
UNSUCCESSFUL IN OUR EFFORTS TO DEVELOP PRODUCTS
Our ability to develop and commercialize products based on proteins and, in
the future, other products to which we have retained commercial rights, will
depend on our ability to:
- develop products internally;
- complete laboratory testing and human studies;
- obtain necessary regulatory approvals;
- deploy sales and marketing resources effectively; and
- enter into arrangements with third parties to provide these functions.
Although we have started human studies with respect to potential products,
we have limited experience with these activities and may not be successful in
developing or commercializing these or other products.
BECAUSE WE DEPEND ON REVENUE FROM OUR COLLABORATION PARTNERS, WE MAY NOT BECOME
PROFITABLE IF WE LOSE THE REVENUE FROM ANY COLLABORATION PARTNER
To date, we have received substantially all of our revenue from payments
made under our collaboration agreements with SmithKline Beecham and, to a lesser
extent, from other collaboration, option and licensing agreements. We expect
that we will receive most of our revenue for the foreseeable future from
payments under our existing collaboration agreements. We may not receive
expected milestone or royalty payments under our collaboration agreements. We
may not become profitable in a timely manner, or at all, if our collaborators
fail to:
- develop marketable products;
- obtain regulatory approvals for products; or
- successfully market products based on the genes we identify.
IF OUR RELATIONSHIP WITH ANY OF OUR COLLABORATORS PREVENTS US FROM ENTERING INTO
OTHER COLLABORATIVE AGREEMENTS, THEN WE MAY HAVE LIMITED OPPORTUNITIES FOR
PRODUCT DEVELOPMENT AND REVENUE GROWTH
Our collaboration agreements generally restrict our ability to enter into
collaboration agreements with additional collaboration partners. Our
collaborators may prevent us from obtaining the additional revenue and
assistance that additional collaborators could provide.
-6-
<PAGE> 10
Because our existing collaboration partners may force us to rely on them, these
partners may be able to exercise a greater degree of control over our business.
IF ONE OF OUR COLLABORATORS PURSUES A PRODUCT THAT COMPETES WITH OUR PRODUCTS,
THEN THEY MAY HAVE A CONFLICT OF INTEREST AND WE MAY NOT RECEIVE THE MILESTONE
PAYMENTS OR ROYALTY REVENUE THAT WE EXPECT
Each of our collaborators conducts multiple product development efforts.
Our collaborators may pursue existing or alternative technologies instead of
products they are developing in collaboration with us. Additionally, our
collaborators may develop products that are similar to or compete with products
they are developing in collaboration with us. If our collaborators pursue these
other products instead of our products, we may be unable to achieve our payment
milestones or our royalty revenue may decrease.
BECAUSE WE MAY DEPEND ON OUR COLLABORATORS AND OTHER THIRD PARTIES TO CONDUCT
LABORATORY TESTING AND HUMAN STUDIES, WE MAY ENCOUNTER DELAYS IN OR LOSE SOME
CONTROL OVER OUR EFFORTS TO DEVELOP PRODUCTS
We may rely in large part on our collaboration partners and third party
research organizations to design and conduct our laboratory testing and human
studies. If we are unable to contract for any necessary testing activities on
acceptable terms, we may not complete our product development efforts in a
timely manner. If we rely on collaborators and third parties for laboratory
testing and human studies, we may lose some control over these activities and
become too dependent upon these parties. Collaborators and third parties may not
complete testing activities on schedule or when we request.
IF WE GENERATE LOWER EARNINGS OR FACE HIGHER EXPENDITURES THAN WE PROJECT, THEN
WE MAY NOT BE ABLE TO REPAY THE NOTES
Our ability to pay the principal of and interest on our indebtedness,
including the notes, will depend on our future performance. At June 30, 1999, we
had outstanding total indebtedness of approximately $127.2 million. We must make
annual payments to the Maryland Industrial Development Financing Authority of
approximately $450,000, plus interest, in connection with the financing of the
construction and equipping of our facility for producing proteins. For the six
months ended June 30, 1999, our fixed charges exceeded our earnings by
approximately $14.2 million. A variety of uncertainties and contingencies will
affect our future performance, many of which are beyond our control. We may not
generate sufficient cash flow in the future to enable us to meet our anticipated
fixed charges, including our debt service requirements with respect to the
notes.
BECAUSE OF OUR SUBSTANTIAL INDEBTEDNESS, WE MAY BE UNABLE TO ADJUST TO MEET
CHANGING CONDITIONS IN THE FUTURE
Our substantial leverage will have several important consequences for our
future operations. For instance:
- we will dedicate a significant portion of our cash flow to pay interest
on, and principal of, our indebtedness;
- we may be unable to obtain additional financing in the future for capital
expenditures, acquisitions or general corporate purposes;
- we may be unable to withstand changing competitive pressures, economic
conditions and governmental regulations; and
- we may be unable to make acquisitions or otherwise take advantage of
significant business opportunities that may arise.
-7-
<PAGE> 11
IF WE ARE UNABLE TO PAY ALL OUR DEBTS, THEN YOU WILL RECEIVE PAYMENTS ON THE
NOTES ONLY IF WE HAVE FUNDS REMAINING AFTER WE HAVE REPAID OUR EXISTING AND
FUTURE SENIOR INDEBTEDNESS
The notes are general unsecured obligations. We may repay the notes only
after we have paid all of our existing and future senior indebtedness. Upon any
distribution of our assets because of insolvency, bankruptcy, dissolution,
winding up, liquidation or reorganization, we may pay the principal of and
interest on the notes only to the extent provided in the indenture, and only
after we pay all of our senior indebtedness in full. Senior indebtedness
includes all indebtedness for money borrowed, other than indebtedness that is
expressly junior or equal in right of payment to the notes. At June 30, 1999,
our senior indebtedness was approximately $2.2 million, all of which was
secured. The terms of the notes do not limit the amount of additional
indebtedness, including senior indebtedness, which we can create, incur, assume
or guarantee. See "Description of Notes -- Subordination."
BECAUSE YOUR RIGHT TO REQUIRE REPURCHASE OF THE NOTES IS LIMITED, THE MARKET
PRICE OF THE NOTES MAY DECLINE IF WE ENTER INTO A TRANSACTION THAT IS NOT A
CHANGE IN CONTROL UNDER THE INDENTURE
The term "change in control" is limited and may not include every event
that might cause the market price of the notes to decline or result in a
downgrade of the credit rating of the notes. The term "change in control" does
not apply to transactions in which 90% of the consideration paid for our common
stock in a merger or similar transactions is common stock or where our common
stock trades at a premium over the conversion price of the notes. Our obligation
to repurchase the notes upon a change in control may not preserve the value of
the notes in the event of a highly leveraged transaction, reorganization, merger
or similar transaction. See "Description of Notes -- Right to Require Purchase
of Notes Upon a Change in Control."
BECAUSE WE MAY BE UNABLE TO RAISE THE FUNDS NECESSARY TO REPURCHASE YOUR NOTES
IN THE EVENT OF A CHANGE IN CONTROL, WE MAY DEFAULT ON THE NOTES IN THE EVENT OF
A CHANGE IN CONTROL
We cannot assure you that we will have sufficient financial resources or be
able to arrange financing to pay the repurchase price of the notes in the event
of a change in control. Our ability to repurchase the notes may be limited by
law, the indenture and the terms of other agreements relating to our senior
indebtedness. In addition, we may not repurchase any notes in a change in
control if the provisions of the indenture would prohibit us from making
payments of principal on the notes. We may be required to refinance our senior
indebtedness in order to repurchase the notes. We may not have the financial
ability to repurchase the notes if our creditors accelerate payment of our
senior indebtedness.
IF AN ACTIVE TRADING MARKET FOR THE NOTES DOES NOT DEVELOP, THEN THE MARKET
PRICE OF THE NOTES COULD DECLINE OR YOU MAY BE UNABLE TO SELL YOUR NOTES
The notes are new issues of securities for which there currently is no
public market. Although Credit Suisse First Boston Corporation, the initial
purchaser of the notes, has informed us that it currently intends to make a
market in the notes, it is not obligated to do so. The initial purchaser may
discontinue any market making activity at any time without notice. We cannot
assure you that a liquid market for the notes will develop. If an active trading
market does not develop, the market price of the notes could decline or you may
be unable to sell your notes.
-8-
<PAGE> 12
BECAUSE OUR STOCK PRICE HAS BEEN AND WILL LIKELY CONTINUE TO BE VOLATILE, THE
MARKET PRICE OF THE NOTES AND THE COMMON STOCK MAY BE LOWER THAN YOU EXPECTED
Our stock price and the stock prices of emerging and biotechnology
companies like us have historically been highly volatile. During the past year,
the market price of our common stock has been as low as $24.50 per share and as
high as $96.25 per share. The market price of the notes and the common stock
could fluctuate substantially because of:
- future announcements about our company or our competitors, including the
results of testing, technological innovations or new commercial products;
- changes in government regulations;
- regulatory actions;
- announcements relating to healthcare reform;
- our failure to acquire or loss of proprietary rights to the gene
sequences we discover or the products we develop;
- litigation; and
- public concern as to the safety of our products.
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many emerging
and biotechnology companies. These fluctuations have often been unrelated to the
operating performance of these companies. These broad market fluctuations may
cause the market price of the notes or the common stock to be lower than you
expected.
BECAUSE MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER CAPABILITIES AND
RESOURCES, THEY MAY BE ABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS BEFORE US
We are in a race to identify, establish uses for and patent as many genes
as possible and to bring to market the products we develop. Many of our
potential competitors have substantially greater research and product
development capabilities and financial, scientific, marketing and human
resources. We believe that companies conducting genomic research, like us, have
identified the majority of genes in the human genome and will identify virtually
all of these genes within several years. We face competition from entities using
high speed gene sequencers to discover genes. We also face competition from
entities using more traditional methods to discover genes related to particular
diseases. We expect that competition in our field will intensify.
Our competitors include parties conducting research to identify genes and
human genome research similar to or competing with our focus on gene discovery,
including:
- institutes, like the U.S. government and the governments of Great
Britain, France, Germany and Japan;
- small laboratories associated with universities or other not-for-profit
organizations;
- pharmaceutical and biotechnology companies; and
- government-financed programs.
These competitors may:
- succeed in identifying genes or developing products earlier than we do;
- obtain approvals from the U.S. FDA or other regulatory agencies for
products more rapidly than we do;
-9-
<PAGE> 13
- develop treatments or cures that are more effective than those we propose
to develop; or
- acquire similar gene sequencing machines and engage in the automated
sequencing of genes.
The other risks of competition include the following:
- research and development by others may make our products, or the products
we and our collaborators may develop, obsolete or uneconomical;
- consumers may prefer existing or newly developed technologies to any
product we develop; and
- other companies use the same gene sequencing machines we use, in some
cases for business purposes that compete with our business.
IF PATENT LAWS OR THE INTERPRETATION OF PATENT LAWS CHANGE, OUR COMPETITORS MAY
BE ABLE TO DEVELOP AND COMMERCIALIZE OUR DISCOVERIES
The patent positions of biotechnology firms generally are highly uncertain
and involve complex legal and factual questions that will determine who has the
right to develop a particular product. No clear policy has emerged regarding the
breadth of claims covered in biotechnology patents. There have been, and
continue to be, intensive discussions on the scope of patent protection for both
partial gene sequences and full-length genes. There have also been proposals for
review of the appropriateness of patents on genes and partial gene sequences.
The biotechnology patent situation outside the U.S. is even more uncertain and
is currently undergoing review and revision in many countries. These proposals
and other changes in patent laws in the U.S. and other countries may result in
changes in, or different interpretations of, the patent laws which might allow
others to use our discoveries or develop and commercialize our products.
IF OUR PATENT APPLICATIONS DO NOT RESULT IN ISSUED PATENTS, THEN OUR COMPETITORS
MAY OBTAIN RIGHTS TO AND COMMERCIALIZE THE DISCOVERIES WE ATTEMPTED TO PATENT
Our pending applications covering full-length genes and their corresponding
proteins may not result in the issuance of any patents. As of September 30,
1999, we had filed patent applications for:
- more than 6,700 human genes and their corresponding proteins; and
- all or portions of genomes of eight infectious microorganisms and one
non-infectious microorganism.
As of that date, we had only 82 U.S. patents issued covering 72 full-length
human genes. Our disclosures in our applications may not be sufficient to meet
the statutory requirements for patentability in all cases. Additionally, our
patent applications may cover many genes. As a result, we cannot predict what
issues may arise in connection with our patent applications or the timing of the
grant of patents with respect to genes covered by our patent applications.
BECAUSE PATENT APPLICATIONS FOR PARTIAL HUMAN GENE SEQUENCES MAY BE LEGALLY
INSUFFICIENT, WE MAY BE UNABLE TO OBTAIN ISSUED PATENTS FOR MANY OF OUR PATENT
APPLICATIONS, AND OTHERS MAY OBTAIN RIGHTS TO OUR DISCOVERIES
We have filed U.S. patent applications claiming more than 300,000 partial
human gene sequences. The Patent and Trademark Office may not grant patents on
these applications because they may be insufficient. These applications seek to
protect partial human and non-human gene sequences, the full-length gene
sequences that include the
-10-
<PAGE> 14
partial sequences, as well as derived products and uses. These applications do
not contain any data from laboratory testing or human studies. Some court
decisions indicate that disclosure of a partial sequence may not be sufficient
to support the patentability of a full-length sequence. We believe that these
court decisions and the uncertain position of the Patent and Trademark Office,
present a significant risk that the Patent and Trademark Office will not issue
patents based on patent disclosures limited to partial gene sequences. Finally,
we are uncertain about the scope of the coverage, enforceability and commercial
protection provided by any patents issued on the basis of partial gene
sequences.
IF INFORMATION ABOUT THE GENES WE DISCOVER IS PUBLISHED BY OTHERS BEFORE WE
APPLY FOR PATENT PROTECTION, THEN WE MAY BE UNABLE TO OBTAIN PATENT PROTECTION,
WHICH WOULD ENABLE OTHERS TO DEVELOP AND COMMERCIALIZE OUR DISCOVERIES
Washington University has identified genes through partial sequencing
funded by Merck & Co. and has deposited those partial sequences in a public
database. In January 1997, The Institute for Genomic Research, or TIGR, in
collaboration with the National Center for Biological Information, disclosed
full-length DNA sequences which are reportedly in excess of 35,000 sequences
that were assembled from partial gene sequences available in publicly accessible
databases or sequenced at TIGR. This public disclosure might limit the scope of
our claims or make unpatentable subsequent patent applications on full length
genes we file.
In July 1994, we reached an agreement with TIGR and SmithKline Beecham to
contribute a number of partial copies of DNA sequences to a database. Under the
agreement, only academic scientists and researchers at non-profit institutions
that sign agreements could access the database. In October 1996, TIGR notified
us that it was terminating this agreement according to its terms, effective in
April 1997. The termination of this agreement eliminated limits on publication
of sequences in the database on that date. In addition, the termination
eliminated previous restrictions on TIGR's ability to publish sequence
information. This publication may prevent us from obtaining patent protection
for some genes in which we may have an interest.
IF OTHERS FILE SIMILAR PATENT APPLICATIONS OR OBTAIN SIMILAR PATENTS, THEN THE
PATENT AND TRADEMARK OFFICE MAY DENY OUR PATENT APPLICATIONS OR OTHERS MAY
RESTRICT THE USE OF OUR DISCOVERIES
Other companies or institutions may have filed patent applications or may
file patent applications in the future which attempt to patent genes similar to
our patent applications. Others have filed patent applications that cover genes
for which we have filed patent applications, including applications based on our
potential products. The Patent and Trademark Office would decide the priority of
competing patent claims in an interference proceeding. Any patent application
filed by a third party may have priority over patent applications we filed, in
which event the third party may require us to stop pursuing a potential product
or to negotiate a royalty arrangement to pursue the potential product.
IF OUR POTENTIAL PRODUCTS CONFLICT WITH PATENTS THAT COMPETITORS, UNIVERSITIES
OR OTHERS HAVE OBTAINED, THEN WE MAY BE UNABLE TO COMMERCIALIZE THOSE PRODUCTS
Our potential products may give rise to claims that they infringe the
patents of others. This risk will increase as the biotechnology industry expands
and as other companies obtain more patents and attempt to discover genes through
the use of high speed sequencers. Other persons could bring legal actions
against us to claim damages or to stop our manufacturing and marketing of the
affected products. If any of these actions are successful, in addition to any
potential liability for damages, these persons may require us
-11-
<PAGE> 15
to obtain a license in order to continue to manufacture or market the affected
products. We believe that there will continue to be significant litigation in
our industry regarding patent and other intellectual property rights. If we
become involved in litigation, it could consume a substantial portion of our
resources.
BECAUSE ISSUED PATENTS MAY NOT FULLY PROTECT OUR DISCOVERIES, OUR COMPETITORS
MAY BE ABLE TO COMMERCIALIZE PRODUCTS SIMILAR TO THOSE COVERED BY OUR ISSUED
PATENTS
Issued patents may not provide commercially meaningful protection against
competitors. Any issued patent may not provide us with competitive advantages.
Others may challenge our patents or independently develop similar products which
could result in an interference proceeding in the Patent and Trademark Office.
Others may be able to design around our issued patents or develop products
providing effects similar to our products. In addition, others may discover uses
for genes or proteins other than those uses covered in our patents, and these
other uses may be separately patentable. The holder of a patent covering the use
of an invention as to which we have a patent claim could exclude us from selling
a product for a use covered by their patent.
BECAUSE THE U.S. DEPARTMENT OF ENERGY FUNDED SOME OF OUR RESEARCH, IT MAY GRANT
LICENSES UNDER OUR PATENTS THAT WOULD ENABLE OTHERS TO USE OUR DISCOVERIES
We identified a small percentage of sequences covered by our patent filings
through research funded by grants from the U.S. Department of Energy. The
Department of Energy has a statutory right to grant to other parties licenses
under patents which may be issued based on research funded by the Department of
Energy. The Department of Energy may exercise this right in the event of:
- lack of action on the part of the holder of the patent rights to achieve
practical application of the invention or
- a need to alleviate public health or safety concerns not reasonably
satisfied by the holder of the patent rights.
IF WE ARE UNABLE TO PROTECT OUR TRADE SECRETS, THEN OTHERS MAY BE ABLE TO USE
OUR SECRETS TO COMPETE MORE EFFECTIVELY
We may not be able to meaningfully protect our trade secrets. We rely on
trade secret protection to protect our confidential and proprietary information.
We believe that we have developed proprietary procedures for making libraries of
DNA sequences and genes. We have not sought patent protection for these
procedures. Additionally, we have developed a substantial database concerning
genes we have identified. While we have entered into confidentiality agreements
with employees and academic collaborators, we may not be able to prevent their
disclosure of these data or materials. Others may independently develop
substantially equivalent information and techniques. In addition, TIGR has
developed or possesses specific trade secrets important to our business,
including information about sequencing procedures and genes identified by TIGR.
IF WE LOSE KEY MANAGEMENT OR OTHER PERSONNEL, WE MAY EXPERIENCE DELAYS IN OUR
PRODUCT DEVELOPMENT EFFORT
We depend on our senior executive officers as well as key scientific and
other personnel. Although we have entered into employment agreements with some
of our executives, the employment agreements are for a limited period of time,
and not all key personnel have employment agreements. Our employment agreement
with Dr. William A. Haseltine, our Chairman of the Board and Chief Executive
Officer, expires in
-12-
<PAGE> 16
February 2000. Although Dr. Haseltine's employment agreement automatically
extends for additional one year terms, either party can terminate the agreement
four months prior to the end of the applicable term. If Dr. Haseltine decides to
terminate his employment with us, this termination could delay the
commercialization of our products or prevent us from becoming profitable.
Further, we have not purchased key-man life insurance on any of our executive
officers or key personnel, and therefore may not have adequate funds to find an
acceptable replacement if Dr. Haseltine or other valuable executives die.
Competition among pharmaceutical and biotechnology companies for qualified
employees is intense, and the loss of qualified employees, or an inability to
attract, retain and motivate additional highly skilled employees required for
the expansion of our activities, could hinder our ability to complete human
studies successfully and develop marketable products.
IF WE DO NOT OBTAIN SIGNIFICANT ADDITIONAL FUNDS ON ACCEPTABLE TERMS, THEN WE
MAY NOT BE ABLE TO CONTINUE TO GROW OUR BUSINESS AND GENERATE ENOUGH REVENUE TO
RECOVER OUR INVESTMENT IN OUR PRODUCT DEVELOPMENT EFFORT
Since inception, we have expended, and expect to continue to expend,
substantial funds to continue our research and development programs. If we incur
unanticipated expenses or delays in receipt of revenue, we may require
additional financing to fund our operating expenses and capital requirements. We
may not be able to obtain additional financing on acceptable terms. If we raise
additional funds by issuing equity securities, the new securities may dilute the
interests of our existing stockholders.
BECAUSE WE ARE SUBJECT TO EXTENSIVE AND UNCERTAIN GOVERNMENT REGULATORY
REQUIREMENTS, WE MAY BE ABLE TO OBTAIN GOVERNMENT APPROVAL OF OUR PRODUCTS IN A
TIMELY MANNER
Our products are subject to an extensive and uncertain regulatory approval
process by the FDA and comparable agencies in other countries. The regulation of
new products is extensive, and the required process of laboratory testing and
human studies is lengthy and expensive. We may not obtain FDA approvals in a
timely manner, or at all. We and our collaborators may encounter significant
delays or excessive costs in our efforts to secure necessary approvals or
licenses. Even if we obtain FDA regulatory approvals, the FDA extensively
regulates manufacturing, labeling, distributing, marketing, promotion and
advertising after product approval. Moreover, several areas in which we or our
collaborators may develop products involve relatively new technology and have
not been the subject of extensive product testing in humans. The regulatory
requirements governing these products and related clinical procedures remain
uncertain. In addition, these products may be subject to substantial review by
foreign governmental regulatory authorities which could prevent or delay
approval in those countries. Regulatory requirements ultimately imposed on our
products could limit our ability to test, manufacture and, ultimately,
commercialize our products.
BECAUSE WE ARE SUBJECT TO ENVIRONMENTAL PROTECTION LAWS, WE MAY BE UNABLE TO
CONDUCT OUR BUSINESS IN THE MANNER WE CURRENTLY INTEND
State and federal laws regarding environmental protection and hazardous
substances control affect our business. We cannot predict the impact that these
laws or any changes in these laws may have on our future operations. Federal and
state agencies and congressional committees have expressed interest in further
regulating biotechnology. We cannot estimate the extent and impact of regulation
in the biotechnology field, including genetic testing, resulting from any future
federal, state or local legislation or administrative action.
-13-
<PAGE> 17
BECAUSE WE DEPEND ON A SINGLE SUPPLIER FOR GENE SEQUENCING MACHINES AND
REAGENTS, WE MAY BE UNABLE TO IDENTIFY ADDITIONAL GENES IF WE LOSE THAT SUPPLIER
We currently depend on a single supplier, Applied Biosystems, a division of
PE Corporation, formerly Perkin-Elmer Corporation, to provide all of our gene
sequencing machines and reagents we require in connection with our gene
sequencing process. If we are unable to obtain additional machines or an
adequate supply of reagents or other ingredients at commercially reasonable
rates, we may be unable to continue to identify genes through gene sequencing.
PE Corporation has recently created Celera Genomics Corporation, an entity that
is sequencing the human genome and could potentially be one of our competitors.
While other gene sequencing machines are available, we do not believe that other
machines are as efficient as the machines we currently use. Gene sequencing
machines or the reagents may not remain available in commercial quantities at
acceptable costs.
BECAUSE WE CURRENTLY HAVE A LIMITED MANUFACTURING CAPACITY AND RELY ON
THIRD PARTIES TO MANUFACTURE OUR PRODUCTS FOR STUDIES AND SALE, WE MAY BE UNABLE
TO OBTAIN NECESSARY PRODUCTS ECONOMICALLY
We do not currently have any manufacturing facilities licensed to supply
materials suitable for clinical trials or for commercial sale or any experience
in manufacturing materials suitable for human studies or for commercial sale. We
depend on third parties to comply with current good manufacturing practices,
known as cGMPs, and other regulatory requirements and to deliver materials on a
timely basis. These third parties may not perform adequately. Any failures by
these third parties may delay our development of products or their submission
for regulatory approval.
During 1997 and 1998, we designed and the Maryland Economic Development
Corporation constructed a process development and production facility for the
preparation of quantities of our proteins for human studies. The FDA must
validate and inspect this facility to determine compliance with cGMP
requirements. A delay in validation of the facility could delay or increase the
cost of human studies and could delay submission of our products for regulatory
approval. We may not be able to successfully establish manufacturing
capabilities and manufacture our products economically or in compliance with
cGMPs and other regulatory requirements.
BECAUSE WE CURRENTLY HAVE NO MARKETING CAPABILITY AND RELY ON THIRD PARTIES TO
MARKET OUR PRODUCTS, WE MAY BE UNABLE TO COMMERCIALIZE OUR PRODUCTS
We do not have any products that can be marketed. In the future, we
generally expect to rely on collaborators or on third parties that we may
contract with to market any products that we may develop. Our collaborators or
other third parties may not be successful in marketing our products. To date, we
have collaborated with SmithKline Beecham, Schering-Plough and others. However,
we may also co-promote or retain U.S. marketing rights to our products. If we
decide to market products directly, we will incur significant additional
expenditures and commit significant additional management resources to develop
an external sales force and implement our marketing strategy. We may not be able
to establish a successful marketing force.
IF THE HEALTHCARE SYSTEM OR REIMBURSEMENT POLICIES CHANGE, THEN THE PRICES OF
OUR POTENTIAL PRODUCTS MAY FALL OR OUR POTENTIAL SALES MAY DECLINE
In recent years, officials have made numerous proposals to change the
healthcare system in the U.S. These proposals included measures that would limit
or eliminate payments for certain medical procedures and treatments or subject
the pricing of
-14-
<PAGE> 18
pharmaceuticals to government control. Government and other third-party payors
increasingly attempt to contain healthcare costs by limiting both coverage and
the level of reimbursement of newly approved healthcare products. In some cases,
they may also refuse to provide any coverage of uses of approved products for
disease indications other than those for which the FDA has granted marketing
approval. Governments may adopt future legislative proposals and federal, state
or private payors for healthcare goods and services may take action to limit
their payments for goods and services. Any of these events could limit our
ability to commercialize our products successfully.
BECAUSE THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, IT MAY NOT PROVE TO
BE ACCURATE
This prospectus, including the documents we incorporate by reference,
contains forward-looking statements and information relating to our company. We
generally identify forward-looking statements using words like "believe,"
"intend," "expect," "may," "should," "plan," "project," "contemplate,"
"anticipate" or similar statements. We base these statements on our beliefs as
well as assumptions we made using information currently available to us. Because
these statements reflect our current views concerning future events, these
statements involve risks, uncertainties and assumptions. Actual results may
differ significantly from the results discussed in these forward-looking
statements. We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or the common
stock into which the notes are convertible by the selling holders.
-15-
<PAGE> 19
DESCRIPTION OF NOTES
We issued the notes under an indenture, dated as of June 25, 1999, between
us and The Bank of New York, as trustee. The following description is only a
summary of the material provisions of the indenture, the notes and the
registration rights agreement. We urge you to read the indenture, the notes and
the registration rights agreement in their entirety because they, and not this
description, define your rights as holders of these notes. You may request
copies of these documents at our address shown under the caption "Where You Can
Find More Information." The terms of the notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended.
GENERAL
The notes are unsecured, subordinated obligations of Human Genome Sciences.
We issued the notes in the principal amount of $125,000,000. Interest on the
notes will accrue at the rate of 5 1/2% per annum and will be payable
semiannually in arrears on July 1 and January 1 of each year, commencing on
January 1, 2000. Interest on the notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. We will make each interest payment to the holders of record of
the notes on the immediately preceding June 15 or December 15, whether or not
this day is a business day.
We will pay the principal of, premium, if any, and interest on the notes at
the office or agency maintained by us in the Borough of Manhattan in New York
City. Holders may register the transfer of their notes at the same location. We
reserve the right to pay interest to holders of the notes by check mailed to the
holders at their registered addresses or by wire transfer to holders of at least
$2,000,000 aggregate principal amount of notes. Interest on the notes will be
computed on the basis of a 360-day year comprised of 12 30-day months.
Except under the limited circumstances described below, the notes will be
issued only in fully-registered book-entry form, without coupons, and will be
represented by one or more global notes. There will be no service charge for any
registration of transfer or exchange of notes. We may, however, require holders
to pay a sum sufficient to cover any tax or other governmental charge payable in
connection with any transfer or exchange.
BOOK-ENTRY, DELIVERY AND FORM
We will issue the notes in the form of one or more global notes except as
described under "-- Certificated Notes" below. The global notes will be
deposited with, or on behalf of, the clearing agency registered under the
Exchange Act that is designated to act as depositary for the notes and
registered in the name of the depositary or its nominee. The Depository Trust
Company will be the initial depositary. Except as described below, the global
notes may be transferred, in whole and not in part, only to the depositary or
another nominee of the depositary. You may hold your beneficial interests in the
global notes directly through the depositary if you have an account with the
depositary or indirectly through organizations which have accounts with the
depositary.
The depositary has advised us that it is:
- a limited-purpose trust company organized under the laws of the State of
New York;
- a member of the Federal Reserve System;
-16-
<PAGE> 20
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
The depositary was created to hold securities of institutions that have accounts
with the depositary and to facilitate the clearance and settlement of securities
transactions among those institutions through electronic book-entry changes.
This eliminates the need for physical movement of certificates representing
securities. These institutions, known as participants, include securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations. The initial purchaser is a participant. Access to the
depositary's book-entry system is also available to others that clear through or
maintain a custodial relationship with a participant, whether directly or
indirectly.
Upon the issuance of the global notes, the depositary credited, on its
book-entry registration and transfer system, the principal amount of notes
represented by the global notes to the accounts of participants. The initial
purchaser designated the accounts to be credited. Ownership of beneficial
interests in a global note is limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in the global
notes is shown on, and the transfer of those ownership interests will be
effected only through, records maintained by the depositary and the
participants. The laws of some jurisdictions may require that purchasers of
securities take physical delivery of securities in definitive form. These limits
and laws may impair your ability to transfer or pledge beneficial interests in a
global note.
So long as the depositary or its nominee is the registered holder and owner
of a global note, the depositary or the nominee will be considered the sole
legal owner and holder of the related notes for all purposes. Except as
described below, as an owner of a beneficial interest in a global note, you will
be subject to the following limitations:
- you will not be entitled to have the notes represented by the global
notes registered in your name;
- you will not receive or be entitled to receive physical delivery of
certificated notes; and
- you will not be considered to be the owner or holder of any notes under
the global notes.
We understand that under existing industry practice, in the event an owner of a
beneficial interest in a global note desires to take any action that the
depositary, as the holder of the global notes, is entitled to take, the
depositary would authorize the participants to take the action. The participants
would authorize beneficial owners owning through them to take the action or
would otherwise act upon the instructions of beneficial owners owning through
them.
Payment of principal of, premium, if any, and interest on notes represented
by a global note registered in the name of and held by the depositary or its
nominee will be made to the depositary or its nominee as the registered owner
and holder of the global notes.
We expect that the depositary or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest on a global note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global notes as
shown on the records of the depositary or its nominee. We also expect that
payments by participants to owners of beneficial interests in
-17-
<PAGE> 21
a global note held through the participants will be governed by standing
instructions and customary practices and will be the responsibility of the
participants. We will not have any responsibility or liability:
- for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the global notes;
- for maintaining, supervising or reviewing any records relating to
beneficial ownership interests;
- for any other aspect of the relationship between the depositary and its
participants; or
- for any other aspect of the relationship between participants and the
owners of beneficial interests in the global notes owning through
participants.
Unless and until the global notes are exchanged in whole or in part for
certificated notes, the global notes may not be transferred except as a whole by
the depositary to a nominee of the depositary or by a nominee of such depositary
to another nominee of such depositary.
Although the depositary has agreed to these procedures in order to
facilitate transfers of interests in the global notes among participants of the
depositary, it is under no obligation to perform or continue to perform and may
discontinue these procedures at any time. Neither we nor the trustee will have
any responsibility for the performance by the depositary or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
YEAR 2000 ISSUES RELATING TO THE DEPOSITORY TRUST COMPANY
We have been advised by the Depository Trust Company that it is aware that
some computer applications, systems and the like for processing dates that are
dependent upon calendar dates, including dates before, on or after January 1,
2000, may encounter "year 2000 problems." DTC has informed its participants and
other members of the financial community that it has developed and is
implementing a program so that its systems, as the same relate to the timely
payment of distributions, including principal and income payments, to
securityholders, book-entry deliveries and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which DTC expects to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the industry that it is contacting, and will
continue to contact, third-party vendors from whom DTC acquired services to
impress upon them the importance of their services being year 2000 compliant and
determine the extent of their efforts for year 2000 testing and remediation of
their services. In addition, DTC is in the process of developing contingency
plans that it deems appropriate.
According to DTC, this information with respect to DTC has been provided to
the industry for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
-18-
<PAGE> 22
CERTIFICATED NOTES
The notes represented by the global notes are exchangeable for certificated
notes in definitive form of like tenor in denominations of $1,000 and integral
multiples of $1,000 if:
- the depositary notifies us that it is unwilling or unable to continue as
depositary for the global notes;
- the depositary ceases to be a clearing agency registered under the
Exchange Act or announces an intention permanently to cease business or
in fact ceases business;
- we at any time determine not to have all of the notes represented by the
global notes; or
- an event of default, as described under the caption "-- Events of
Default," has occurred and is continuing.
Any note that becomes exchangeable as described above is exchangeable for
certificated notes issuable in authorized denominations and registered in
whatever names the depositary directs. Subject to the foregoing, the global
notes are not exchangeable, except for global notes of the same aggregate
denomination to be registered in the name of the depositary or its nominee.
CONVERSION RIGHTS
A holder may, at any time prior to the close of business on the business
day immediately preceding the maturity date, convert a note or any portion of a
note into shares of common stock initially at the conversion price of $52.20 per
share, unless the note or portion of a note has been previously redeemed. The
right to convert a note called for redemption will terminate at the close of
business on the business day immediately preceding the date fixed for
redemption, unless we default in making the payment due on the redemption date.
For information as to notices of redemption, see "-- Optional Redemption."
We will adjust the conversion price if:
- we issue common stock as a dividend or distribution on our common stock;
- we issue to all holders of our common stock rights, warrants or options
entitling them to subscribe for or purchase common stock at less than the
then current market price;
- we subdivide or combine our common stock;
- we distribute to all holders of common stock evidences of our
indebtedness, shares of capital stock, securities, cash or property,
excluding:
- those rights, warrants or options referred to above;
- any dividend or distribution paid exclusively in cash; and
- any dividend or distribution referred to above;
- we make a cash distribution to all holders of our common stock, that
together with all other all-cash distributions and consideration payable
in respect of any tender or exchange offer by us or one of our
subsidiaries for our common stock made within the preceding 12 months
exceeds 12.5% of our aggregate market capitalization on the date of the
distribution; or
-19-
<PAGE> 23
- we complete a tender or exchange offer for our common stock which
involves an aggregate consideration that, together with:
- any cash and other consideration payable in respect of any tender or
exchange offer by us or one of our subsidiaries for our common stock
concluded within the preceding 12 months and
- the amount of any all-cash distributions to all holders of our
common stock made within the preceding 12 months,
exceeds 12.5% of our aggregate market capitalization on the expiration of
the tender or exchange offer.
No adjustment of the conversion price must be made until cumulative adjustments
amount to 1% or more of the conversion price as last adjusted.
If we distribute rights or warrants, other than those referred to in the
second clause of the preceding paragraph, pro rata to holders of common stock,
so long as the rights or warrants have not expired or been redeemed by us, the
holder of any note surrendered for conversion will be entitled to receive, in
addition to the shares of common stock issuable upon conversion, the following
upon conversion:
- if conversion occurs on or prior to the date for the distribution of
certificates evidencing the rights or warrants, the holder will be
entitled to 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; and
- if conversion occurs after the distribution date, the holder will be
entitled to the same number of rights or warrants to which a holder of
the number of shares of common stock into which the note was convertible
immediately prior to the distribution date would have been entitled on
the distribution date in accordance with the terms and provisions
applicable to the rights or warrants.
The conversion price of the notes will not be subject to adjustment on account
of any declaration, distribution or exercise of any rights or warrants.
If our common stock is converted into the right to receive other
securities, cash or other property as a result of reclassifications,
consolidations, mergers, sales or transfers of assets or other transactions,
each note then outstanding would, without the consent of any holders of notes,
become convertible only into the kind and amount of securities, cash and other
property receivable upon the transaction by a holder of the number of shares of
common stock which would have been received by a holder immediately prior to the
transaction if the holder had converted the note.
We will not issue fractional shares of common stock to a holder who
converts a note. In lieu of issuing fractional shares, we will pay a cash
adjustment based upon the market price.
Except as described in this paragraph, no holder of notes will be entitled,
upon conversion of the notes, to any actual payment or adjustment on account of
accrued and unpaid interest or on account of dividends on shares of common stock
issued in connection with the conversion. If any holder surrenders a note for
conversion between the close of business on any record date for the payment of
an installment of interest and the opening of business on the related interest
payment date the holder must deliver payment to us of an amount equal to the
interest payable on the interest payment date on the principal amount converted
together with the note being surrendered. The foregoing sentence shall not apply
to notes called for redemption on a redemption date within the period between
and including the record date and interest payment date.
-20-
<PAGE> 24
If we make a distribution of property to our stockholders which would be
taxable to them as a dividend for federal income tax purposes and the conversion
price of the notes is reduced, this reduction may be deemed to be the receipt of
taxable income to holders of the notes.
In addition, we may make any reductions in the conversion price that our
board of directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of
stock, or rights to acquire stock, or from any event treated as such for income
tax purposes or for any other reasons.
OPTIONAL REDEMPTION
We may not redeem the notes prior to July 6, 2002. At any time on or after
July 6, 2002, we may redeem all or a portion of the notes upon at least 20 and
not more than 60 days' notice by mail to the holders of the notes, by paying the
redemption price, plus accrued and unpaid interest. The redemption price,
expressed as a percentage of the principal amount, is as follows for the periods
shown below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
July 6, 2002 through June 30, 2003...................... 102.75%
July 1, 2003 through June 30, 2004...................... 101.83%
July 1, 2004 through June 30, 2005...................... 100.92%
July 1, 2005 and thereafter............................. 100.00%
</TABLE>
If we opt to redeem less than all of the notes at any time, the trustee
will select or cause to be selected the notes to be redeemed by any method that
it deems fair and appropriate. In the event of a partial redemption, the trustee
may provide for selection for redemption of portions of the principal amount of
any note of a denomination larger than $1,000.
There is no sinking fund provision in the notes.
RIGHT TO REQUIRE PURCHASE OF NOTES UPON A CHANGE IN CONTROL
If a change of control occurs, each holder of notes may require that we
repurchase the holder's notes on the date fixed by us that is not less than 30
nor more than 45 days after we give notice of the change in control. We will
repurchase the notes for an amount of cash equal to 100% of the principal amount
of the notes on the date of purchase plus accrued and unpaid interest, if any,
to the date of purchase.
A change of control occurs when:
(1) any person, or any persons acting together in a manner which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act,
- becomes the beneficial owner, directly or indirectly, of our
capital stock, entitling the person or persons and its or their
affiliates to exercise more than 50% of the total voting power of
all classes of our capital stock entitled to vote generally in
the election of our directors or
- succeeds in having enough of its or their nominees elected to our
board so that the nominees, when added to any existing directors
remaining on our board after the election who are affiliates of
or acting in concert with these persons, they constitute a
majority of our board;
(2) we are a party to any transaction in which our common stock is
converted into the right to receive other securities, cash and/or property
and the value distributed in the transaction and any other transaction
within the 12 preceding
-21-
<PAGE> 25
months is more than 50% of the average of the daily closing prices for our
common stock for the five trading days ending on the trading day
immediately preceding the date of the transaction; or
(3) we consolidate with or merge into any other person or sell,
convey, transfer or lease our properties and assets substantially as an
entirety to any person other than one of our subsidiaries, or any other
person consolidates with or merges into us, other than any consolidation or
merger where persons who are our stockholders immediately prior to the
transaction become the beneficial owners of more than 50% of the total
voting power of the surviving company's capital stock.
On or prior to the date of repurchase, we will deposit with a paying agent an
amount of money sufficient to pay the aggregate repurchase price of the notes
which is to be paid on the date of repurchase.
We may not repurchase any note at any time when the subordination
provisions of the indenture otherwise would prohibit us from making payments of
principal in respect of the notes. If we fail to repurchase the notes when
required under the preceding paragraph, this failure will constitute an event of
default under the indenture whether or not repurchase is permitted by the
subordination provisions of the indenture.
A change in control will not be deemed to have occurred:
- if the closing price of our common stock for any five trading days during
the ten trading days immediately preceding the change in control is at
least equal to 105% of the conversion price in effect immediately
preceding the change in control; or
- if at least 90% of the consideration received or to be received by the
holders of our common stock in the transaction or transactions
constituting a change in control consists of:
- shares of common stock, or securities convertible into the shares of
common stock, of an entity organized under the laws of a U.S.
jurisdiction whose shares of common stock are, or upon issuance will
be, traded on a national securities exchange in the U.S. or through
The Nasdaq Stock Market, Inc. or
- shares of common stock of an entity organized under the laws of a
jurisdiction outside of the U.S., or American Depositary Shares
representing the shares of common stock, that are, or upon issuance
will be, traded on a national securities exchange in the U.S. or
through The Nasdaq Stock Market, Inc., if the entity has a worldwide
total market capitalization of its equity securities of at least
US$5 billion before giving effect to the transaction or transactions
constituting a change in control.
On or before the 15th day after we know or reasonably should know a change
in control has occurred, we must mail to all holders of record of the notes a
notice of the occurrence of the change in control, stating:
- the date of repurchase;
- the date by which the repurchase right must be exercised;
- the repurchase price for the notes; and
- the procedures which a holder of notes must follow to exercise the
repurchase right.
To exercise the repurchase right, the holder of a note must deliver, on or
before the 30th day after the date of our notice, an irrevocable written notice
to us and the trustee of the holder's exercise of the repurchase right. This
notice must be accompanied by certificates evidencing the note or notes with
respect to which the right is being exercised,
-22-
<PAGE> 26
duly endorsed for transfer. In addition, if the date of repurchase falls between
the relevant record date and the corresponding succeeding interest payment date,
the notes to be repurchased must also be accompanied by payment from the holder
of an amount equal to the interest on the notes which the holder is to receive
on the interest payment date.
The effect of these provisions granting the holders the right to require us
to repurchase the notes upon the occurrence of a change in control may make it
more difficult for any person or group to acquire control of Human Genome
Sciences or to effect a business combination with us. Moreover, under the
indenture, we will not be permitted to pay principal of or interest on, or
otherwise acquire the notes, including any repurchase at the election of the
holders of notes upon the occurrence of a change in control, if a payment
default on our senior indebtedness has occurred and is continuing, or if our
senior indebtedness is not paid in full in the event of our insolvency,
bankruptcy, reorganization, dissolution or other winding up. Our ability to pay
cash to holders of notes following the occurrence of a change in control may be
limited by our then existing financial resources. We cannot assure you that
sufficient funds will be available when necessary to make any required
repurchases. See "Risk Factors -- Because we may be unable to raise the funds
necessary to repurchase your notes in the event of a change in control, a change
in control may cause a default on the notes."
If a change in control occurs and the holders exercise their rights to
require us to repurchase notes, we intend to comply with applicable tender offer
rules under the Exchange Act with respect to any repurchase.
The term "beneficial owner" shall be determined in accordance with Rules
13d-3 and 13d-5 promulgated by the SEC under the Exchange Act or any successor
provision, except that a person shall be deemed to have "beneficial ownership"
of all shares that the person has the right to acquire, whether exercisable
immediately or only after the passage of time.
REGISTRATION RIGHTS
We have entered into a registration rights agreement with the initial
purchaser of the notes. Under this agreement, we must use our best efforts to
keep the shelf registration statement of which this prospectus forms a part
effective after its effective date for as long as required to permit sales under
Rule 144(k) under the Securities Act or any successor rule or regulation. We
have the right to suspend use of the shelf registration statement for up to 60
days. A holder who elects to sell any securities pursuant to the shelf
registration statement:
- will be required to be named as selling security holder;
- will be required to deliver a prospectus to purchasers;
- will be subject to the civil liability provisions under the Securities
Act in connection with any sales; and
- will be bound by the provisions of the registration rights agreement
which are applicable, including indemnification obligations.
If, after the shelf registration statement has been declared effective, we
fail to keep the shelf registration statement effective or usable in accordance
with and during the periods specified in the registration rights agreement, then
the interest rate on the notes will increase by 0.5% per annum until the failure
is cured. This requirement is subject to exceptions described in the
registration rights agreement, including our right to suspend the use of the
shelf registration statement for up to 60 days.
-23-
<PAGE> 27
We will have no other liabilities for monetary damages with respect to our
registration obligations, except that if we breach, fail to comply with or
violate provisions of the registration rights agreement, the holders of the
notes will be entitled to equitable relief, including injunction and specific
performance. We may not oppose the granting of this equitable relief.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of any of the notes, consolidate
with or merge into any other person or convey, transfer or lease our properties
substantially as an entirety to, any other person, if:
- the successor, transferee or lessee expressly assumes our obligations
under the indenture and the notes by means of a supplemental indenture
entered into with the trustee;
- after giving effect to the transaction, no event of default and no event
which, with notice or lapse of time, or both, would constitute an event
of default, shall have occurred and be continuing;
- the successor company is organized:
- under the laws of any U.S. jurisdiction or
- under the laws of a jurisdiction outside the U.S. and has:
- common stock or American Depositary Shares representing common
stock traded on a national securities exchange in the U.S. or
through The Nasdaq Stock Market, Inc. and
- a worldwide total market capitalization of its equity securities
of at least US$5 billion before giving effect to the
consolidation or merger; and
- other conditions specified in the indenture are met.
Under any consolidation, merger or any conveyance, transfer or lease of our
properties and assets as described in the preceding paragraph, the successor
company will be our successor and shall succeed to, and be substituted for, and
may exercise every right and power of, Human Genome Sciences under the
indenture. Except in the case of a lease, if the predecessor is still in
existence after the transaction, it will be released from its obligations and
covenants under the indenture and the notes.
EVENTS OF DEFAULT
Each of the following is an "event of default":
(1) a default in the payment of any interest upon any of the notes
when due and payable, continued for 30 days, whether or not payment is
prohibited by the subordination provisions of the indenture;
(2) a default in the payment of the principal of and premium, if any,
on any of the notes when due, including on a redemption date, whether or
not payment is prohibited by the subordination provisions of the indenture;
(3) a default in our obligation to provide notice of a change in
control or default in the payment of the repurchase price in respect of any
note on the repurchase date therefor, whether or not such payment is
prohibited by the subordination provisions of the indenture;
(4) a default by us in the performance, or breach, of any of our other
covenants in the indenture which are not remedied by the end of a period of
60 days after
-24-
<PAGE> 28
written notice to us by the trustee or to us and the trustee by the holders
of at least 25% in principal amount of the outstanding notes;
(5) failure to pay when due the principal of, or acceleration of, any
indebtedness for money borrowed by us in excess of $10 million, if the
indebtedness is not discharged, or the acceleration is not waived or
annulled, by the end of a period of 10 days after written notice to us by
the trustee or to us and the trustee by the holders of at least 25% in
principal amount of the outstanding notes; or
(6) events of bankruptcy, insolvency or reorganization of Human Genome
Sciences.
If an event of default described in clauses (3), (4) or (5) occurs and is
continuing, either the trustee or the holders of at least 25% in principal
amount of the outstanding notes may declare the principal amount of and accrued
interest on all notes to be immediately due and payable. This declaration may be
rescinded if the conditions described in the indenture are satisfied. If an
event of default of the type referred to in clause (6) occurs, the principal
amount of and accrued interest on the outstanding notes shall automatically
become immediately due and payable.
The holders of not less than a majority in principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceedings for any remedy available to the trustee, or exercising any trust or
power conferred on the trustee; provided that the direction does not conflict
with any rule of law or with the indenture. The trustee may take any other
action deemed proper by the trustee which is not inconsistent with the
direction.
Subject to the provisions of the indenture relating to the duties of the
trustee, if an event of default occurs and is continuing, the trustee will be
under no obligation to exercise any of the rights or powers under the indenture
at the request or direction of any of the holders of the notes unless the
holders have offered to the trustee reasonable indemnity or security against any
loss, liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due or the right to convert a note
in accordance with the indenture, no holder may institute any proceeding or
pursue any remedy with respect to the indenture or the notes unless:
- the holder has previously given the trustee notice that an event of
default is continuing;
- holders of at least 25% in principal amount of the outstanding notes have
requested the trustee to pursue the remedy;
- the holders have offered the trustee security or indemnity satisfactory
to the trustee against any loss, liability or expense;
- the trustee has not complied with the request within 60 days after
receipt and the offer of security or indemnity; and
- the holders of a majority in principal amount of the outstanding notes
have not given the trustee a direction inconsistent with the request
within the 60-day period.
In addition, we are required to deliver to the trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the officers
signing the certificate know of any default by us in the performance or
observance of any of the terms of the indenture. If the officers know of a
default, the certificate must specify the status and nature of all defaults.
-25-
<PAGE> 29
MODIFICATION AND WAIVER
We and the trustee may enter into one or more supplemental indentures that
add, change or eliminate provisions of the indenture or modify the rights of the
holders of the notes with the consent of the holders of at least a majority in
principal amount of the notes then outstanding. However, without the consent of
each holder of an outstanding note, no supplemental indenture may, among other
things:
- change the stated maturity of the principal of or any installment of
interest on any note;
- reduce the principal amount of, or the premium or rate of interest on,
any note;
- hurt the right of any holder to convert any note as provided in the
indenture;
- change the place of payment where, or the coin of currency in which, the
principal of any note or any premium or interest is payable;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any note on or after the stated maturity, or, in the
case of redemption, on or after the date of redemption;
- modify the subordination provisions of the indenture in a manner adverse
to the holders of the notes;
- modify the redemption provisions of the indenture in a manner adverse to
the holders of the notes;
- modify the provisions of the indenture relating to our requirement to
offer to repurchase notes upon a change in control in a manner adverse to
the holders of the notes;
- reduce the percentage in principal amount of the outstanding notes the
consent of whose holders is required for any modification or amendment of
the indenture or for any waiver of compliance with provisions of or
defaults under the indenture; or
- modify the foregoing requirements.
Without the consent of any holders of notes, we and the trustee may enter
into one or more supplemental indentures for any of the following purposes:
(1) to evidence a successor to us and the assumption by the successor
of our obligations under the indenture and the notes;
(2) to add to our covenants for the benefit of the holders of the
notes or to surrender any right or power conferred on us;
(3) to secure our obligations in respect of the notes;
(4) to make provision with respect to the conversion rights of holders
of the notes pursuant to the requirements of the indenture;
(5) to make any changes or modifications to the indenture necessary in
connection with the registration of the notes under the Securities Act as
contemplated by the indenture;
(6) to cure any ambiguity or inconsistency in the indenture;
(7) to comply with any requirement in connection with the
qualification of the indenture under the Trust Indenture Act; or
(8) to make any other provisions with respect to matters or questions
arising under the indenture which are not inconsistent with the provisions
of the indenture.
-26-
<PAGE> 30
However, no supplemental indenture entered into pursuant to clause (5), (6), (7)
or (8) above may adversely affect the interests of the holders of the notes.
The holders of a majority in principal amount of the outstanding notes may,
on behalf of the holders of all notes:
- waive compliance by us with restrictive provisions of the indenture, and
- waive any past default under the indenture and its consequences, except a
default in the payment of the principal of or any premium or interest on
any note or in respect of a provision which under the indenture cannot be
modified or amended without the consent of the holder of each outstanding
note affected.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the notes
will, to the extent described in the indenture, be subordinated in right of
payment to the prior payment in full of all our senior indebtedness. The holders
of all senior indebtedness will first be entitled to receive payment in full of
all amounts due or to become due on the senior indebtedness, or provision for
payment in money or money's worth, before the holders of the notes will be
entitled to receive any payment in respect of the notes, when there is a payment
or distribution of assets to creditors upon our:
- liquidation;
- dissolution;
- winding up;
- reorganization;
- assignment for the benefit of creditors;
- marshaling of assets;
- bankruptcy;
- insolvency; or
- similar proceedings.
No payments on account of the notes or on account of the purchase or
acquisition of notes may be made if a default in any payment with respect to
senior indebtedness has occurred and is continuing or if any judicial proceeding
is pending with respect to the default. By reason of this subordination, in the
event of insolvency holders of the notes may recover less, ratably, than holders
of our senior indebtedness.
At June 30, 1999, our senior indebtedness was approximately $2.2 million,
all of which was secured. We expect from time to time to incur additional
indebtedness. The indenture does not limit or prohibit us from incurring
additional senior indebtedness or additional indebtedness. See "Risk
Factors -- If we are unable to pay our debts, then you will receive payments on
the notes only after we have paid our existing and future senior indebtedness."
DEFEASANCE
Upon satisfaction of the requirements described below, we may terminate all
of our obligations under the notes and the indenture, known as legal defeasance,
other than our obligation:
- to maintain a registrar and paying agents and hold moneys for payment in
trust,
- to register the transfer or exchange of the notes,
-27-
<PAGE> 31
- to replace mutilated, destroyed, lost or stolen notes,
- to provide for conversion of the notes,
- to comply with the registration rights agreement, and
- to repurchase the notes in the event of a change in control.
In addition, we may terminate our obligations to comply with restrictive
covenants relating to the maintenance of our properties and payment of taxes and
other claims, the operation of the cross default and cross acceleration
provisions and the subordination provisions of the notes. This termination is
known as covenant defeasance.
We may exercise our legal defeasance option even if we have previously
exercised our covenant defeasance option. If we exercise either defeasance
option, payment of the notes may not be accelerated because of the occurrence of
events of default.
To exercise either defeasance option, we must irrevocably deposit in trust
with the trustee money and/or obligations backed by the full faith and credit of
the U.S. that will provide money in an amount sufficient in the written opinion
of a nationally recognized firm of independent public accountants to pay the
principal of, premium, if any, and each installment of interest on the
outstanding notes. We may only establish this trust if, among other things:
- no event of default, or event that with the passing of time or the giving
of notice, or both, would constitute an event of default, shall have
occurred or be continuing;
- we have delivered to the trustee an opinion of counsel to the effect that
the deposit shall not cause the trust so created to be subject to the
Investment Company Act of 1940, as amended;
- in the case of legal defeasance, we have delivered to the trustee an
opinion of counsel to the effect that we have received from, or there has
been published by, the Internal Revenue Service a ruling or there has
been a change in law, which in the opinion of our counsel, provides that
holders of the notes will not recognize gain or loss for federal income
tax purposes as a result of the action and will be subject to federal
income tax on the same amount, in the same manner and at the same times
as would have been the case if the action had not occurred;
- in the case of covenant defeasance, we have delivered to the trustee an
opinion of counsel to the effect that the holders of the notes will not
recognize gain or loss for federal income tax purposes as a result of the
action and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would have been the case if the
action had not occurred; and
- we satisfy other customary conditions precedent described in the
indenture.
REGARDING THE TRUSTEE
The Bank of New York is the trustee under the indenture.
GOVERNING LAW
The indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflict
of laws.
-28-
<PAGE> 32
U.S. FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
tax considerations relevant to purchasing, owning and disposing of the notes and
the common stock into which you may convert the notes. This discussion is based
on currently existing provisions of the Internal Revenue Code of 1986, as
amended, existing and proposed Treasury regulations promulgated under the Code
and administrative and judicial interpretations, all as presently in effect or
proposed and all of which are subject to change, possibly with retroactive
effect, or different interpretations.
This discussion does not deal with all aspects of U.S. federal income
taxation that may be important to holders of the notes or shares of the common
stock received upon conversion, and it does not include any description of the
tax laws of any state, local or foreign government. This discussion is limited
to beneficial owners who hold the notes and the shares of common stock received
upon conversion as capital assets within the meaning of Section 1221 of the
Code. Moreover, this discussion is for general information only and does not
address all of the U.S. federal income tax consequences that may be relevant to
particular purchasers. Particular purchasers may be subject to special rules.
For the purpose of this discussion, a "U.S. holder" refers to a beneficial
owner of a note or common stock who or which is:
- a citizen or resident of the U.S. for U.S. federal income tax purposes;
- a corporation, partnership or other entity created or organized in or
under the laws of the U.S. or political subdivision of the U.S., unless
otherwise provided in regulations in the case of a partnership;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source;
- a trust, if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have
authority to control all substantial decisions of the trust; or
- otherwise subject to U.S. federal income tax on a net income basis in
respect of its worldwide taxable income.
The term "non-U.S. holder" refers to any beneficial owner of note or common
stock who or which is not a U.S. holder.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE CONVERSION OF
THE NOTES INTO SHARES OF COMMON STOCK, AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON THESE TAX CONSEQUENCES.
FEDERAL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS
Interest on Notes. Interest paid on the notes will be taxable to a U.S.
holder as ordinary interest income in accordance with the holder's method of tax
accounting. The notes were not issued with original issue discount within the
meaning of the Code.
Constructive Dividend. Some corporate transactions, such as distributions
of assets to holders of common stock, may cause a deemed distribution to the
holders of the notes if the conversion price or conversion ratio of the notes is
adjusted to reflect the corporate transaction. These distributions will be
taxable as a dividend, return of capital or capital gain in accordance with the
earnings and profits rules discussed under "-- Dividends on Shares of Common
Stock."
-29-
<PAGE> 33
Sale or Exchange of Notes or Shares of Common Stock. In general, a U.S.
holder of notes will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the notes measured by the difference between:
- the amount of cash and the fair market value of any property received,
except to the extent attributable to the payment of accrued interest and
- the U.S. holder's tax basis in the notes.
A U.S. holder's tax basis in notes generally will equal the cost of the notes to
the holder. In general, each U.S. holder of common stock into which the notes
have been converted will recognize gain or loss upon the sale, exchange,
redemption, or other disposition of the common stock under rules similar to
those applicable to the notes. Special rules may apply to redemptions of the
common stock which may result in the amount paid being treated as a dividend.
Gain or loss on the disposition of the notes or shares of common stock will be
capital gain or loss and will be long-term capital gain or loss if the holding
period of the notes or the common stock that was disposed of exceeded one year.
Net capital gain realized by individual taxpayers is taxable at a maximum rate
of 20%.
Conversion of Notes. A U.S. holder of notes generally will not recognize
gain or loss on the conversion the notes solely into shares of common stock,
other than cash received in lieu of fractional shares. The U.S. holder's tax
basis in the shares of common stock received upon conversion of the notes will
be equal to the holder's aggregate tax basis in the notes converted, less any
portion allocable to cash received in lieu of a fractional share. The holding
period of the shares of common stock received by the holder upon conversion of
notes generally will include the period during which the holder held the notes
prior to the conversion.
Cash received in lieu of a fractional share of common stock should be
treated as a payment in exchange for the fractional share rather than as a
dividend. Gain or loss recognized on the receipt of cash paid in lieu of
fractional shares generally will equal the difference between the amount of cash
received and the amount of tax basis allocable to the fractional share
exchanged.
Dividends on Shares of Common Stock. Distributions on shares of common
stock will constitute dividends for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits as determined under
U.S. federal income tax principles. Dividends paid to holders that are U.S.
corporations may qualify for the dividends-received deduction.
To the extent that a U.S. holder receives distributions on shares of common
stock that would otherwise constitute dividends for U.S. federal income tax
purposes but that exceed our current and accumulated earnings and profits, the
distribution will be treated first as a non-taxable return of capital reducing
the holder's basis in the shares of common stock. Any distribution in excess of
the holder's basis in the shares of common stock will be treated as capital
gain.
FEDERAL TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Notes. Generally, interest paid on the notes to a non-U.S.
holder will not be subject to U.S. federal income tax if:
- the interest is not effectively connected with the conduct of a trade or
business within the U.S. by the non-U.S. holder;
- the non-U.S. holder does not actually or constructively own 10% or more
of the total voting power of all classes of our stock entitled to vote
and is not a controlled
-30-
<PAGE> 34
foreign corporation with respect to which we are a "related person"
within the meaning of the Code; and
- the beneficial owner, under penalty of perjury, certifies that the owner
is not a U.S. person and provides the owner's name and address.
The certification described in the last clause above may be provided by a
securities clearing organization, a bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business.
Under recently adopted U.S. Treasury regulations, which generally are effective
for payments made after December 31, 2000, the certification may also be
provided by a qualified intermediary on behalf of one or more beneficial owners,
or other intermediaries, provided that the intermediary has entered into a
withholding agreement with the Internal Revenue Service and other conditions are
met. A holder that is not exempt from tax under these rules will be subject to
U.S. federal income tax withholding at a rate of 30% unless the interest is
effectively connected with the conduct of a U.S. trade or business, in which
case the interest will be subject to the U.S. federal income tax on net income
that applies to U.S. persons generally. Corporate non-U.S. holders that receive
interest income that is effectively connected with the conduct of a trade or
business within the U.S. may also be subject to an additional "branch profits"
tax on such income. Non-U.S. holders should consult applicable income tax
treaties, which may provide different rules.
Sales or Exchange of Notes or Shares of Common Stock. A non-U.S. holder
generally will not be subject to U.S. federal income tax on gain recognized upon
the sale or other disposition of the notes or shares of common stock unless:
- the gain is, or is treated as, effectively connected with the conduct of
a trade or business within the U.S. by the non-U.S. holder; or
- in the case of non-U.S. holder who is a nonresident alien individual and
holds the common stock as a capital asset, the holder is present in the
U.S. for 183 or more days in the taxable year.
Conversion of Notes. A non-U.S. holder generally will not be subject to
U.S. federal income tax on the conversion of a note into shares of common stock.
To the extent a non-U.S. holder receives cash in lieu of a fractional share on
conversion, the cash may give rise to gain that would be subject to the rules
described above with respect to the sale or exchange of a note or common stock.
Dividends on Shares of Common Stock. Generally, any distribution on shares
of common stock to a non-U.S. holder will be subject to U.S. federal income tax
withholding at a rate of 30% unless the dividend is effectively connected with
the conduct of a trade or business within the U.S. by the non-U.S. holder, in
which case the dividend will be subject to the U.S. federal income tax on net
income that applies to U.S. persons generally. Corporate non-U.S. holders that
receive dividend income that is effectively connected with the conduct of a
trade or business within the U.S. may also be subject to an additional "branch
profits" tax on such income. Non-U.S. holders should consult any applicable
income tax treaties, which may provide different rules. A non-U.S. holder and
any entities, partners, shareholders or other beneficiaries of non-U.S. holders
may be required to satisfy certification requirements in order to claim a
reduction of or exemption from withholding under the foregoing rules.
-31-
<PAGE> 35
Federal Estate Taxes. A note beneficially owned by an individual who is a
non-U.S. holder at the time of his or her death generally will not be subject to
U.S. federal estate tax as a result of the individual's death; provided that:
- the individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to vote
within the meaning of section 871(h)(3) of the Code; and
- interest payments with respect to such note would not have been, if
received at the time of the individual's death, effectively connected
with the conduct of a U.S. trade or business by the individual.
Common stock owned or treated as owned by an individual who is a non-U.S. holder
at the time of his or her death will be included in the individual's estate for
U.S. federal estate tax purposes and thus will be subject to U.S. federal estate
tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
United States Holders. Information reporting and backup withholding may
apply to payments of interest or dividends on or the proceeds of the sale or
other disposition of the notes or shares of common stock made by us with respect
to non-corporate U.S. holders. These holders generally will be subject to backup
withholding at a rate of 31% unless the recipient of the payment supplies a
taxpayer identification number and other information, certified under penalties
of perjury, or otherwise establishes, in the manner prescribed by law, an
exemption from backup withholding. Any amount withheld under backup withholding
is allowable as a credit against the U.S. holder's federal income tax, upon
furnishing the required information to the Internal Revenue Service.
Non-United States Holders. Generally, information reporting and backup
withholding of U.S. federal income tax at a rate of 31% may apply to payment of
principal, interest and premium, if any, to non-U.S. holders if the holder fails
to certify that the holder is a non-U.S. person or if we or our paying agent has
actual knowledge that the holder is a U.S. person.
The payment of the proceeds on the disposition of notes or shares of common
stock to or through the U.S. office of a U.S. or foreign broker will be subject
to information reporting and backup withholding unless the owner provides the
certification described above or otherwise establishes an exemption. The
proceeds of the disposition by a non-U.S. holder of notes or shares of common
stock to or through a foreign office of a broker will not be subject to backup
withholding. However, if the broker is a U.S. person, a controlled foreign
corporation for U.S. tax purposes, or a foreign person 50% or more of whose
gross income from all sources is from activities that are effectively connected
with a U.S. trade or business, information reporting will apply unless:
- the broker has documentary evidence in its files of the owner's foreign
status; or
- the owner otherwise establishes an exemption.
Both backup withholding and information reporting will apply to the proceeds
from dispositions if the broker has actual knowledge that the holder is a U.S.
holder.
Recently adopted U.S. Treasury regulations, which generally are effective
for payments made after December 31, 2000, alter the rules described above.
Among other things, these regulations provide presumptions under which a
non-U.S. holder is subject to information reporting and backup withholding at
the rate of 31% unless we receive
-32-
<PAGE> 36
certification from the holder of non-U.S. status. Depending on the
circumstances, this certification will need to be provided:
- directly by the non-U.S. holder;
- in the case of a non-U.S. holder that is treated as a partnership or
other fiscally transparent entity, by the partners, shareholders or other
beneficiaries of the entity; or
- qualified financial institutions or other qualified entities on behalf of
the non-U.S. holder.
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.01 per share, and 1,000,000 shares of preferred stock, par value
$0.01 per share. The following is a description of our capital stock.
COMMON STOCK
We are authorized to issue 50,000,000 shares of common stock. Each
stockholder of record is entitled to one vote for each outstanding share of our
common stock owned by that stockholder on every matter properly submitted to the
stockholders for their vote. After satisfaction of the dividend rights of
holders of preferred stock, holders of common stock are entitled to any dividend
declared by the board of directors out of funds legally available for this
purpose. After the payment of liquidation preferences to holders of any
outstanding preferred stock, holders of our common stock are entitled to
receive, on a pro rata basis, all our remaining assets available for
distribution to the stockholders in the event of our liquidation, dissolution,
or winding up. Holders of our common stock do not have any preemptive right to
become subscribers or purchasers of additional shares of any class of our
capital stock. The rights, preferences and privileges of holders of our common
stock are subject to, and may be injured by, the rights of the holders of shares
of any series of preferred stock that we may designate and issue in the future.
PREFERRED STOCK
Our certificate of incorporation allows us to issue without stockholder
approval preferred stock having rights senior to those of our common stock. Our
board is authorized, without further stockholder approval, to issue up to
1,000,000 shares of preferred stock in one or more series and to fix and
designate the rights, preferences, privileges and restrictions of the preferred
stock, including:
- dividend rights;
- conversion rights;
- voting rights;
- terms of redemption; and
- liquidation preferences.
Our board may fix the number of shares constituting any series and the
designations of these series. We have issued rights that are in some cases
exercisable for shares of junior participating preferred stock. See "-- Rights
Agreement."
Our issuance of preferred stock may have the effect of delaying or
preventing a change in control. Our issuance of preferred stock could decrease
the amount of earnings and assets available for distribution to the holders of
our common stock or could adversely affect the rights and powers, including
voting rights, of the holders of our common stock.
-33-
<PAGE> 37
The issuance of preferred stock could have the effect of decreasing the market
price of our common stock.
INDEMNIFICATION AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors will not be personally liable to us or
our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption of
stock; or
- for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our bylaws provide for the indemnification of our directors and officers to
the fullest extent authorized by the Delaware General Corporation Law, except
that we will indemnify a director or officer in connection with an action
initiated by that person only if the action was authorized by our board of
directors. The indemnification provided under our certificate of incorporation
and bylaws includes the right to be paid expenses in advance of any proceeding
for which indemnification may be had. We may pay these expenses in advance of
the final disposition of a proceeding only if the director or officer agrees to
repay these amounts if it is ultimately determined that the director or officer
is not entitled to be indemnified. If we do not pay a claim for indemnification
within 60 days, the claimant may bring an action to recover the unpaid amount of
the claim and, if successful, the director or officer will be entitled to be
paid the expense of prosecuting the action to recover these unpaid amounts.
Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request for another entity, against any
liability asserted against the person or incurred by the person in any of these
capacities, and related expenses, whether or not we would have the power to
indemnify the person against the claim under the provisions of the Delaware
General Corporation Law.
POSSIBLE ANTI-TAKEOVER EFFECTS
Our certificate of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by our
board of directors. In addition, provisions of Delaware law may hinder or delay
an attempted takeover of our company other than through negotiation with our
board of directors. These provisions could discourage attempts to acquire us or
remove our management even if some or a majority of our stockholders believe
this action to be in their best interest, including attempts that might result
in our stockholders' receiving a premium over the market price of their shares
of our common stock.
Classified Board of Directors; Removal, Vacancies. Our certificate of
incorporation provides that our board of directors will be divided into three
classes of directors serving staggered three-year terms. The classification of
directors has the effect of making it more
-34-
<PAGE> 38
difficult for stockholders to change the composition of our board of directors
in a relatively short period of time. Our certificate of incorporation provides
that directors may be removed only for cause. In addition, vacancies and newly
created directorships resulting from any increase in the size of our board of
directors may be filled only by the affirmative vote of a majority of the
directors then in office, a quorum or by a sole remaining director. These
provisions would prevent stockholders from removing incumbent directors without
cause and filling the resulting vacancies with their own nominees.
Special Stockholders' Meetings. Our certificate of incorporation and
bylaws provide that, special meetings of stockholders, unless otherwise required
by statute, may be called only:
- by the board of directors or by our chairman or president; or
- by the holders of at least majority of our securities outstanding and
entitled to vote generally in the election of directors.
Section 203 of Delaware Law. In addition to these provisions of our
certificate of incorporation and bylaws, we are subject to the provisions of
Section 203 of the Delaware General Corporation Law. Section 203 prohibits
publicly held Delaware corporations from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock. These
provisions could have the effect of delaying, deferring or preventing a change
in control of our company or reducing the price that certain investors might be
willing to pay in the future for shares of our common stock.
RIGHTS AGREEMENT
Our board of directors has adopted a rights plan. As a result, we issued
one preferred share purchase right for each outstanding share of common stock.
One preferred share purchase right will be issued for each additional share of
common stock that we issue, including shares issuable upon conversion of the
notes. The rights become exercisable ten days after a person or group acquires
15%, or 20% in the case of some of our stockholders, or more of the outstanding
common stock or commences or announces a tender or exchange offer which would
result in such ownership. Each right that becomes exercisable entitles the
registered holder to purchase one one-thousandth of a share of junior
participating preferred stock, par value $.01 per share, at a price of $250.00
per one one-thousandth of a share, subject to adjustment.
If, after the rights become exercisable, we were to be acquired through a
merger or other business combination transaction or 50% or more of our assets or
earning power were sold, each right would permit the holder to purchase, for the
exercise price, common stock of the acquiring company having a market value of
twice the exercise price. In addition, if any person acquires 15%, or 20% in the
case of some of our stockholders, or more of our outstanding common stock, each
right not owned by such person would permit the purchase, for the exercise
price, of common stock having a market value of twice the exercise price.
The rights expire on May 20, 2008, unless earlier redeemed or exchanged by
us. The purchase price payable and the shares of preferred stock issuable upon
exercise of the rights are subject to adjustment as described in the rights
agreement. In addition, our
-35-
<PAGE> 39
board of directors retains the authority to redeem, at $0.001 per right, or
replace the rights with new rights at any time. Our board of directors may not
redeem the rights after a person or group acquires 15% or more of our
outstanding common stock.
Shares of this preferred stock, when issued upon exercise of the rights,
will be non-redeemable and will rank junior to all series of any other class of
preferred stock. Each share of this preferred stock will be entitled to a
cumulative preferential quarterly dividend payment equal to the greater of
$250.00 per share or 1,000 times the dividend declared per share of common
stock. In the event of liquidation, the holders of shares of this preferred
stock will be entitled to a preferential liquidation payment equal to the
greater of $1,000 per share or 1,000 times the payment made per share of common
stock. Each share of this preferred stock will entitle the holder to 1,000
votes, voting together with the common stock. Finally, in the event of any
merger, consolidation or other transaction in which common stock is exchanged,
each share of this preferred stock will be entitled to receive 1,000 times the
amount received per share of common stock. These rights are subject to
anti-dilution adjustments.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, New York, New York.
-36-
<PAGE> 40
SELLING HOLDERS
The notes were originally issued by us and sold by Credit Suisse First
Boston Corporation, as initial purchaser, in a transaction exempt from the
registration requirements of the Securities Act to persons reasonably believed
by the initial purchaser to be qualified institutional buyers or other
institutional accredited investors. Selling holders, including their
transferees, pledgees or donees or their successors, may from time to time offer
and sell any or all of the notes and common stock into which the notes are
convertible.
The selling holders have represented to us that they purchased the notes
and the shares issuable upon conversion for their own account for investment
only and not with a view toward selling or distributing them, except through
sales registered under the Securities Act or exemptions. We agreed with the
selling holders to file this registration statement to register the resale of
the notes and the shares. We agreed to prepare and file all necessary amendments
and supplements to the registration statement to keep it effective until the
date on which the notes and the common stock into which the notes are
convertible no longer qualify as "registrable securities" under our registration
rights agreement.
The following table shows information, as of October 14, 1999, with respect
to the selling holders and the principal amounts of notes and common stock they
beneficially own that may be offered under this prospectus. The information is
based on information provided by or on behalf of the selling holders.
The selling holders may offer all, some or none of the notes or common
stock into which the notes are convertible. Thus, we cannot estimate the amount
of the notes or the common stock that will be held by the selling holders upon
termination of any sales. The column showing ownership after completion of the
offering assumes that the selling holders will sell all of the securities
offered by this prospectus. In addition, the selling 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 about their notes in
transactions exempt from the registration requirements of the Securities Act.
None of the selling holders has had any material relationship with us or our
affiliates within the past three years.
This table assumes that other holders of notes or any future transferee
from any holder do not beneficially own any common stock other than common stock
into which the notes are convertible. No selling holder named in the table below
beneficially owns one percent or more of our common stock, except that:
- FMR Corp., an affiliate of Fidelity Financial Trust: Fidelity Convertible
Securities Fund, beneficially owned 10.1% prior to the offering and 9.8%
after the offering;
- J.P. Morgan & Co. Inc. owned 6.0% prior to the offering and 5.3% after
the offering; and
- Lipper Convertibles, L.P. beneficially owned 1.7% prior to the offering
and 0.0% after the offering.
-37-
<PAGE> 41
<TABLE>
<CAPTION>
PRINCIPAL COMMON COMMON
AMOUNT OF STOCK STOCK OWNED
NOTES OWNED AFTER
BENEFICIALLY PRIOR TO COMMON COMPLETION
OWNED AND THE STOCK OF THE
NAME OFFERED OFFERING OFFERED OFFERING
---- ------------ --------- --------- -----------
<S> <C> <C> <C> <C>
Angelo, Gordon & Co., L.P. ......... $ 800,000 15,325 15,325 --
Argent Classic Convertible Arbitrage
Fund (Bermuda) L.P. .............. 8,300,000 159,003 159,003 --
Argent Classic Convertible Arbitrage
Fund L.P. ........................ 5,000,000 95,785 95,785 --
BankAmerica Pension Plan............ 1,000,000 19,157 19,157 --
BNP Arbitrage SNC................... 5,250,000 100,574 100,574 --
David Lipscomb University General
Endowment......................... 65,000 1,245 1,245 --
Deeprock & Co. ..................... 2,000,000 38,314 38,314 --
Deutsche Bank Securities Inc. ...... 5,000,000 95,785 95,785 --
Equitable Life Assurance Separate
Account--Balanced................. 75,000 1,436 1,436 --
Equitable Life Assurance Separate
Account Convertibles.............. 1,265,000 24,233 24,233 --
Fidelity Financial Trust: Fidelity
Convertible Securities Fund....... 1,700,000 2,326,207 32,567 2,261,073
Forest Alternative Strategies Fund
II LP Series A5I.................. 125,000 2,394 2,394 --
Forest Alternative Strategies Fund
II LP Series A5M.................. 40,000 766 766 --
Forest Fulcrum Fund LP.............. 1,900,000 36,398 36,398 --
Forest Global Convertible Fund
Series A-5........................ 2,985,000 57,183 57,183 --
Forest Performance Fund............. 300,000 5,747 5,747 --
General Motors Welfare Benefit Trust
(L-T Veba)........................ 1,000,000 19,157 19,157 --
Global Bermuda Limited
Partnership....................... 1,000,000 35,757 19,157 16,600
Highbridge International LLC........ 11,000,000 210,727 210,727 --
Hudson River Trust Balanced
Account........................... 1,150,000 22,030 22,030 --
Hudson River Trust Growth & Income
Account........................... 2,305,000 44,157 44,157 --
Hudson River Trust Growth
Investors......................... 965,000 18,486 18,486 --
J.P. Morgan & Co. Inc............... 9,000,000 1,399,214 172,413 1,226,801
Lakeshore International, Ltd. ...... 2,000,000 71,514 38,314 33,200
Lehman Brothers Inc. ............... 1,000,000 19,157 19,157 --
Lipper Convertibles, L.P. .......... 20,800,000 398,467 398,467 --
LLT Limited......................... 150,000 2,873 2,873 --
Memphis Light, Gas & Water
Retirement Fund................... 980,000 18,773 18,773 --
Michaelangelo, L.P. ................ 1,600,000 30,651 30,651 --
Oz Master Fund, Ltd. ............... 7,000,000 134,099 134,099 --
Ramius, L.P. ....................... 1,500,000 28,735 28,735 --
Ramius Securities, LLC.............. 400,000 7,662 7,662 --
Raphael, L.P. ...................... 600,000 11,494 11,494 --
RCG Baldwin, L.P. .................. 700,000 13,409 13,409 --
RCG Multi-Strategy Account, L.P. ... 2,000,000 38,314 38,314 --
Retail Clerks Pension Trust......... 1,000,000 19,157 19,157 --
Robertson Stephens.................. 3,500,000 67,049 67,049 --
SG Cowen Securities Corp. .......... 3,000,000 57,471 57,471 --
SoundShore Holdings Ltd. ........... 1,000,000 19,157 19,157 --
Sylvan IMA Ltd. .................... 500,000 9,578 9,578 --
</TABLE>
-38-
<PAGE> 42
<TABLE>
<CAPTION>
PRINCIPAL COMMON COMMON
AMOUNT OF STOCK STOCK OWNED
NOTES OWNED AFTER
BENEFICIALLY PRIOR TO COMMON COMPLETION
OWNED AND THE STOCK OF THE
NAME OFFERED OFFERING OFFERED OFFERING
---- ------------ --------- --------- -----------
<S> <C> <C> <C> <C>
The Frist Foundation................ $ 195,000 3,735 3,735 --
Triarc Companies, Inc. ............. 400,000 7,662 7,662 --
Triton Capital Investments, Ltd. ... 3,000,000 57,471 57,471 --
Any other holder of notes or future
transferee from any holder........ 11,450,000 219,369 219,369 --
------------ --------- --------- ---------
Total..................... $125,000,000 5,964,877 2,394,636 3,537,674
============ ========= ========= =========
</TABLE>
Information concerning the selling holders may change from time to time and
any 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 of common stock issuable upon conversion of the notes, is
subject to adjustment. As a result, the aggregate principal amount of notes and
the number of shares of common stock into which the notes are convertible may
increase or decrease.
-39-
<PAGE> 43
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the notes and the common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of sale, at prices related to such prevailing market prices, at varying
prices determined at the time of sale or at negotiated prices. These sales may
be effected in transactions:
- 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;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market;
- through the writing of options, whether listed on an options exchange or
otherwise;
- through the settlement of short sales;
- through the distribution by a holder to its partners, members or
stockholders; or
- through a combination of any of the above, which may involve crosses or
block transactions.
In connection with the sale of the notes and the common stock into which
the notes are convertible or otherwise, the selling holders may enter into
hedging transactions with broker-dealers or other financial institutions which
may in turn engage in short sales of the notes or the common stock into which
the notes are convertible and deliver these securities to close out such short
positions, or loan or pledge the notes or the common stock into which the notes
are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock into which the notes are convertible will be the purchase price of
the notes or common stock less discounts and commissions, if any. Each of the
selling holders reserves the right to accept and, together with their agents
from time to time, to reject, in whole or in part, any proposed purchase of
notes or common stock to be made directly or through agents. We will not receive
any of the proceeds from this offering.
Our outstanding common stock is listed for trading on the Nasdaq National
Market. While the notes are eligible for trading in The Portal Market, we do not
expect the notes to remain eligible for trading on that market. We do not intend
to list the notes for trading on any national securities exchange or on the
Nasdaq National Market. We cannot assure you that a trading market for the notes
will develop. If a trading market for the notes fails to develop, the trading
price of the notes may decline.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock into which the notes are convertible may be sold in
these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the notes and common stock into which the notes are
convertible may not be sold unless they have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
-40-
<PAGE> 44
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under the
Securities Act. Selling holders who are "underwriters" within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The selling holders have acknowledged that
they understand their obligations to comply with the provisions of the Exchange
Act and the rules thereunder relating to stock manipulation, particularly
Regulation M, and have agreed that they will not engage in any transaction in
violation of such provisions.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than in connection with this prospectus. A selling
holder may not sell any notes or common stock described in this prospectus and
may not transfer, devise or gift such securities by other means not described in
this prospectus.
To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws. The registration rights agreement provides for
cross-indemnification of the selling holders and Human Genome Sciences and their
directors, officers and controlling persons against liabilities in connection
with the offer and sale of the notes and the common stock, including liabilities
under the Securities Act. We will pay all of our expenses and substantially all
of the expenses incurred by the selling holders because of the offering and sale
of the notes and the common stock, provided that each selling holder will be
responsible for payment of commissions, concessions and discounts of
underwriters, broker-dealers or agents.
LEGAL MATTERS
Piper & Marbury L.L.P. will provide us with an opinion as to legal matters
in connection with the notes and the common stock offered by this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our annual report on form 10-K for the year ended
December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in this registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
-41-
<PAGE> 45
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Exchange Act. The Exchange Act file number
for our SEC filings is 000-22962. You may read and copy any document we file at
the following SEC public reference rooms:
<TABLE>
<S> <C> <C>
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Rm. 1024 Chicago, Illinois New York, New York
Washington, D.C. 20549 60661 10048
</TABLE>
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330. We file information
electronically with the SEC. Our SEC filings are available from the SEC's
Internet site at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file
electronically. Our common stock is listed on the Nasdaq National Market under
the symbol HGSI. You may read and copy our SEC filings and other information at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act. This prospectus does not contain all of the information in the
registration statement. We have omitted parts of the registration statement, as
permitted by the rules and regulations of the SEC. You may inspect and copy the
registration statement, including exhibits, at the SEC's public reference
facilities or Internet site. Our statements in this prospectus about the
contents of any contract or other document are not necessarily complete. You
should refer to the copy of each contract or other document we have filed as an
exhibit to the registration statement for complete information.
-42-
<PAGE> 46
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the documents we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information in the documents incorporated by
reference is considered to be part of this prospectus, and information in
documents that we file later with the SEC will automatically update and
supersede information in this prospectus. We incorporate by reference the
documents listed below and any future filings we will make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Reports on Form 10-Q for the three months ended March 31, 1999
and June 30, 1999; and
- Description of Common Stock contained in Form 8-A filed pursuant to the
Exchange Act.
We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus. To request a copy of any or
all of these documents, you should write or telephone us at: 9410 Key West
Avenue, Rockville, Maryland 20850, (301) 309-8504, Attention: Senior Vice
President and Chief Financial Officer.
-------------------------
We furnish our stockholders with annual reports that contain audited
financial statements and quarterly reports for the first three quarters of each
year that contain unaudited interim financial information.
-------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED
ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE SELLING HOLDERS ARE
NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THE DOCUMENT.
-43-
<PAGE> 47
HUMAN GENOME SCIENCES, INC. LOGO
<PAGE> 48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
registered hereby. All of the amounts shown are estimated except the Securities
and Exchange Commission registration and Nasdaq National Market listing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 34,750
Nasdaq National Market listing fee.......................... 17,500
Printing expenses........................................... 10,000
Legal fees and expenses..................................... 15,000
Accounting fees and expenses................................ 10,000
Miscellaneous expenses...................................... 12,750
--------
Total..................................................... $100,000
========
</TABLE>
15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of directors, officers, agents and controlling persons of a corporation under
certain conditions and subject to certain limitations. The Registrant's Bylaws
include provisions to require the Registrant to indemnify its directors and
officers to the fullest extent permitted by Section 145, including circumstances
in which indemnification is otherwise discretionary. Section 145 also empowers
the Registrant to purchase and maintain insurance that protects its officers,
directors, employees and agents against any liabilities incurred in connection
with their service in such positions.
At present, 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 threatened litigation that may result
in claims for indemnification by any officer or director.
II-1
<PAGE> 49
16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.1* Restated Certificate of Incorporation of the Registrant
3.2* Restated Bylaws of the Registrant
4.1** Rights Agreement between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent, dated as of May
20, 1998
4.2*** Indenture dated as of June 25, 1999 between Human Genome
Sciences, Inc. and The Bank of New York, as trustee,
including the form of 5 1/2% Convertible Subordinated Notes
due 2006 included in Article II thereof
4.3*** Registration Rights Agreement dated as of June 25, 1999
between Human Genome Sciences, Inc. and the Initial
Purchaser
5.1+ Opinion of Piper & Marbury L.L.P.
12.1+ Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2+ Consent of Piper & Marbury L.L.P (include in Exhibit 5.1)
24.1+ Powers of Attorney
25.1+ Form T-1 Statement of Eligibility of The Bank of New York to
act as Trustee under the Indenture
</TABLE>
- -------------------------
* Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.
** Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on May 28, 1998.
*** Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on June 28, 1999.
+ Previously filed.
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;
(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 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 and 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 20 percent change in
the maximum aggregate offering price, set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
II-2
<PAGE> 50
(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.
provided, however, that paragraphs (i) and (ii) above do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference into 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; and
(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 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered herein, 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 of 1933 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 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 of 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.
(d) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under Section
310 of the Trust Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Trust Indenture Act.
II-3
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Rockville, Maryland, on
the 14th day of October, 1999.
HUMAN GENOME SCIENCES, INC.
By: /s/ CRAIG ROSEN
-----------------------------------
Craig Rosen, Ph.D.
Senior Vice President of Research
and
Development and Director
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman of the Board, Chief October 14, 1999
- --------------------------------------- Executive Officer and Director
William A. Haseltine, Ph.D. (Principal Executive Officer)
/s/ CRAIG ROSEN Senior Vice President of Research October 14, 1999
- --------------------------------------- and Development and Director
Craig Rosen, Ph.D.
* Senior Vice President and Chief October 14, 1999
- --------------------------------------- Financial Officer (Principal
Steven C. Mayer Accounting and Financial Officer
* Director October 14, 1999
- ---------------------------------------
Jurgen Drews, M.D.
Director
- ---------------------------------------
Beverly Sills Greenough
* Director October 14, 1999
- ---------------------------------------
Robert D. Hormats
* Director October 14, 1999
- ---------------------------------------
Max Link, Ph.D.
* Director October 14, 1999
- ---------------------------------------
Alan G. Spoon
* Director October 14, 1999
- ---------------------------------------
Laura D'Andrea Tyson, Ph.D.
Director
- ---------------------------------------
James B. Wyngaarden, M.D.
*By: /s/ CRAIG ROSEN
---------------------------------
Craig Rosen, Ph.D.
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.1* Restated Certificate of Incorporation of the Registrant
3.2* Restated Bylaws of the Registrant
4.1** Rights Agreement between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent, dated as of May
20, 1998
4.2*** Indenture dated as of June 25, 1999 between Human Genome
Sciences, Inc. and The Bank of New York, as trustee,
including the form of 5 1/2% Convertible Subordinated Notes
due 2006 included in Article II thereof
4.3*** Registration Rights Agreement dated as of June 25, 1999
between Human Genome Sciences, Inc. and the Initial
Purchaser
5.1+ Opinion of Piper & Marbury L.L.P.
12.1+ Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2+ Consent of Piper & Marbury L.L.P (include in Exhibit 5.1)
24.1+ Powers of Attorney
25.1+ Form T-1 Statement of Eligibility of The Bank of New York to
act as Trustee under the Indenture
</TABLE>
- -------------------------
* Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.
** Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on May 28, 1998.
*** Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on June 28, 1999.
+ Previously filed.
II-5
<PAGE> 1
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement (Form S-3 No. 333-85319) and
related Prospectus of Human Genome Sciences, Inc. and to the incorporation by
reference therein of our report dated February 8, 1999, with respect to the
financial statements of Human Genome Sciences, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Vienna, Virginia
October 13, 1999
