<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-33252
Human Genome Sciences, Inc.
----------------------
$225,000,000
5% Convertible Subordinated Notes Due 2007
and
2,000,000 Shares of Common Stock
Issuable Upon Conversion of the Notes
----------------------
Noteholders may offer for sale the notes and the shares of our common stock
issuable upon conversion of the notes. See "Plan of Distribution." The notes
have the following terms:
- We will pay interest on the notes on February 1 and August 1 of each
year, commencing on August 1, 2000.
- The notes will mature on February 1, 2007.
- 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 $112.50 per share, which is
subject to adjustment.
- Holders may require us to repurchase their notes upon a change in
control.
- We may redeem the notes on or after February 6, 2003. Prior to that date,
we may redeem the notes if the price of our common stock has exceeded
150% of the conversion price for more than 20 of the 30 trading days
prior to redemption.
- Our common stock is listed on The Nasdaq National Market under the symbol
"HGSI."
- The closing price of our common stock on the Nasdaq National Market on
March 31, 2000 was $83 1/16 per share.
INVESTING IN THE NOTES OR THE COMMON STOCK ISSUABLE UPON THEIR CONVERSION
INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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 April 3, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1
RATIO OF EARNINGS TO FIXED CHARGES.......................... 5
RISK FACTORS................................................ 6
USE OF PROCEEDS............................................. 18
DESCRIPTION OF NOTES........................................ 19
U.S. FEDERAL TAX CONSIDERATIONS............................. 33
DESCRIPTION OF OUR CAPITAL STOCK............................ 38
SELLING HOLDERS............................................. 42
PLAN OF DISTRIBUTION........................................ 45
LEGAL MATTERS............................................... 46
EXPERTS..................................................... 46
WHERE YOU CAN FIND MORE INFORMATION......................... 47
INCORPORATION BY REFERENCE.................................. 48
</TABLE>
-------------------------
i
<PAGE> 3
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 issuable upon their
conversion. The information in this prospectus reflects the two-for-one stock
split of our common stock, paid in the form of a stock dividend on January 28,
2000. 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 February
25, 2000, we had isolated and characterized thousands of full-length genes and
purified more than 375 potential proteins for the treatment of human disease. We
have recently expanded our use of antibodies and other technologies to increase
the opportunities created by our genomic database.
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 DEVELOPMENT
We have produced three drugs that have been studied 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, ovarian, and lung cancer
in November 1998.
1
<PAGE> 4
- Keratinocyte Growth Factor-2, known as KGF-2 or repifermin, is a protein
designed to speed the repair of damage to the cells lining the mouth,
throat, the gastrointestinal tract and related tissues and to heal
serious chronic wounds to the skin. Repifermin 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 repifermin for the treatment
of venous ulcers, a type of chronic wound, in February 1999. We recently
began the second phase of human studies of repifermin for the treatment
of mucositis, a type of inflammation caused by some cancer treatments.
- 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
were conducted through Vascular Genetics Inc., a joint venture in which
we hold a substantial interest. These studies were halted in February
2000 in response to questions raised by the FDA. Three Phase II studies
of VEGF-2 were completed prior to the halt. A fourth Phase II study
cannot be completed and further studies cannot be initiated until
approved by the FDA.
We have discovered several other drugs that are in various stages of
testing in the laboratory, including:
- B Lymphocyte Stimulator, known as BLyS, a novel immune stimulant that we
believe could have significant impact on the treatment and prevention of
infectious diseases, and could lead to improved treatment of immune
deficiency disorders and certain types of leukemia and lymphoma. We are
currently engaged in testing of BLyS in the laboratory.
INTELLECTUAL PROPERTY
We vigorously pursue patents to protect our intellectual property. As of
February 25, 2000, we had 116 issued U.S. patents covering 91 full-length human
genes and had filed U.S. patent applications covering more than 7,500 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.
RECENT DEVELOPMENTS
On March 2, 2000, we announced the call of our $200,000,000 aggregate
principal amount of 5% Convertible Subordinated Notes Due 2006 for redemption on
March 22, 2000. In lieu of redemption, holders were able to convert their notes
into our common stock at any time on or prior to March 21, 2000. The notes were
convertible into our common stock at a price of $71.625 per share, which is
equivalent to 13.9616 shares of common stock per $1,000 principal amount of
notes. All of these notes were converted in lieu of redemption and, as a result,
we issued approximately 2,792,292 shares of our common stock. In addition, we
made a "make-whole" payment of $150 per $1,000 principal amount of notes which
resulted in a one-time charge to earnings of $30 million, or $0.55 per share,
based on the weighted pro forma average shares outstanding during the month
ended January 31, 2000.
-------------------------
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.
2
<PAGE> 5
THE OFFERING
We present below a summary of this offering:
Securities Offered.............. $225,000,000 aggregate principal amount of 5%
convertible subordinated notes due 2007
convertible into an aggregate of 2,000,000
shares of our common stock.
Maturity Date................... February 1, 2007.
Interest Payment Dates.......... February 1 and August 1 of each year,
commencing August 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 $112.50 per share. The conversion
price is equivalent to a conversion rate of
8.8888 shares per $1,000 principal amount of
notes. The conversion price is subject to
adjustment. Upon conversion, you will not
receive any cash representing accrued
interest. See "Description of
Notes -- Conversion Rights."
Sinking Fund.................... None.
Provisional Redemption.......... We may redeem some or all of the notes at any
time prior to February 6, 2003 if the price
of our common stock has exceeded 150% of the
conversion price for at least 20 of the 30
trading days prior to redemption and we make
an additional "make whole" payment on the
redeemed notes equal to $150.00 per $1,000
note, minus the amount of any interest we
actually paid on the note. See "Description
of Notes -- Provisional Redemption."
Optional Redemption............. We may redeem some or all of the notes at any
time on or after February 6, 2003 at the
redemption prices described in the
"Description of Notes -- Optional Redemption"
section of this offering circular, 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 December 31, 1999, our
senior indebtedness was
3
<PAGE> 6
approximately $1.8 million, all of which was
secured. The indenture does not restrict our
ability to incur additional senior
indebtedness. The notes rank equally with our
existing 5 1/2% Convertible Subordinated
Notes Due 2006 and 3 3/4% Convertible
Subordinated Notes Due 2007. See "Description
of Notes -- Subordination."
Form and Denomination of
Notes........................... The notes are represented by one or more
global notes which will be 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.
Certificated notes will not be issued unless
conditions in the indenture governing the
notes are satisfied. See "Description of
Notes -- Book-Entry, Delivery and Form."
Use of Proceeds................. We will not receive any proceeds from the
sale by the selling holders of the notes and
the common stock issuable upon conversion of
the notes. 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.
4
<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>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Deficiency of earnings available
to cover fixed charges........ $(41,944) $(22,957) $(21,148) $(7,559) $(32,719)
</TABLE>
5
<PAGE> 8
RISK FACTORS
You should carefully consider the following risk factors and the other
information in this prospectus before investing in the notes or the common stock
issuable upon their conversion.
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 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 products
6
<PAGE> 9
based on innovative technologies and the risks associated with drug development
generally. These risks include the possibility that:
- these technologies or all or any 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 CLINICAL TRIALS FOR OUR PRODUCTS WILL BE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN, WE MUST INCUR SUBSTANTIAL EXPENSES THAT MAY NOT RESULT IN ANY VIABLE
PRODUCTS
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials
that our product candidates are safe and effective for use in humans. We will
incur substantial expense for, and devote a significant amount of time to,
preclinical testing and clinical trials.
Historically, the results from preclinical testing and early clinical
trials have often not been predictive of results obtained in later clinical
trials. A number of new drugs have shown promising results in clinical trials,
but subsequently failed to establish sufficient safety and efficacy data to
obtain necessary regulatory approvals. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations, which may delay,
limit or prevent regulatory approval. In addition, regulatory delays or
rejections may be encountered as a result of many factors, including changes in
regulatory policy during the period of product development.
Three of our products, MPIF-1, KGF-2 and VEGF-2, have entered clinical
trials. Patient follow-up for these clinical trials has been limited. To date,
data obtained from these clinical
7
<PAGE> 10
trials has been insufficient to demonstrate safety and efficacy under applicable
FDA guidelines and are not sufficient to support an application for regulatory
approval without further clinical trials. Clinical trials conducted by us or by
third parties on our behalf may not demonstrate sufficient safety and efficacy
to obtain the requisite regulatory approvals for MPIF-1, KGF-2 and VEGF-2 and or
any other potential products. Regulatory authorities may not permit us to
undertake any additional clinical trials for our product candidates.
Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity, novelty
and intended use of the product candidate. Our commencement and rate of
completion of clinical trials may be delayed by many factors, including:
- inability to manufacture sufficient quantities of materials for use in
clinical trials;
- slower than expected rate of patient recruitment or variability in the
number and types of patients in a study;
- inability to adequately follow patients after treatment;
- unforeseen safety issues or side effects;
- lack of efficacy during the clinical trials; or
- government or regulatory delays.
THE CLINICAL SUCCESS OF VEGF-2 IS UNCERTAIN
Vascular Genetics announced that it will not enroll or treat additional
patients in its clinical trials of VEGF-2 in response to an FDA hold on testing.
Four clinical trials of VEGF-2 had been ongoing. Vascular Genetics announced the
completion of three of these trials because enrollment and treatment were
complete. In the fourth study, a majority of the enrollment target had been
enrolled and treated. During the hold period, Vascular Genetics will provide the
FDA with results which are being compiled from the clinical trials, in addition
to providing measurements of the amount of the VEGF-2 protein in patient blood
samples using new assay methodology which has been developed. Vascular Genetics
must receive approval of the FDA before the fourth trial can be completed or
additional trials initiated.
In addition to the factors affecting clinical trials noted above, the
trials of VEGF-2 are being conducted with patients who have failed conventional
treatments or for which no conventional treatment exists. During the course of
treatment, these patients can die or suffer adverse medical effects for reasons
that may or may not be related to our products. Deaths in the patient population
for the VEGF-2 trial did occur, in both active and placebo groups, and Vascular
Genetics has reviewed the relevant data regarding these patients and will
provide an analysis of the reasons for these deaths to the FDA. These adverse
effects may affect the interpretation of the clinical trial results and the
success of the trials. Further, as for most pharmaceutical drug products, later
stage clinical trials may be extensive, expensive and time-consuming.
Ultimately, VEGF-2 may not be approved for use in humans.
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 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
8
<PAGE> 11
agreements. Unless renewed, substantially all these collaboration agreements
will expire in 2000 and 2001. We cannot assure you that these collaboration
agreements will be renewed or that we will be able to enter into additional
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. 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 BE UNABLE 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 December 31,
1999, we had outstanding total long-term indebtedness of approximately $326.3
million. For the year ended December 31, 1999, our fixed charges exceeded our
earnings by approximately $41.9 million. A variety of uncertainties and
contingencies will affect our future performance, many of which are beyond
9
<PAGE> 12
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.
IF WE ARE UNABLE TO PAY ALL OUR DEBTS, THEN YOU WILL RECEIVE PAYMENTS ON YOUR
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 December 31,
1999, our senior indebtedness was approximately $1.8 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. Your notes rank equally with our existing 5 1/2% Convertible
Subordinated Notes Due 2006 and 5% Convertible Subordinated Notes Due 2007. 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 transaction 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."
10
<PAGE> 13
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.
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 $14.38 per share and as
high as $231.00 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.
11
<PAGE> 14
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 entities conducting genomic research have identified
the majority of genes in the human genome and will identify virtually all 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, such as those sponsored by 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;
- 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 Patent and Trademark Office has recently proposed new guidelines on the
12
<PAGE> 15
written description and utility requirements for patents. 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 February 25, 2000,
we had filed patent applications for:
- more than 7,500 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 116 U.S. patents issued covering 91
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 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.
13
<PAGE> 16
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 a scientific or commercial 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 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.
14
<PAGE> 17
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. 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 February 2001. 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 any other valuable
executive dies. 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.
15
<PAGE> 18
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 UNABLE 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. For instance, Vascular Genetics recently announced
that it will not enroll or treat additional patients in its clinical trials of
VEGF-2 in response to an FDA hold on further testing. 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.
ADVERSE PERCEPTION AND INCREASED REGULATORY SCRUTINY OF GENE THERAPY AND GENETIC
RESEARCH MAY LIMIT OUR ABILITY TO CONDUCT OUR BUSINESS
Ethical, social and legal concerns about gene therapy, genetic testing and
genetic research could result in additional regulations restricting or
prohibiting the processes we or our suppliers may use. Recently, gene therapy
studies, including studies of VEGF-2, have come under increasing scrutiny which
has delayed ongoing and may delay future clinical trials and regulatory
approvals. Federal and state agencies, congressional committees and foreign
governments have expressed interest in further regulating biotechnology. More
restrictive regulations or claims that our products are unsafe or pose a hazard
could prevent us from commercializing any products.
BECAUSE WE ARE SUBJECT TO ENVIRONMENTAL, HEALTH AND SAFETY LAWS, WE MAY BE
UNABLE TO CONDUCT OUR BUSINESS IN THE MANNER WE CURRENTLY INTEND
State and federal laws regarding environmental protection, hazardous
substances and human health and safety affect our business. The use of hazardous
substances in our operations exposes us to the risk of accidental releases. If
our operations result in contamination of the environment or expose individuals
to hazardous substances, we could be
16
<PAGE> 19
liable for damages and governmental fines. Future changes to environmental,
health and safety laws could cause us to incur additional expense or restrict
our operations.
BECAUSE WE DEPEND ON A SINGLE SUPPLIER FOR GENE SEQUENCING MACHINES AND
CHEMICALS, 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 our gene
sequencing machines and the chemicals we require in connection with our gene
sequencing process. If we are unable to obtain additional machines or an
adequate supply of these chemicals 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 chemicals 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 manufacturing facility for the
preparation of quantities of our proteins for human studies. Construction of an
expansion of this facility has begun. The FDA must validate and inspect this
facility and the expansion to determine compliance with cGMP requirements. A
delay in validation of the facility or the expansion 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.
17
<PAGE> 20
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 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 by the selling holders of
the notes and the common stock issuable upon their conversion. 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.
18
<PAGE> 21
DESCRIPTION OF NOTES
We issued the notes under an indenture, dated as of February 1, 2000,
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 listed under the caption "Incorporation
by Reference." 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 $225,000,000. Interest on the
notes will accrue at the rate of 5% per annum and will be payable semiannually
in arrears on February 1 and August 1 of each year, commencing on August 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 January 15 or July 15, whether or not this day is a
business day. Interest on the notes will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
We will pay the principal of, premium, if any, and interest on the notes at
the office or agency maintained by the trustee 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.
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 issued the notes in the form of one or more global notes except as
described under "-Certificated Notes" below. The global notes were 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 is 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;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
19
<PAGE> 22
- 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 system eliminates the need for physical movement of certificates
representing securities. The institutions that have accounts with the
depositary, 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 a global note held
through the participants will be governed by standing instructions and customary
practices
20
<PAGE> 23
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 the procedures described above 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.
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. In
addition, certificated notes will bear the legend referred to under "Transfer
Restrictions," unless we determine this legend is not necessary under applicable
law.
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 $112.50
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
21
<PAGE> 24
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
- 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.
22
<PAGE> 25
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 such interest payment date on the principal amount converted
together with the note being surrendered. The preceding sentence does not apply
to notes called for redemption on a redemption date within the period between
and including the record date and the interest payment date.
If we make a distribution of property to our stockholders which would be
taxable to them as a dividend for federal income tax purposes (for example,
distributions of evidences of our indebtedness or assets, but generally not
stock dividends or rights to subscribe for capital stock) 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.
PROVISIONAL REDEMPTION
We may redeem any portion of the notes at any time prior to February 6,
2003, at a redemption price equal to $1,000 per note plus accrued and unpaid
interest to the redemption date if (1) the closing price of our common stock has
exceeded 150% of the conversion price for at least 20 trading days in any
consecutive 30-trading day period ending on the trading day prior to the mailing
of the notice of redemption and (2) the shelf registration statement covering
resales of the notes and the common stock issuable upon conversion of the notes
is effective and expected to remain effective and available for use for the 30
days following the redemption date.
If we redeem the notes under these circumstances, we will make an
additional "make whole" payment on the redeemed notes equal to $150.00 per
$1,000 note, minus the amount of any interest we actually paid on the note prior
to the date we mailed the notice. We must make these "make whole" payments on
all notes called for redemption, including notes converted after the date we
mailed the notice.
23
<PAGE> 26
OPTIONAL REDEMPTION
At any time on or after February 6, 2003, 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, to but not including the redemption date. 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>
February 6, 2003 through January 31, 2004................... 102.50%
February 1, 2004 through January 31, 2005................... 101.67%
February 1, 2005 through January 31, 2006................... 100.83%
February 1, 2006 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 repurchase plus accrued and unpaid interest, if any,
to the date of repurchase.
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 who are not supported
by our board 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, 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 (other than common
stock), cash and/or property and the value distributed in the transaction
and any other transaction within the 12 preceding 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
24
<PAGE> 27
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, 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.
25
<PAGE> 28
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, we may
default on the notes in the event of a change in control."
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. 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.
26
<PAGE> 29
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 or 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 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;
27
<PAGE> 30
(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) above 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) above
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 of the request 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.
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
28
<PAGE> 31
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;
- adversely affect 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 make any change that would provide any additional benefit or
right to the holders of the notes;
(4) to secure our obligations in respect of the notes;
(5) to make provision with respect to the conversion rights of holders
of the notes pursuant to the requirements of the indenture;
(6) 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;
(7) to cure any ambiguity or inconsistency in the indenture;
(8) to comply with any requirement in connection with the
qualification of the indenture under the Trust Indenture Act; or
29
<PAGE> 32
(9) 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.
However, no supplemental indenture entered into pursuant to clause (3), (6),
(7), (8) or (9) 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 certain 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 December 31, 1999, our senior indebtedness was approximately $1.8
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. Your notes
rank equally with our existing 5 1/2% Convertible Subordinated Notes Due 2006
and 3 3/4% Convertible Subordinated Notes Due 2007. See "Risk Factors -- If we
are unable to pay our debts, then you will receive payments on your notes only
after we have paid our existing and future senior indebtedness."
30
<PAGE> 33
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;
- 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, known as covenant defeasance, 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 such deposit, defeasance and discharge 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 such deposit,
defeasance and discharge 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
such deposit, defeasance and discharge 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 such deposit, defeasance and discharge had
not occurred; and
31
<PAGE> 34
- 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.
32
<PAGE> 35
U.S. FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
and certain estate 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 that 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.
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 regular
method of tax accounting. If we are required to pay additional interest as
described under "Description of the Notes -- Registration Rights," such
additional interest should also be taxable to a U.S. holder as ordinary interest
income in accordance with the holder's regular method of tax accounting. It is
possible, however, that the Internal Revenue Service may take a different
position, in
33
<PAGE> 36
which case U.S. holders might be required to include such additional interest in
income as it accrues or becomes fixed (regardless of their regular method of tax
accounting).
Constructive Dividends. 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."
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 so disposed 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 of 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
34
<PAGE> 37
distribution in excess of the holder's basis in the shares of common stock will
be treated as capital gain.
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 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 new 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 be aware that applicable income tax
treaties 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 a 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 instead be subject to the U.S. federal income tax
on net income that applies to U.S. persons generally.
35
<PAGE> 38
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 be aware that applicable income tax treaties 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.
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
36
<PAGE> 39
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 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.
37
<PAGE> 40
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 250,000,000 shares of common
stock, par value $0.01 per share, and 20,000,000 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 250,000,000 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
20,000,000 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. The issuance of preferred
stock could have the effect of decreasing the market price of our common stock.
38
<PAGE> 41
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 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
39
<PAGE> 42
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 our 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 our 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 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
40
<PAGE> 43
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.
41
<PAGE> 44
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 common stock issuable upon conversion of the notes 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 common stock. 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 issuable upon
their conversion no longer qualify as "registrable securities" under our
registration rights agreement.
The following table shows information, as of March 31, 2000, 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 SG Cowan
Securities owned 4.5% prior to the offering and 4.4% after the offering. Common
stock owned prior to the offering and after completion of the offering includes
shares of common stock issuable upon conversion of our 5 1/2% Convertible
Subordinated Notes Due 2006 and our 3 3/4% Convertible Subordinated Notes Due
2007.
<TABLE>
<CAPTION>
PRINCIPAL COMMON
AMOUNT OF NOTES COMMON STOCK STOCK OWNED
BENEFICIALLY OWNED PRIOR AFTER
OWNED AND TO THE COMMON COMPLETION OF
NAME OFFERED OFFERING STOCK OFFERED THE OFFERING
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
AIG SoundShore Holdings Ltd. ... $ 22,350,000 198,666 198,666 --
AIG SoundShore Opportunity
Holding Fund Ltd. ............ 3,450,000 30,666 30,666 --
AIG SoundShore Strategic Holding
Fund Ltd. .................... 2,450,000 21,777 21,777 --
Allstate Insurance Company...... 2,100,000 18,666 18,666 --
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
PRINCIPAL COMMON
AMOUNT OF NOTES COMMON STOCK STOCK OWNED
BENEFICIALLY OWNED PRIOR AFTER
OWNED AND TO THE COMMON COMPLETION OF
NAME OFFERED OFFERING STOCK OFFERED THE OFFERING
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Argent Classic Convertible
Arbitrage Fund (Bermuda)
L.P. ......................... $ 1,500,000 13,333 13,333 --
Argent Convertible Arbitrage
Fund Ltd. .................... 400,000 3,555 3,555 --
Associated Electric & Gas
Insurance Service............. 350,000 3,111 3,111 1,369
BNP Arbitrage SNC............... 11,100,000 98,666 98,666 4,566
BNY Hamilton Equity Income
Fund.......................... 2,000,000 17,777 17,777 --
Bancroft Convertible Fund,
Inc. ......................... 375,000 3,333 3,333 --
Bank Austria Cayman Island,
Ltd. ......................... 2,250,000 20,000 20,000 --
Bear, Stearns & Co. Inc. ....... 2,075,000 29,859 18,444 --
CIBC World Markets.............. 8,900,000 90,526 79,111 --
California Public Employees'
Retirement System, Nominee
Name: Surf Board & Co. ....... 6,500,000 57,777 57,777 --
Canyon Value Realization
(Cayman) Ltd. ................ 10,585,000 94,088 94,088 --
Credit Suisse First Boston
Corporation................... 28,135,000 413,786 250,088 163,698
Deephaven Domestic Convertible
Trading Ltd. ................. 3,500,000 31,111 31,111 --
Delphi Financial Group, Inc. ... 165,000 1,466 1,466 --
Deutsche Bank Securities
Inc. ......................... 16,075,000 366,600 142,888 223,712
Ellsworth Convertible Growth and
Income Fund, Inc. ............ 375,000 3,333 3,333 --
Forest Alternative Strategies
Fund LP II, Series A5I........ 1,000,000 8,888 8,888 --
Forest Alternative Strategies
Fund LP II, Series A5M........ 500,000 4,444 4,444 --
Forest Convertible Fund LP...... 155,000 1,377 1,377 --
Forest Fulcrum Fund LP.......... 4,000,000 35,555 35,555 --
Forest Global Convertible Fund
LTD, Series A5. .............. 27,375,000 243,333 243,333 --
Forest Performance Fund L.P. ... 525,000 4,666 4,666 --
Grace Brothers, Ltd. ........... 1,200,000 10,666 10,666 --
Highbridge International LLC.... 15,500,000 137,777 137,777 --
JMG Capital Partners, LP........ 3,825,000 39,707 34,000 5,707
JMG Triton Offshore Fund,
Ltd. ......................... 1,500,000 28,173 13,333 14,840
Jefferies & Company............. 165,000 1,466 1,466 --
LLT Limited..................... 2,941,679 32,777 26,148 6,629
Lyxor Master Fund............... 3,825,000 34,000 34,000 --
Lyxor Master Fund, c/o Forest
Investment Management LLC..... 1,000,000 8,888 8,888 --
Merrill Lynch Convertible Fund,
Inc. ......................... 250,000 2,222 2,222 --
Morgan Stanley Dean Witter...... 900,000 8,867 8,000 867
Nomura Securities International
Inc. ......................... 3,500,000 95,743 31,111 64,632
Pacific Life Insurance
Company....................... 1,000,000 13,454 8,888 4,566
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
PRINCIPAL COMMON
AMOUNT OF NOTES COMMON STOCK STOCK OWNED
BENEFICIALLY OWNED PRIOR AFTER
OWNED AND TO THE COMMON COMPLETION OF
NAME OFFERED OFFERING STOCK OFFERED THE OFFERING
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
R(2) Investments, LDC........... $ 2,100,000 18,666 18,666 --
RBC Capital Services, Inc. ..... 90,000 800 800 --
SG Cowen Securities............. 3,000,000 2,426,666 26,666 2,400,000
STI Capital Management.......... 1,600,000 14,222 14,222 --
Stanley E. Fischman MD IRA
Rollover Custodian............ 25,000 222 222 --
Sylvan IMA LTD, c/o Forest
Investment Management LLC..... 2,000,000 17,777 17,777 --
Tennessee Consolidated
Retirement System............. 4,000,000 72,084 35,555 36,529
Transamerica Life Insurance &
Annuity Company............... 3,000,000 26,666 26,666 --
Value Realization Fund, LP...... 8,590,000 76,355 76,355 --
Value Realization Fund B, LP.... 660,000 5,866 5,866 --
Warburg Dillon Read LLC......... 2,250,000 28,675 20,000 8,675
White River Securities LLC...... 2,075,000 29,859 18,444 11,415
Any other holder of notes or
future transferee from any
holder........................ 1,813,321 16,143 16,143 --
------------ --------- --------- ---------
TOTAL................. $225,000,000 4,970,035 2,000,000 2,970,035
============ ========= ========= =========
</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.
44
<PAGE> 47
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
issuable upon their conversion 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 issuable upon their conversion 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 issuable upon
their conversion 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 issuable upon their conversion
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 issuable upon their conversion 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 issuable upon their conversion 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
45
<PAGE> 48
or qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
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 Rudnick & Wolfe LLP 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, 1999, 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.
46
<PAGE> 49
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 60661 New York, New York 10048
Washington, D.C. 20549
</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.
47
<PAGE> 50
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 offering circular, and information in
documents that we file later with the SEC will automatically update and
supersede information in this offering circular. 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, 1999;
- Current Reports on Form 8-K filed February 2, 2000, March 3, 2000, March
13, 2000 and March 24, 2000; 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 offering circular. 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.
48
<PAGE> 51
[HUMAN GENOME SCIENCES, INC. LOGO]
