-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BQN3aI11eXjV+Hnmfrw0veVRqomEykNm8WLSVU0VBgiviRxHbMM9UIYoLhMU2V+4 usj/pp4wUPgCZ55QHqJNwg== 0000912057-96-006129.txt : 19960410 0000912057-96-006129.hdr.sgml : 19960410 ACCESSION NUMBER: 0000912057-96-006129 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960408 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALZA CORP CENTRAL INDEX KEY: 0000004310 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 770142070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02343 FILM NUMBER: 96545242 BUSINESS ADDRESS: STREET 1: 950 PAGE MILL RD STREET 2: PO BOX 10950 CITY: PALO ALTO STATE: CA ZIP: 94303-0802 BUSINESS PHONE: 4154945000 S-3 1 S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ALZA CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0142070 (State or other (I.R.S. employer jurisdiction of identification incorporation or number) organization)
950 PAGE MILL ROAD, P.O. BOX 10950, PALO ALTO, CALIFORNIA 94303-0802 (415) 494-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) BRUCE C. COZADD VICE PRESIDENT AND CHIEF FINANCIAL OFFICER ALZA CORPORATION 950 PAGE MILL ROAD, P.O. BOX 10950 PALO ALTO, CALIFORNIA 94303-0802 (415) 494-5000 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- WITH COPIES OF ALL ORDERS, NOTICES AND COMMUNICATIONS TO: Sarah A. O'Dowd Thomas C. Janson, Jr. Heller Ehrman White & McAuliffe Skadden, Arps, Slate, Meagher & Flom 525 University Avenue 300 South Grand Avenue Palo Alto, California 94301 Suite 3400 (415) 324-7000 Los Angeles, California 90071 (213) 687-5000
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. -------------------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest investment plans, please check the following box. / / If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act Registration number of the earlier effective registration statement for the same offering. / / -------------------------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933 as amended, check the following box and list the Securities Act of 1933, as amended, registration number of the earlier effective registration statement for the same offering. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OFFERING PRICE AGGREGATE TITLE OF EACH CLASS OF TO BE PER DEBENTURE OFFERING PRICE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED (1) (1) REGISTRATION FEE Debentures due 2006................ $460,000,000(2) 100% $460,000,000 $158,621 Common Stock, par value $.01 per share.................... (3) -- -- None
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. (2) Includes $60,000,000 aggregate principal amount of Debentures subject to the Underwriter's over-allotment option. (3) Also being registered are such indeterminate number of shares of Common Stock as may be issuable upon conversion of the Debentures registered hereby. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED APRIL , 1996 P R O S P E C T U S $400,000,000 [LOGO] % CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006 ------------------ The % Convertible Subordinated Debentures due 2006 (the "Debentures") to be issued by ALZA Corporation, a Delaware corporation ("ALZA"), will be convertible, at the option of the holder, at any time on or prior to maturity, unless previously redeemed or repurchased, into shares of Common Stock of ALZA, $.01 par value per share ("Common Stock"), at a conversion price of $ per share of Common Stock (equivalent to a conversion rate of shares per $1,000 principal amount of Debentures), subject to certain anti-dilution adjustments. See "Description of Debentures -- Conversion of Debentures." On April 4, 1996, the last reported sale price of the Common Stock as reported on the New York Stock Exchange was $32 3/8 per share. The Common Stock is listed on the New York Stock Exchange under the symbol "AZA". Interest on the Debentures will be payable on and of each year, commencing , 1996. The Debentures will be redeemable by ALZA, in whole or in part, at any time on or after , 1999, at the redemption prices set forth herein, in each case plus accrued and unpaid interest, if any, to the redemption date. In the event of a Change in Control (as defined herein), each holder of the Debentures will have the right to require ALZA to repurchase all or a portion of such holder's Debentures at 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of Debentures." The Debentures are unsecured and subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of ALZA. As of December 31, 1995, ALZA had $850,000 of debt that would have constituted Senior Indebtedness. The Debentures will rank pari passu with ALZA's outstanding 5 1/4% Liquid Yield Option-TM- Notes due 2014 (the "LYONs"-TM-), which as of December 31, 1995 had an accreted value of $362,944,000. See "Description of Debentures - -- Subordination of Debentures." Application has been made to list the Debentures on the New York Stock Exchange under the symbol . SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES OFFERED HEREBY. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT(2) ALZA(3) Per Debenture...................................... 100% % % Total (4).......................................... $400,000,000 $ $
(1) Plus accrued interest, if any, from , 1996. (2) ALZA has agreed to indemnify the Underwriter against, and to provide contribution with respect to, certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by ALZA estimated at $500,000. (4) ALZA has granted the Underwriter an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional $60,000,000 aggregate principal amount of Debentures on the same terms as set forth above to cover over-allotments, if any. If the option is exercised in full, the Price to Public, Underwriting Discount and Proceeds to ALZA will be $460,000,000, $ and $ , respectively. See "Underwriting." -------------------------- The Debentures are offered by the Underwriter, subject to prior sale, when, as and if issued to and accepted by the Underwriter, subject to approval of certain legal matters by counsel for the Underwriter and certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify any such offer and to reject orders in whole or in part. It is expected that delivery of the Debentures will be made in New York, New York, on or about , 1996. - -TM-Trademark of Merrill Lynch & Co., Inc. -------------------------- MERRILL LYNCH & CO. --------------- The date of this Prospectus is , 1996 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES OFFERED HEREBY, THE COMMON STOCK OF ALZA OR OTHER SECURITIES OF ALZA, OR ANY OF THEM, AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ------------------------ AVAILABLE INFORMATION ALZA is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information may be inspected at the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can be obtained at prescribed rates from the Commission at such address. Such reports, proxy statements and other information can also be inspected at the Commission's regional offices at 7 World Trade Center, 13th Floor, New York, New York 10019 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, such reports, proxy statements and other information concerning ALZA may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. ALZA has filed with the Commission a Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered by this Prospectus. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to ALZA and the securities offered hereby, reference is made to the Registration Statement and the exhibits thereto, which may be examined without charge at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and copies of which may be obtained from the Commission upon payment of the prescribed fees. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by ALZA with the Commission, are hereby incorporated by reference in this Prospectus: (a) ALZA's Annual Report on Form 10-K for the fiscal year ended December 31, 1995; and (b) The description of the Common Stock contained in ALZA's registration statement on Form 8-A filed May 14, 1992 under the Exchange Act, including any amendment or reports filed for the purpose of updating such description. All documents filed by ALZA pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the securities offered hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Upon written or oral request directed to Corporate and Investor Relations, ALZA Corporation, 950 Page Mill Road, P.O. Box 10950, Palo Alto, California 94303-0802, telephone (415) 494-5222, ALZA will provide, without charge, to any person to whom this Prospectus is delivered, a copy of any document incorporated by reference in this Prospectus (not including exhibits to any such document except to the extent any such exhibits are specifically incorporated by reference in the information incorporated in this Prospectus). 2 PROSPECTUS SUMMARY STATEMENTS MADE IN THIS PROSPECTUS RELATING TO PRODUCT DEVELOPMENT, MANUFACTURING AND MARKETING, OR THAT OTHERWISE RELATE TO FUTURE PERIODS, ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN RISKS DESCRIBED IN THIS PROSPECTUS (INCLUDING ALZA'S ANNUAL REPORT ON FORM 10-K FOR 1995 AND OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE). ALZA ALZA is a leader in the development and commercialization of innovative pharmaceutical products that incorporate drugs into advanced dosage forms designed to provide controlled, predetermined rates of drug release for extended time periods. By administering drugs in preset patterns and by alternative routes, ALZA's advanced dosage forms, called therapeutic systems, can add medical and economic value to drug therapies by minimizing their unpleasant or harmful side effects, optimizing their beneficial actions, simplifying drug therapy, and increasing patient compliance by decreasing the frequency with which medication must be administered. Historically, most of ALZA's product development activities have been undertaken pursuant to joint development and commercialization agreements with pharmaceutical companies. These agreements normally provide for the pharmaceutical company client to reimburse ALZA for costs incurred in product development and clinical evaluation of a specified product, including a portion of general and administrative expenses. The client receives marketing rights to the product and ALZA receives royalties on the client's sales of the product. Generally ALZA manufactures all or a portion of the client's requirements of the product. Among the ALZA-developed products commercialized to date by client companies are Procardia XL-Registered Trademark- (nifedipine) extended release tablets for the treatment of angina and hypertension, Duragesic-Registered Trademark- (fentanyl) CII for the management of chronic pain in patients who require continuous opioid analgesia for pain that cannot be managed by lesser means, Transderm-Nitro-Registered Trademark- (nitroglycerin), a once-daily product for the prevention of angina pectoris due to coronary artery disease, and Nicoderm-Registered Trademark- (nicotine), an aid in smoking cessation for relief of nicotine withdrawal symptoms. The United States health care industry has changed dramatically in the last several years. Pharmaceutical companies have reduced sales forces, acquired pharmacy benefit companies, and built alliances in an effort to cut costs, secure market share, and improve research and development productivity. In this environment, every new pharmaceutical product must add value to the health care marketplace. These changes have created a unique opportunity for ALZA. Beginning in the early 1990s and accelerating over the past several years, ALZA has embarked on a three-part strategy to capitalize on the opportunities created by the new health care marketplace. First, ALZA has continued its traditional product development arrangements with client companies. Second, ALZA has expanded its commercialization capabilities and activities through its ALZA Pharmaceuticals division. In 1994, ALZA Pharmaceuticals introduced in the United States Testoderm-Registered Trademark-(testosterone transdermal system) CIII for hormone replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone. Also during 1994, ALZA's sales force began to co-promote in the United States two products developed by ALZA under agreements with client companies -- Duragesic-Registered Trademark- with Janssen Pharmaceutica, Inc. ("Janssen"), and Glucotrol XL-Registered Trademark- with Pfizer Inc. ("Pfizer"). In April 1996, ALZA Pharmaceuticals launched in the United States Ethyol-Registered Trademark- (amifostine), a unique agent developed by U.S. Bioscience, Inc., indicated for the reduction of cumulative renal toxicity associated with repeated administration of the chemotherapeutic drug cisplatin in patients with advanced ovarian cancer or non-small cell lung cancer. ALZA has exclusive rights to market the product for five years, with an option to extend for one additional year; U.S. Bioscience co-promotes the product with ALZA. As part of its strategy to expand its commercialization activities, and in order to decrease ALZA's dependence on client companies, ALZA formed Therapeutic Discovery Corporation ("TDC") in 1993 to develop, with ALZA, a pipeline of products for commercialization by ALZA. At the end of 1995, ALZA and TDC had more than 20 products in various stages of development, including a number in Phase III clinical evaluation. 3 Third, in order to extend ALZA's leadership in drug delivery technology, ALZA formed the ALZA Technology Institute ("ATI") in 1994. ATI is increasing ALZA's investment in the research and development of therapeutic systems, including systems for the delivery of biotechnology compounds and for use in gene therapy. ALZA's principal executive offices are located at 950 Page Mill Road, P.O. Box 10950, Palo Alto, California 94303-0802 and its telephone number is (415) 494-5000. THE OFFERING The Debentures......................... $400,000,000 aggregate principal amount ($460,000,000 aggregate principal amount if the Underwriter's over- allotment option is exercised in full) of % Convertible Subordinated Debentures due 2006. Payment of Interest.................... The Debentures will bear interest at the rate of % per annum. Interest will be payable semi-annually on and of each year, commencing , 1996. See "Description of Debentures -- General." Conversion Rights...................... The Debentures are convertible, at the option of the holder, at any time on or prior to maturity, unless previously redeemed or repurchased, into shares of Common Stock, at a conversion price of $ per share, subject to certain anti-dilution adjustments. See "Description of Debentures -- Conversion of Debentures." Optional Redemption by ALZA............ The Debentures are redeemable at the option of ALZA, in whole or in part, at any time on or after , 1999, at the redemption prices set forth herein, in each case plus accrued and unpaid interest, if any, to the redemption date. See "Description of Debentures -- Optional Redemption by ALZA." Repurchase at Option of Holders Upon Change in Control..................... In the event a Change in Control occurs, each holder of Debentures may require ALZA to repurchase all or a portion of such holder's Debentures at 100% of the principal amount thereof, together with accrued interest to the repurchase date. If a Change in Control were to occur, there can be no assurance that ALZA would have sufficient funds to pay the repurchase price for all Debentures tendered by the holders thereof. See "Description of Debentures -- Repurchase at Option of Holders Upon Change in Control."
4 Subordination.......................... The Debentures will be subordinated to all existing and future Senior Indebtedness of ALZA, the principal amount of which as of December 31, 1995 was $850,000. The Debentures will rank pari passu with ALZA's outstanding LYONs, which had an accreted value of $362,944,000 at December 31, 1995 ($948,750,000 principal amount at maturity in 2014). The Debentures will not restrict the incurrence of Senior Indebtedness by ALZA, or the incurrence of other indebtedness or liabilities by ALZA or its subsidiaries or affiliates. See "Capitalization" and "Description of Debentures -- Subordination of Debentures." Use of Proceeds........................ ALZA will use the net proceeds of the offering for general corporate purposes. See "Use of Proceeds." Listing................................ Application has been made to list the Debentures on the New York Stock Exchange under the symbol . The Common Stock is currently traded on the New York Stock Exchange under the symbol "AZA".
5 SUMMARY CONSOLIDATED FINANCIAL DATA Set forth below are summary consolidated financial data for ALZA at the dates and for the periods indicated.
YEARS ENDED DECEMBER 31, -------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) STATEMENT OF OPERATIONS DATA: Total revenues.................................... $ 350,624 $ 278,756 $ 234,182 $ 250,519 $ 162,349 Net income (loss)................................. 72,408(1) 58,120 45,612(2) 72,170 (62,076)(3) Net income (loss) per share....................... 0.88 0.71 0.57 0.90 (0.88 ) BALANCE SHEET DATA: Working capital (deficiency)...................... $ 510,120 $ 436,445 $ (87,767 (2) $ 188,744 $ 227,950 Total assets...................................... 937,215 806,252 621,824 698,381 580,490 5 1/4% zero coupon convertible subordinated debentures (LYONs)............................... 362,944 344,593 -- -- -- Commercial paper.................................. -- -- 249,520 (2) -- -- 7 1/2% zero coupon convertible subordinated debentures....................................... -- -- -- 228,966 213,220 Other long-term liabilities....................... 51,770 41,192 28,969 22,723 23,607 Total stockholders' equity........................ 454,553 364,479 306,677 (4) 407,543 322,854 OTHER DATA: Ratio of earnings to fixed charges (5)............ 5.5x 5.5x 3.9x 6.3x -- (6)
- -------------------------- (1) Includes a pre-tax benefit of $7 million from the reversal of a reserve established after a patent infringement suit was filed by Ciba-Geigy Corporation against ALZA and Marion Merrell Dow, Inc. (now Hoechst Marion Roussel, Inc.) and a pre-tax charge of $7 million for a portion of the payment ALZA made to U.S. Bioscience, Inc. under a marketing and distribution agreement for Ethyol-Registered Trademark-. (2) Includes pre-tax charges and allowances of $28 million ($0.23 per share on an after-tax basis) related primarily to manufacturing activities. Also includes $7 million ($0.08 per share) in one-time benefits resulting from the adoption of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, and a $4 million ($0.05 per share) extraordinary refinancing charge relating to the redemption of ALZA's 7 1/2% zero coupon convertible subordinated debentures. The 7 1/2% zero coupon convertible subordinated debentures were replaced with commercial paper which was classified as short-term debt, thereby reducing working capital. (3) In 1991 ALZA incurred a one-time pre-tax charge of $101 million ($1.38 per share on an after-tax basis) relating to the purchase of in-process technology in connection with the acquisition of Bio-Electro Systems, Inc., a company acquired by ALZA in early 1992. (4) Total stockholders' equity decreased from December 31, 1992 to December 31, 1993 primarily due to the special dividend paid in 1993 to stockholders in connection with the formation of TDC, which reduced stockholders' equity by $250 million. (5) The ratios of earnings to fixed charges were calculated by dividing the sum of (i) income (loss) before income taxes and the extraordinary refinancing charge and cumulative effect of the accounting change described in (2) above and (ii) fixed charges (reduced by capitalized interest costs), by fixed charges. Fixed charges consist of interest (expensed and capitalized), amortization of debt issue expense and the estimated interest portion of rent expense. (6) Earnings for the year ended December 31, 1991 were insufficient to cover fixed charges by $43 million. See (3) above. 6 RISK FACTORS Statements made in this Prospectus relating to product development, manufacturing and marketing, or that otherwise relate to future periods, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual results could differ materially from those anticipated in the forward-looking statements as a result of certain risks described below or elsewhere in this Prospectus (including ALZA's Annual Report on Form 10-K for 1995 and other documents incorporated herein by reference). DEPENDENCE ON RELATIONSHIPS WITH CLIENT COMPANIES. ALZA's net income currently results primarily from royalties and fees paid by client companies. Royalties and fees are derived from sales by the clients of products incorporating ALZA technologies, and therefore vary from quarter to quarter as a result of changing levels of product sales by client companies. Because ALZA's clients make all marketing and other commercialization decisions with respect to such products (including, in many cases, taking responsibility for obtaining necessary regulatory approvals), most of the variables that affect ALZA's royalties and fees are not directly within ALZA's control. In addition, ALZA's royalties and fees could be adversely affected if the pressures for cost containment in the U.S. health care system were to result in lower selling prices for royalty-bearing products. For the year ended December 31, 1995, Procardia XL-Registered Trademark-, marketed by Pfizer, accounted for more than 40% of ALZA's royalties and fees. UNCERTAINTIES RELATING TO RECENT AND PLANNED EXPANSION OF MARKETING AND MANUFACTURING ACTIVITIES. ALZA has recently expanded its commercialization activities. ALZA began marketing the Testoderm-Registered Trademark-transdermal therapeutic system in 1994, and is co-promoting Duragesic-Registered Trademark- with Janssen and Glucotrol XL-Registered Trademark-with Pfizer. ALZA has also recently launched Ethyol-Registered Trademark- (amifostine). ALZA intends to expand its commercialization activities as a result of its arrangements with TDC, and under additional arrangements with third parties (which could include the acquisition or license of products and/or technologies). While the activities with TDC and other third parties are intended to result in a valuable pipeline of products for marketing by ALZA, there can be no assurance that this will be the case, nor can there be any assurance generally that ALZA's commercialization activities will be successful. ALZA also has expanded and is continuing to expand its manufacturing facilities in anticipation of future manufacturing needs. Utilization of these facilities in any quarter depends on many factors, including client orders, product approvals, and product launches and sales, many of which are outside of ALZA's control. There can be no assurance that ALZA's expanded manufacturing activities will be profitable. VOLATILITY OF SECURITIES PRICES. The market prices of ALZA's securities are subject to significant fluctuations in response to variations in quarterly operating results, announcements of new commercial products by ALZA or its competitors, developments or disputes concerning patent or proprietary rights, regulatory developments in both the United States and foreign countries, health care reform and regulation, and economic and other external factors. In addition, the pharmaceutical sector of the stock market has in recent years experienced significant price fluctuations. Such fluctuations, as well as economic conditions generally, may adversely affect the market price of ALZA's securities, including its Common Stock and the Debentures. UNCERTAINTIES CONCERNING EFFECTS OF CHANGES IN U.S. HEALTH CARE MARKET. The U.S. health care industry has continued to change rapidly as the public, government, medical practitioners and the pharmaceutical industry focus on ways to expand medical coverage while controlling the growth in health care costs. Legislative changes continue to be proposed, many of which, if enacted, could put significant pressures on the prices charged for pharmaceutical products. Similarly, prescription drug reimbursement practices and the growth of large managed care organizations, as well as generic and therapeutic substitution (substitution of a different product for the same indication), could significantly affect ALZA's business. ARRANGEMENTS POTENTIALLY EFFECTING A CHANGE IN CONTROL OF ALZA. Certain provisions of ALZA's Certificate of Incorporation, the LYONs and the Debentures may effect a change in control of ALZA. The provisions of ALZA's Certificate of Incorporation granting the Board of Directors the authority to issue shares of Preferred Stock with such terms as the Board may determine, classifying ALZA's board, preventing stockholders from calling special meetings of ALZA's stockholders and requiring supermajority votes in the 7 event of certain proposed business combinations may inhibit any change in control of ALZA. Provisions in the Debentures and the outstanding LYONs grant the holders of these securities the right to require ALZA to repurchase all or any part of the Debentures and the LYONs in the event of a change in control, which may also effect any change in control of ALZA. See "Description of Debentures -- Repurchase at Option of Holders Upon Change in Control" and "Description of Capital Stock." SUBORDINATION. The Debentures will be unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness of ALZA. As a result of such subordination, in the event of any insolvency, liquidation or reorganization of ALZA or upon acceleration of the Debentures due to an Event of Default, the assets of ALZA will be available to pay obligations on the Debentures and any other subordinated indebtedness of ALZA only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Debentures and any other subordinated indebtedness of ALZA then outstanding. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness or the incurrence of other indebtedness and other liabilities by ALZA or its subsidiaries, and the incurrence of additional indebtedness and other liabilities by ALZA or its subsidiaries could adversely affect ALZA's ability to pay its obligations on the Debentures. ALZA anticipates that from time to time it will incur additional indebtedness, including Senior Indebtedness. See "Description of Debentures -- Subordination of Debentures." ABSENCE OF ESTABLISHED MARKET FOR DEBENTURES. Prior to the offering of the Debentures, there has been no public market for the Debentures. Although ALZA has applied to have the Debentures approved for listing on the New York Stock Exchange, there can be no assurance that an active public market will develop for the Debentures or that, if such market develops, the market price will equal or exceed the public offering price set forth on the cover page of this Prospectus. The initial public offering price of the Debentures will be determined by negotiation between ALZA and the Underwriter and may not be indicative of the market price of the Debentures after the offering of the Debentures hereby. 8 USE OF PROCEEDS The aggregate net proceeds to ALZA from the sale of the Debentures offered hereby are estimated to be approximately $ million (or approximately $ million if the Underwriter's over-allotment option is exercised in full). ALZA will use the net proceeds for general corporate purposes, which may include expansion of ALZA's pharmaceutical business (including its sales and marketing activities), expansion of research and development and manufacturing facilities, expenditures under existing or future joint ventures, partnerships or other similar agreements, the completion or continuation of the development of TDC products, the acquisition of assets, technologies, products and businesses to expand ALZA's operations, and working capital. Pending such uses, ALZA will invest the net proceeds of the offering in marketable securities. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY ALZA's Common Stock is traded on the New York Stock Exchange under the symbol "AZA". The following table sets forth the high and low per share sales price for the Common Stock as reported on the composite tape for the quarters indicated. The last reported sale price for the Common Stock on the New York Stock Exchange on April 4, 1996 was $32 3/8. These prices do not include retail mark-ups, mark-downs or commissions.
HIGH LOW ------- ------- 1994 First Quarter......................... $ 30 3/4 $ 21 Second Quarter........................ 26 5/8 20 1/4 Third Quarter......................... 24 1/8 20 1/8 Fourth Quarter........................ 20 3/4 17 1995 First Quarter......................... 24 1/8 18 1/8 Second Quarter........................ 24 5/8 18 3/8 Third Quarter......................... 27 22 1/8 Fourth Quarter........................ 25 1/8 20 1/4 1996 First Quarter......................... 34 7/8 24 3/8 Second Quarter (through April 4)...... 32 1/2 30 1/2
ALZA has never paid a cash dividend on its Common Stock and does not anticipate doing so in the foreseeable future. 9 CAPITALIZATION The following table sets forth the capitalization and short-term debt of ALZA and its consolidated subsidiaries at December 31, 1995, and as adjusted to give effect to the sale of the Debentures offered by this Prospectus (assuming no exercise of the Underwriter's over-allotment option).
DECEMBER 31, 1995 -------------------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ACTUAL ---------- AS ADJUSTED(1) -------------- (UNAUDITED) Short-term debt (2)............................... $ 869 $ 869 ---------- -------------- ---------- -------------- Long-term liabilities: 5 1/4% zero coupon convertible subordinated debentures (LYONs)............................. $362,944 $ 362,944 % convertible subordinated debentures offered hereby......................................... -- 400,000 Other long-term liabilities..................... 51,770 51,770 ---------- -------------- Total long-term liabilities................. 414,714 814,714 ---------- -------------- Stockholders' equity: Common Stock, $.01 par value, 300,000,000 shares authorized; 82,506,419 shares issued and outstanding (3)................................ 825 825 Additional paid-in capital...................... 310,451 310,451 Unrealized gains on available-for-sale securities (net of $1,313 tax effect).......... 1,886 1,886 Retained earnings............................... 141,391 141,391 ---------- -------------- Total stockholders' equity.................... 454,553 454,553 ---------- -------------- Total capitalization........................ $869,267 $1,269,267 ---------- -------------- ---------- --------------
- ------------------------ (1) Adjusted to reflect the issuance of the Debentures, assuming no exercise of the Underwriter's over-allotment option. (2) Short-term debt consists entirely of the current portion of long-term debt. (3) Excludes 4,863,868 shares reserved for issuance pursuant to ALZA's stock option, stock purchase and other incentive plans, 12,321,416 shares reserved for issuance upon conversion of the LYONs, 966,697 shares reserved for issuance upon the exercise of outstanding warrants exercisable at $65 per share on or before December 31, 1999, issued in connection with the formation of TDC, 1,000,000 shares reserved for issuance upon exercise of outstanding warrants exercisable at $25 per share on or before January 31, 1996 (which warrants were exercised subsequent to December 31, 1995) and shares reserved for issuance upon conversion of the Debentures. 10 DESCRIPTION OF DEBENTURES The Debentures will be issued under an Indenture, dated as of April , 1996 (the "Indenture"), between the Company and The Chase Manhattan Bank, N.A., as trustee (the "Trustee"). A copy of the form of the Indenture is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summaries of certain provisions of the Debentures and the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Debentures and the Indenture, including the definitions therein of certain terms. Wherever particular provisions or defined terms of the Indenture (or the form of Debenture which is a part thereof) are referred to, such provisions or defined terms are incorporated herein by reference. As used in the "Description of Debentures" references to "ALZA" refer to ALZA Corporation and not to any of its subsidiaries. GENERAL The Debentures will represent unsecured general obligations of ALZA subordinate in right of payment to certain other obligations of ALZA as described under "-- Subordination of Debentures" and convertible into Common Stock as described under "-- Conversion of Debentures." The Debentures will be limited to $400,000,000 aggregate principal amount ($460,000,000 if the over-allotment option is exercised in full), will be issued only in denominations of $1,000 or any multiple thereof and will mature on , 2006, unless earlier redeemed at the option of ALZA or repurchased by ALZA at the option of the holder upon a Change in Control (as defined) or converted. The Debentures will bear interest at the annual rate set forth on the cover page hereof from , 1996, payable semi-annually on and of each year, commencing , 1996, to holders of record at the close of business on the preceding and , respectively (other than with respect to a Debenture or portion thereof called for redemption on a redemption date, or repurchased in connection with a Change in Control on a Repurchase Date (as defined below) during the period from the record date to (but excluding) the next succeeding interest payment date (in which case accrued interest shall be payable to the extent required to the holder of the Debenture or portion thereof redeemed or repurchased), or converted after the record date and before the next succeeding interest payment date except to the extent that at the time such Debenture or portion thereof is submitted for conversion, such Debenture or portion thereof was required to be accompanied by funds equal to interest payable on such succeeding interest payment date on the principal amount so converted; see "-- Conversion of Debentures" below). Interest will be paid by check mailed to such holders. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months. Principal and premium, if any, will be payable, and the Debentures may be presented for conversion, registration of transfer and exchange, without service charge, at the office of ALZA or its agent maintained for such purposes in The City of New York, which shall initially be an office or agency of the Trustee. The Debentures will be convertible at the aforesaid offices of ALZA or its agent maintained for such purpose. The Debentures will be issued only in fully registered form without coupons, in denominations of $1,000 and any integral multiple thereof. The Debentures are exchangeable and transfers thereof will be registered without charge therefor, but ALZA may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. When issued, the Debentures will be a new issue of securities with no established trading market. Although ALZA has applied to have the Debentures approved for listing on the New York Stock Exchange, there can be no assurance that an active public market will develop for the Debentures or that, if such market develops, the market price will equal or exceed the public offering price set forth on the cover page of this Prospectus. The initial public offering price of the Debentures will be determined by negotiation between ALZA and the Underwriter and may not be indicative of the market price of the Debentures after the offering of the Debentures hereby. The Indenture does not contain any financial covenants or restrictions on the payment of dividends, the incurrence of Senior Indebtedness or the issuance or repurchase of securities of ALZA. The Indenture 11 contains no covenants or other provisions to afford protection to holders of Debentures in the event of a highly leveraged transaction or a change in control of ALZA except to the extent described under "-- Repurchase at Option of Holders Upon Change in Control." CONVERSION OF DEBENTURES The holders of Debentures will be entitled, at any time prior to the close of business on the final maturity date of the Debentures, subject to prior redemption or repurchase, to convert any Debentures or portions thereof (in denominations of $1,000 or multiples thereof) into Common Stock of ALZA, at the conversion price set forth on the cover page hereof, subject to adjustment as described below. Except as described below, no adjustment will be made on conversion of any Debentures for interest accrued thereon or for dividends on any Common Stock issued. If any Debentures not called for redemption are converted after a record date for the payment of interest and prior to the next succeeding interest payment date, such Debentures must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted. ALZA is not required to issue fractional shares of Common Stock upon conversion of Debentures and, in lieu thereof, will pay a cash adjustment based upon the market price of Common Stock on the last Trading Day (as defined in the Indenture) prior to the date of conversion. In the case of Debentures called for redemption, conversion rights will expire at the close of business on the business day preceding the date fixed for redemption unless ALZA defaults in payment of the redemption price. A Debenture in respect of which a holder is exercising its option to require repurchase upon a Change in Control may be converted only if such holder withdraws its election to exercise its repurchase option in accordance with the terms of the Indenture. The initial conversion price is subject to adjustment (under formulae set forth in the Indenture) in certain events, including: (i) the issuance of Common Stock as a dividend or distribution on Common Stock of ALZA; (ii) certain subdivisions and combinations of the Common Stock; (iii) the issuance to all holders of Common Stock of certain rights or warrants to purchase Common Stock; (iv) the distribution to all holders of Common Stock of shares of capital stock of ALZA (other than Common Stock) or evidences of indebtedness of ALZA or assets (including securities, but excluding those rights, warrants, dividends and distributions referred to above or paid in cash); (v) distributions consisting of cash, excluding any cash dividends or other distributions on the Common Stock made in any 12-month period, which when combined with (A) all such all-cash distributions made within such 12-month period in respect of which no adjustment has been made plus (B) any cash and the fair market value of other consideration payable in respect of any tender offers by ALZA or any of its subsidiaries for Common Stock concluded within such 12-month period in respect of which no adjustment has been made, do not exceed 15% of ALZA's market capitalization (being the product of the Current Market Price (as defined in the Indenture) of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such dividend or distribution, and excluding any dividend or distribution in connection with the liquidation, dissolution or winding up of ALZA; and (vi) payment in respect of a tender or exchange offer by ALZA or any subsidiary of ALZA for the Common Stock to the extent that the cash and value of any other consideration included in such payment per share of Common Stock exceeds the Current Market Price (as defined in the Indenture) per share of Common Stock on the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer. No adjustment will be made with respect to clause (iii) or (iv) above if the Debenture holders are to participate in such issuance or distribution on a basis and with notice that ALZA's Board of Directors determines to be fair and appropriate in light of the basis on which holders of Common Stock participate. In addition, no adjustment will be made with respect to clause (iv) above if, in lieu of such adjustment, the Debenture holders, upon conversion, will be entitled to receive, in addition to the shares of Common Stock into which such Debentures are convertible, the kind and amount of shares, evidences of indebtedness or assets comprising the distribution that such holders would have received had they converted their Debentures immediately prior to the record date for determining the stockholders entitled to receive such distribution. 12 In addition, the Indenture provides that if ALZA implements a stockholder rights plan, such rights plan must provide that upon conversion of the Debentures the holders will receive, in addition to the Common Stock issuable upon such conversion, the rights issued under such plan (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion). In the case of (i) any reclassification or change of the Common Stock or (ii) a consolidation, merger or combination involving ALZA or a sale or conveyance to another person of the property and assets of ALZA as an entirety or substantially as an entirety, in each case as a result of which holders of Common Stock shall be entitled to receive stock, other securities, other property or assets (including cash) with respect to or in exchange for such Common Stock, the holders of the Debentures then outstanding will be entitled thereafter to convert such Debentures into the kind and amount of shares of stock, other securities or other property or assets which they would have owned or been entitled to receive upon such reclassification, change, consolidation, merger, combination, sale or conveyance had such Debentures been converted into Common Stock immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming that a holder of Debentures would not have exercised any rights of election as to the stock, other securities or other property or assets receivable in connection therewith. In the event of a taxable distribution to holders of Common Stock (or other transaction) which results in any adjustment of the conversion price, the holders of Debentures may, in certain circumstances, be deemed to have received a distribution subject to United States income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of Common Stock. See "Certain Federal Income Tax Considerations." ALZA from time to time may to the extent permitted by law reduce the conversion price by any amount for any period of at least 20 business days, in which case ALZA shall give at least 15 days' notice of such reduction. ALZA may, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Board of Directors deems advisable to avoid or diminish any income tax to holders of 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. See "Certain Federal Income Tax Considerations." No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the conversion price then in effect; PROVIDED that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. OPTIONAL REDEMPTION BY ALZA The Debentures are not entitled to any sinking fund. At any time on or after , 1999, the Debentures will be redeemable at ALZA's option in whole, or from time to time in part, on at least 30 and not more than 60 days' notice given to the holders at the following prices (expressed as percentages of the principal amount), together, in each case, with accrued interest to, but excluding, the date fixed for redemption. If redeemed during the 12-month period beginning :
REDEMPTION YEAR PRICE - ----------------------------------------------------------------------- ----------- 1999................................................................... % 2000................................................................... % 2001................................................................... % 2002................................................................... % 2003 and thereafter.................................................... 100.00%
provided that any semi-annual payment of interest becoming due on the date fixed for redemption shall be payable to the holders of record on the relevant record date of the Debentures being redeemed. 13 If fewer than all the Debentures are to be redeemed, the Trustee will select the Debentures to be redeemed pro rata or by lot, or by any other method not prohibited by any stock exchange on which the Debentures are listed at the time of such redemption. If any Debenture is to be redeemed in part only, a new Debenture or Debentures in principal amount equal to the unredeemed principal portion thereof will be issued. If a portion of a holder's Debentures are selected for partial redemption and, prior to such redemption, such holder has elected to convert a portion of such Debentures, such converted portion shall be deemed to be taken from the portion selected for redemption. REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL The Indenture provides that if a Change in Control occurs, each holder of Debentures shall have the right to require ALZA to repurchase all of such holder's Debentures, or any portion of the principal amount thereof that is an integral multiple of $1,000, on the date (the "Repurchase Date") that is 30 days after the date of the Company Notice (as defined), for cash at a price equal to 100% of the principal amount thereof (the "Repurchase Price") plus accrued and unpaid interest to, but excluding, the Repurchase Date; provided that any semi-annual payment of interest becoming due on the Repurchase Date shall be payable to the holders of record on the relevant record date of the Debentures being repurchased. Within 15 days after the occurrence of a Change in Control, ALZA or at ALZA's request the Trustee is obligated to give to all holders of record of Debentures a notice (the "Company Notice") of the occurrence of such Change in Control and of the repurchase right arising as a result thereof. ALZA must also deliver a copy of the Company Notice to the Trustee. To exercise the repurchase right, a holder of such Debentures must deliver to the Trustee on or before the 30th day after the date of the Company Notice written notice of the holder's exercise of such right, together with the Debentures with respect to which the right is being exercised. A "Change in Control" will be deemed to have occurred at such time after the original issuance of Debentures as: (i) there is a report filed by any Person (as defined in the Indenture, and including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act), other than ALZA, any subsidiary of ALZA, or any employee benefit plan of ALZA or any such subsidiary, on Schedule 13D or 14D-1 pursuant to the Exchange Act, disclosing that such Person has become the beneficial owner, directly or indirectly, through a purchase or other acquisition transaction or series of transactions (other than a merger or consolidation involving ALZA), of shares of capital stock of ALZA that entitle such Person to exercise in excess of 50% of the total voting power of all shares of capital stock of ALZA entitled to vote generally in the election of directors; or (ii) there occurs any consolidation of ALZA with, or merger of ALZA into, any other Person, any merger of another Person into ALZA, or any sale or transfer of all or substantially all of the assets of ALZA to another Person (other than (a) any such transaction pursuant to which the holders of the Common Stock immediately prior to such transaction have, directly or indirectly, shares of capital stock of the continuing or surviving corporation immediately after such transaction which entitle such holders to exercise in excess of 50% of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in the election of directors and (b) any merger (1) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock or (2) which is effected solely to change the jurisdiction of incorporation of ALZA and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of common stock). The term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act. To the extent applicable, ALZA will comply with the provisions of Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4 or any other schedule required under such rules, in connection with any offer by ALZA to repurchase Debentures at the option of the holders thereof upon a Change in Control. 14 The Change in Control feature of the Debentures may in certain circumstances make more difficult or discourage a takeover of ALZA and, thus, the removal of incumbent management. The repurchase right is not the result of management's knowledge of any effort to accumulate any Common Stock or to obtain control of ALZA by means of a merger, tender offer, solicitation, or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. Instead, this right is the result of negotiations between ALZA and the Underwriter. ALZA's ability to repurchase Debentures upon the occurrence of a Change in Control is subject to limitations. If a Change in Control were to occur, there can be no assurance that ALZA would have sufficient financial resources, or would be able to arrange financing, to pay the repurchase price for all Debentures tendered by holders thereof. Any future credit agreements or other agreements relating to other indebtedness (including Senior Indebtedness) to which ALZA becomes a party may contain similar restrictions and provisions. In the event a Change in Control occurs at a time when ALZA is prohibited from repurchasing Debentures, ALZA could seek the consent of its lenders to repurchase the Debentures or could attempt to refinance the borrowings or lease arrangements that contain such prohibition. If ALZA does not obtain such a consent or repay such borrowings or lease arrangements, ALZA would be prohibited under the terms of such agreements from repurchasing Debentures. Moreover, the occurrence of a Change in Control or the repurchase of Debentures upon a Change in Control may cause an event of default under Senior Indebtedness of ALZA. As a result, in each case, any repurchase of the Debentures would, absent a waiver, be prohibited under the subordination provisions of the Indenture until the Senior Indebtedness is paid in full. See "-- Subordination of Debentures" below and "Risk Factors -- Subordination." Any failure by ALZA to repurchase the Debentures when required following a Change in Control would result in an Event of Default under the Indenture whether or not such repurchase is prohibited by the terms of any other agreement or by the subordination provisions of the Indenture. Any such default may, in turn, cause a default under Senior Indebtedness of ALZA. SUBORDINATION OF DEBENTURES Indebtedness evidenced by the Debentures will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all existing and future Senior Indebtedness. "Senior Indebtedness" means the principal of (and premium, if any) and unpaid interest on all present and future (i) indebtedness of ALZA for borrowed money; (ii) obligations of ALZA evidenced by bonds, debentures, notes or similar instruments; (iii) indebtedness incurred, assumed or guaranteed by ALZA in connection with the acquisition by it or a subsidiary of any business, properties or assets (except purchase money indebtedness classified as accounts payable under generally accepted accounting principles); (iv) obligations of ALZA as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and leases of property or assets made as part of any sale and lease-back transaction to which ALZA is a party; (v) reimbursement obligations of ALZA in respect of letters of credit relating to indebtedness of other obligations of ALZA that qualify as indebtedness or obligations of the kind referred to in clauses (i) through (iv) above; and (vi) obligations of ALZA under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (v) above, in each case unless, in the instrument creating or evidencing the indebtedness or obligation or pursuant to which the same is outstanding, it is provided that such indebtedness or obligation is not superior in right of payment to the Debentures. The Debentures will rank pari passu in right of payment to the outstanding LYONs. By reason of such subordination, in the event of dissolution, insolvency, bankruptcy or other similar proceedings, upon any distribution of assets, (i) the holders of Senior Indebtedness will be entitled to be paid in full before payment may be made on the Debentures and the holders of Debentures will be required to pay over their share of such distribution in respect of the Debentures to the holders of Senior Indebtedness until such Senior Indebtedness is paid in full and (ii) unsecured creditors of ALZA who are not holders of the Debentures or holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the holders of the Debentures. 15 No payment of the principal, premium, if any, or interest with respect to any Debentures (including but not limited to the Redemption Price, the Repurchase Price, or on account of purchase or other acquisition of Debentures) may be made, nor may ALZA pay cash with respect to the purchase price or upon conversion of any Debenture (other than cash in lieu of fractional shares) or acquire any Debentures except as set forth in the Indenture, if there shall have occurred and be continuing (i) a default in any payment with respect to any Senior Indebtedness of ALZA or (ii) an event of default with respect to any Senior Indebtedness of ALZA permitting the holders thereof to accelerate the maturity thereof. As of December 31, 1995, the principal amount of Senior Indebtedness was $850,000. There are no restrictions in the Indenture on the creation of additional indebtedness, including Senior Indebtedness. In addition, the Debentures will be effectively subordinated to all liabilities, including trade payables and capitalized lease obligations, if any, of ALZA's subsidiaries. Any right of ALZA to receive assets of any of its subsidiaries upon liquidation or reorganization of the subsidiary (and the consequent right of the holders of the Debentures to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors (including trade creditors), except to the extent that ALZA is itself recognized as a creditor of such subsidiary, in which case the claims of ALZA would still be subordinated to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by ALZA. EVENTS OF DEFAULT AND REMEDIES An Event of Default is defined in the Indenture as being: default in payment when due of the principal of or premium, if any, on the Debentures (including any failure to repurchase the Debentures on a Repurchase Date); default for 30 days in payment of any installment of interest on the Debentures; default by ALZA for 60 days after notice in the observance or performance of any other covenants in the Indenture; failure of ALZA to make any payment at maturity, including any applicable grace period, in respect of indebtedness for borrowed money of ALZA, which payment is in an amount in excess of $30 million, and continuance of such failure for 30 days after notice; default by ALZA with respect to any indebtedness for borrowed money of ALZA, which default results in acceleration of any such indebtedness which is in an amount of in excess of $30 million without such indebtedness having been paid or discharged, or there having been deposited in trust a sum of money sufficient to discharge such indebtedness, or such acceleration having been rescinded or annulled, within 30 days after notice; or certain events involving bankruptcy, insolvency or reorganization of ALZA. The Indenture provides that the Trustee may withhold notice to the holders of Debentures of any default (except in payment of principal, premium, if any, or interest with respect to the Debentures) if the Trustee considers it in the interest of the holders of the Debentures to do so. The Indenture provides that if an Event of Default shall have occurred and be continuing, the Trustee or the holders of not less than 25% in principal amount of the Debentures then outstanding may declare the principal of and accrued interest on the Debentures to be due and payable immediately, but if ALZA shall cure all defaults (except the nonpayment of principal of, premium, if any, and interest on any of the Debentures which shall have become due by acceleration) and certain other conditions are met, with certain exceptions, such declaration may be annulled and past defaults may be waived by the holders of a majority of the principal amount of the Debentures then outstanding. In the case of certain events of bankruptcy or insolvency, the principal of and accrued interest on the Debentures shall automatically become and be immediately due and payable. The holders of a majority in principal amount of the Debentures then outstanding shall have the right to direct the time, method and place of conducting any proceedings for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. MODIFICATION OF THE INDENTURE The Indenture contains provisions permitting ALZA and the Trustee, with the consent of the holders of not less than a majority in principal amount of the Debentures at the time outstanding, to modify the Indenture or any supplemental indenture or the rights of the holders of the Debentures, except that no such modification shall (i) extend the fixed maturity of any Debenture, reduce the rate or extend the time for payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any 16 amount payable upon redemption thereof, change the obligation of ALZA to repurchase any Debenture upon the occurrence of any Change in Control in a manner adverse to holders of Debentures, impair the right of a holder to institute suit for the payment thereof, change the currency in which the Debentures are payable or impair the right to convert the Debentures into Common Stock subject to the terms set forth in the Indenture, or modify the provisions of the Indenture with respect to the subordination of the Debentures in a manner adverse to the holders of the Debentures in any material respect, without the consent of each holder of a Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures the holders of which are required to consent to any such modifications, without the consent of the holders of all of the Debentures then outstanding. Under the Indenture, ALZA, when authorized by the resolutions of the Board of Directors, and the Trustee may, from time to time and at any time, enter into an indenture or supplemental indentures for one or more of the following purposes: (i) to make provision with respect to the conversion rights of the holders of the Debentures or the repurchase obligations of ALZA, in each case, pursuant to the terms of the Indenture; (ii) subject to the subordination of the Debentures, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Debentures, any property or assets; (iii) to evidence the succession of another corporation to ALZA, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of ALZA pursuant to the Indenture; (iv) subject to certain limitations, to add to the covenants of ALZA such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the holders of the Debentures, and to make the occurrence, or the occurrence and continuance, of a Default (as defined in the Indenture) in any such additional covenants, restrictions or conditions a Default or an Event of Default (as defined in the Indenture) permitting the enforcement of all or any of the several remedies provided in the Indenture; (v) to cure any ambiguity or to correct or supplement any provision contained in the Indenture or in any supplemental indenture which may be defective or inconsistent with any other provision contained in the Indenture or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under the Indenture which shall not adversely affect the interest of any holder of the Debentures; or (vi) to evidence and provide for the acceptance of appointment by a successor Trustee with respect to the Debentures. LIMITATION ON MERGER, SALE OR CONSOLIDATION ALZA shall not consolidate or merge with or into any other corporation or corporations or, directly or indirectly, sell, convey or lease all or substantially all of its property to any other corporation (whether or not affiliated with ALZA) unless the surviving or successor corporation in the event of a merger or consolidation, or the corporation to which a sale, conveyance or lease is made (i) is an entity organized and existing under the laws of the United States, any state thereof or the District of Columbia and (ii) expressly assumes by supplemental indenture all the obligations of ALZA under the Debentures and the Indenture. DISCHARGE OF INDENTURE ALZA may terminate substantially all of its obligations under the Indenture at any time by delivering all outstanding Debentures to the Trustee for cancellation and paying any other sums payable under the Indenture. CONCERNING THE TRUSTEE The Chase Manhattan Bank, N.A., as Trustee under the Indenture, has been appointed by ALZA as the paying agent, conversion agent, registrar, transfer agent and custodian with regard to the Debentures. The Trustee or its affiliates may from time to time in the future provide banking and other services to ALZA in the ordinary course of its business. GOVERNING LAW The Indenture and the Debentures will be governed by and construed in accordance with the laws of the State of New York. 17 DESCRIPTION OF CAPITAL STOCK ALZA's authorized capital stock consists of 300,000,000 shares of Common Stock, par value $.01 per share, and 100,000 shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). No Preferred Stock is outstanding as of the date of this Prospectus. For recent prices of Common Stock, see "Price Range of Common Stock and Dividend Policy." On December 31, 1995, there were 82,506,419 shares of Common Stock outstanding. In addition there were (i) 4,863,868 shares reserved for issuance pursuant to ALZA's stock option, stock purchase and other incentive plans; (ii) 12,321,416 shares reserved for issuance upon conversion of the LYONs; (iii) 966,697 shares reserved for issuance upon the exercise of outstanding warrants exercisable at $65 per share on or before December 31, 1999, issued in connection with the formation of TDC; (iv) 1,000,000 shares reserved for issuance upon exercise of outstanding warrants exercisable at $25 per share on or before January 31, 1996 (which warrants were exercised subsequent to December 31, 1995); and (v) shares reserved for issuance upon conversion of the Debentures ( shares if the over-allotment option is exercised in full). Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Subject to any superior rights of Preferred Stock, holders of Common Stock are entitled to share, on a pro rata basis, in all assets remaining after payment of or provision for liabilities. The shares of Common Stock are not subject to redemption. ALZA has the corporate power to repurchase Common Stock. ALZA's Board of Directors has authority to fix or alter the rights, preferences, privileges, restrictions and other terms of any series of Preferred Stock, the number of shares constituting any such series and the designation thereof. ALZA has no present plans to issue any shares of Preferred Stock. ALZA has a classified Board of Directors with directors serving staggered terms of three years each. Directors may not be removed by the stockholders without cause. Special meetings of the stockholders may be called only by the Board of Directors, the Chairman of the Board or the President. Nominations for election of directors may be made by the Board of Directors or by any stockholder of record entitled to vote for directors, provided that any stockholder nominating a candidate for director must deliver written notice to the Secretary of ALZA not later than the close of business 60 days in advance of the stockholders' meeting or 10 days after the date on which the notice of meeting is first given to stockholders, whichever is later. The stockholder's notice must set forth certain information concerning the stockholder and the stockholder's nominee. No nominations for director shall be presented to any stockholders' meeting if not made in compliance with such procedures. ALZA's bylaws also require that advance notice be given and certain other procedures be followed with regard to any other business to be brought by a stockholder before a meeting of stockholders. Such procedures include the delivery of notice of such proposal to the Secretary of ALZA not later than the close of business 60 days in advance of the meeting or 10 days after the date on which the notice of meeting is first given to stockholders, whichever is later. The notice must set forth certain information concerning the stockholder and the proposed business, including any material interest of the stockholder in that business. The provisions of ALZA's Certificate of Incorporation and bylaws governing the number and classification of the Board of Directors and certain related matters cannot be amended without the approval of at least 75% of the Board of Directors or the affirmative vote of not less than 80% of the voting power of the outstanding shares of voting capital stock. The affirmative vote of at least 80% of the voting power of the outstanding shares of voting capital stock is required to approve certain business combinations. The provisions of ALZA's Certificate of Incorporation granting the Board of Directors the authority to issue Preferred Stock with such terms as the Board may determine, classifying ALZA's Board, preventing stockholders from calling special meetings of ALZA's stockholders, and requiring supermajority votes in the event of certain business combinations may inhibit any change in control of ALZA. 18 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of certain United States federal income tax considerations relevant to holders of the Debentures. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This discussion does not purport to deal with all aspects of federal income taxation that may be relevant to a particular investor's decision to purchase the Debentures, and it is not intended to be wholly applicable to all categories of investors, some of which, such as dealers in securities, banks, insurance companies, tax-exempt organizations and non-United States persons, may be subject to special rules. In addition, this discussion is limited to persons that purchase the Debentures in this offering and hold the Debentures as "capital assets" within the meaning of Section 1221 of the Code. ALL PROSPECTIVE PURCHASERS OF THE DEBENTURES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE DEBENTURES AND THE COMMON STOCK. CONVERSION OF DEBENTURES INTO COMMON STOCK In general, no gain or loss will be recognized for federal income tax purposes on a conversion of the Debentures into shares of Common Stock. However, cash paid by ALZA in lieu of a fractional share of Common Stock will likely result in taxable gain (or loss), which will be capital gain (or loss), to the extent that the amount of such cash exceeds (or is exceeded by) the portion of the adjusted basis of the Debenture allocable to such fractional share. The adjusted basis of shares of Common Stock received on conversion will equal the adjusted basis of the Debenture converted, reduced by the portion of adjusted basis allocated to any fractional share of Common Stock exchanged for cash. The holding period of a holder in the Common Stock received on conversion will include the period during which the converted Debentures were held. The Conversion Price of the Debentures is subject to adjustment under certain circumstances. See "Description of Debentures -- Conversion of Debentures." Section 305 of the Code and the Treasury Regulations issued thereunder may treat the holders of the Debentures as having received a constructive distribution if and to the extent that certain adjustments in the Conversion Price that may occur in limited circumstances (particularly an adjustment to reflect a taxable dividend to holders of Common Stock) increase the proportionate interest of a holder of Debentures in the fully diluted Common Stock, whether or not such holder ever exercises its conversion privilege. As a result of such a constructive distribution the holders of Debentures may have ordinary income to the extent of ALZA's current earnings and profits as of the end of the taxable year to which the constructive distribution relates and/or ALZA's accumulated earnings and profits. Moreover, if there is not a full adjustment to the Conversion Price of the Debentures to reflect a stock dividend or other event increasing the proportionate interest of the holders of outstanding Common Stock in the assets or earnings and profits of ALZA, then such increase in the proportionate interest of the holders of the Common Stock generally will be treated as a distribution to such holders, taxable as ordinary income to the extent of ALZA's current earnings and profits as of the end of the taxable year to which the constructive distribution relates and/or ALZA's accumulated earnings and profits. SALE, EXCHANGE OR RETIREMENT OF DEBENTURES Each holder of Debentures generally will recognize gain or loss upon the sale, exchange, redemption, repurchase, retirement or other disposition (other than conversion) of the Debentures measured by the difference (if any) between (i) the amount of cash and the fair market value of any property received (except to the extent that such cash or other property is attributable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary income) and (ii) the holder's adjusted tax basis in those Debentures (including any market discount previously included in income by the holder). Each holder of Common Stock, in general, into which the Debentures are converted, in general, will recognize gain or loss upon the sale, exchange, redemption, or other disposition of the Common Stock measured under rules similar to those described in the preceding sentence for the Debentures. Special rules may apply to redemptions of Common Stock which may result in different treatment. Any such gain or 19 loss recognized on the sale, exchange, redemption, repurchase, retirement or other disposition of a Debenture or share of Common Stock should, in general, be capital gain or loss and would be long-term capital gain or loss if the Debenture or the Common Stock was held for more than one year at the time of the disposition. A holder's initial basis in a Debenture will be the cash price paid therefor. BACK-UP WITHHOLDING A holder of Debentures or Common Stock may be subject to "back-up withholding" from a reportable payment at a rate of 31 percent if, among other things, (i) the holder fails to furnish a social security number or other taxpayer identification number ("TIN") to ALZA certified under penalties of perjury within a reasonable time after the request therefor; (ii) the IRS notifies ALZA that the TIN furnished by the holder is incorrect; (iii) the IRS notifies ALZA that backup withholding should be commenced because the holder has failed to properly report interest or dividends; or (iv) when required to do so, the holder fails to certify under penalties of perjury that such holder is not subject to backup withholding or that the TIN provided to ALZA is correct. Reportable payments include interest payments, dividend payments and, under certain circumstances, principal payments on the Debentures. A holder who does not provide ALZA with its correct TIN also may be subject to penalties imposed by the IRS. Any amount withheld from a payment to a holder under the back-up withholding rules is creditable against the holder's federal income tax liability. Back-up withholding will not apply, however, with respect to payments made to certain holders, including corporations, tax-exempt organizations and certain foreign persons, provided their exemption from back-up withholding is properly established. ALZA will report to the holders of Debentures and Common Stock and to the IRS the amount of any "reportable payments" for each calendar year and the amount of tax withheld, if any, with respect to such payments. 20 UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has agreed, subject to the terms and conditions of the Purchase Agreement, to purchase $400,000,000 aggregate principal amount of the Debentures from ALZA. The Underwriter has advised ALZA that it proposes to offer the Debentures directly to the public at the offering price set forth on the cover page of this Prospectus. After the initial public offering, the offering price may be changed. The Debentures are offered subject to receipt and acceptance by the Underwriter and to certain other conditions, including the right to reject orders in whole or in part. ALZA has granted the Underwriter an option, exercisable for 30 days after the date of this Prospectus, to purchase up to an additional $60,000,000 principal amount of Debentures to cover over-allotments, if any, at the initial public offering price less the underwriting discount as set forth on the cover page of this Prospectus. ALZA has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriter may be required to make in respect thereof. ALZA has agreed with the Underwriter not to sell, offer to sell, grant any option for the sale of, or otherwise dispose of or transfer any securities similar to the Debentures or any Common Stock or any securities convertible into or exercisable or exchangeable for such securities or Common Stock for a period of 90 days after the date of this Prospectus without the prior written consent of the Underwriter other than (i) Common Stock issuable upon the exchange of Debentures offered hereby; (ii) Common Stock issued or sold pursuant to employee benefit plans and dividend reinvestment plans; (iii) Common Stock issued upon exercise of currently outstanding options, warrants or convertible securities; (iv) certain privately issued restricted securities; or (v) Common Stock issued in connection with investments in, acquisitions of, or mergers or combinations with other companies. Application has been made to list the Debentures on the New York Stock Exchange. From time to time the Underwriter and certain of its affiliates have performed, and may in the future perform, investment banking or financial advisory services for ALZA. LEGAL MATTERS The validity of the issuance of the Debentures offered hereby and certain legal matters with respect to United States federal income tax considerations will be passed upon for ALZA by Heller Ehrman White & McAuliffe, Palo Alto, California, ALZA's counsel. Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California, will act as counsel to the Underwriter. Julian N. Stern, a director and the Secretary of ALZA, is a member of Heller Ehrman White & McAuliffe. At April 1, 1996, attorneys in that firm involved in the representation of ALZA owned beneficially 138,379 shares of Common Stock (including options, but excluding warrants to purchase Common Stock). EXPERTS The consolidated financial statements and financial statement schedule of ALZA Corporation appearing or incorporated by reference in ALZA's Annual Report (Form 10-K) for the year ended December 31, 1995, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included or incorporated by reference therein and incorporated herein by reference. Such consolidated financial statements and financial statement schedule are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 21 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ALZA OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF ALZA SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ----- Available Information.......................... 2 Incorporation of Certain Documents by Reference..................................... 2 Prospectus Summary............................. 3 Risk Factors................................... 7 Use of Proceeds................................ 9 Price Range of Common Stock and Dividend Policy........................................ 9 Capitalization................................. 10 Description of Debentures...................... 11 Description of Capital Stock................... 18 Certain Federal Income Tax Considerations...... 19 Underwriting................................... 21 Legal Matters.................................. 21 Experts........................................ 21
$400,000,000 [LOGO] % CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006 ------------------------ PROSPECTUS ------------------------ MERRILL LYNCH & CO. , 1996 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions, are estimated as follows:
Securities and Exchange Commission Registration Fee............ $ 158,621 New York Stock Exchange Listing Application Fee................ 1,500 Blue Sky Fees and Expenses*.................................... 20,000 NASD Registration Fee.......................................... 30,500 Legal Fees and Expenses*....................................... 60,000 Accounting Fees and Expenses*.................................. 60,000 Printing and Engraving Expenses*............................... 65,000 Trustee and Registrar Fees and Expenses*....................... 6,000 Miscellaneous*................................................. 98,379 --------- Total.................................................... $ 500,000 --------- ---------
- ------------------------ * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102 of the Delaware General Corporation Law allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or to any of its stockholders for monetary damage for a breach of his or her fiduciary duty as a director, except in the case where the director breached his or her duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. ALZA's Certificate of Incorporation contains a provision that eliminates directors' personal liability as set forth above. Section 145 of the Delaware General Corporation Law, as amended, provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation or is or was serving at its request in such capacity in another corporation or business association against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, Article 9 of ALZA's Certificate of Incorporation provides as follows: LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS. (a) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. II-1 (b) INDEMNIFICATION AND INSURANCE. (1) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), because he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans), whether the basis of the proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than that law permitted the corporation to provide before such amendment), against all expense, liability and loss (including attorneys' fees, judgments, penalties, fines, Employee Retirement Income Security Act of 1974 excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the corporation. Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. The right to indemnification conferred by this Section shall be a contract right which may not be retroactively amended and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service with respect to an employee benefit plan) in advance of the final disposition of the proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if ultimately it shall be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the indemnification of directors and officers. (2) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. (3) INSURANCE. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. ALZA has purchased directors and officers liability insurance which would indemnify the directors and officers of ALZA against damages arising out of certain kinds of claims which might be made against them based on their negligent acts or omissions while acting in their capacity as such. II-2 ITEM 16. EXHIBITS. 1.1 Form of Purchase Agreement between the Registrant and the Underwriter 4.1 Form of Certificate for the Debenture (included in Exhibit 4.2) 4.2 Form of Indenture between the Registrant and The Chase Manhattan Bank, N.A. as Trustee, relating to the Debentures 5.1 Opinion of Heller Ehrman White & McAuliffe as to legality of Debentures and Common Stock 8.1 Opinion of Heller Ehrman White & McAuliffe with respect to certain tax matters 12.1 Computation of Ratios of Earnings to Fixed Charges 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2 Consent of Heller Ehrman White & McAuliffe (included in its opinion filed as Exhibit 5.1 to this Registration Statement) 23.3 Consent of Heller Ehrman White & McAuliffe (included in its opinion filed as Exhibit 8.1 to this Registration Statement) 24.1 Power of Attorney (included on page II-4) 25.1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 on Form T-1 of The Chase Manhattan Bank, N.A. to act as Trustee under the Indenture
ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, as amended (the "Securities Act"), each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Palo Alto, State of California, on April 8, 1996. ALZA CORPORATION /S/ ERNEST MARIO -------------------------------------- Dr. Ernest Mario, Co-Chairman and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Dr. Ernest Mario and Bruce C. Cozadd his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to the Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - --------------------------------------- ------------------------------------------------ ---------------------- /S/ ALEJANDRO ZAFFARONI ------------------------------- Co-Chairman of the Board and Director April 8, 1996 Dr. Alejandro Zaffaroni /S/ ERNEST MARIO Co-Chairman of the Board, Chief Executive ------------------------------- Officer and Director (Principal Executive April 8, 1996 Dr. Ernest Mario Officer) /S/ WILLIAM G. DAVIS ------------------------------- Director April 8, 1996 William G. Davis ------------------------------- Director , 1996 Martin S. Gerstel /S/ ROBERT J. GLASER ------------------------------- Director April 8, 1996 Dr. Robert J. Glaser /S/ DEAN O. MORTON ------------------------------- Director April 8, 1996 Dean O. Morton /S/ RUDOLPH A. PETERSON ------------------------------- Director April 8, 1996 Rudolph A. Peterson /S/ ISAAC STEIN ------------------------------- Director April 8, 1996 Isaac Stein /S/ JULIAN N. STERN ------------------------------- Director April 8, 1996 Julian N. Stern /S/ BRUCE C. COZADD ------------------------------- Vice President and Chief Financial Officer April 8, 1996 Bruce C. Cozadd (Principal Financial and Accounting Officer)
II-4 EX-1.1 2 EXHIBIT 1.1 ALZA CORPORATION (A Delaware corporation) ___% Convertible Subordinated Debentures due 2006 PURCHASE AGREEMENT _______, 1996 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: ALZA Corporation, a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "UNDERWRITER"), with respect to the issue and sale by the Company and the purchase by the Underwriter, of $400,000,000 aggregate principal amount of the Company's ___% Convertible Subordinated Debentures due 2006 (the "DEBENTURES") and with respect to the grant by the Company to the Underwriter of the option described in Section 2(b) hereof to purchase all or any part of an additional $60,000,000 aggregate principal amount of its Debentures solely to cover over-allotments. The aforesaid $400,000,000 aggregate principal amount of Debentures (the "INITIAL SECURITIES") to be purchased by the Underwriter and all or any part of the $60,000,000 aggregate principal amount of the Debentures subject to the over-allotment option described in Section 2(b) hereof (the "OPTION SECURITIES") are collectively referred to herein as the "SECURITIES." The Securities are to be issued pursuant to an indenture, in substantially the form filed as an exhibit to the Registration Statement, to be dated as of April __, 1996 (the "INDENTURE"), between the Company and The Chase Manhattan Bank, N.A., as trustee (the "TRUSTEE"). The Securities are convertible into shares of Common Stock, par value $0.01 per share, of the Company (the "COMMON STOCK") at any time prior to the close of business on the maturity date of the Securities. Prior to the purchase and public offering of the Securities by the Underwriter, the Company and the Underwriter shall enter into an agreement substantially in the form of Exhibit A hereto (the "PRICING AGREEMENT"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the Underwriter and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Securities will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement on Form S-3 (No. 333-_____) and a related preliminary prospectus for the registration of the Securities, and the shares of Common Stock to be issued upon conversion of the Securities, under the Securities Act of 1933, as amended (the "1933 ACT"), has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended, if applicable), in the form declared effective by the Commission, and the prospectus constituting a part thereof (including in each case all documents, if any, to the extent incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be part of the registration statement pursuant to Rule 430A(b) of the rules and regulations of the Commission under the 1933 Act (the "1933 ACT REGULATIONS")), as from time to time amended or supplemented pursuant to the 1933 Act, the Securities 2 Exchange Act of 1934, as amended (the "1934 ACT"), or otherwise, are hereinafter referred to as the "REGISTRATION STATEMENT" and the "PROSPECTUS", respectively, except that if any revised prospectus shall be provided to the Underwriter by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriter for such use. All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in, or deemed to be part of, the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the 1934 Act after the date of this Agreement which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Company understands that the Underwriter proposes to make a public offering of the Securities as soon as it deems advisable after this Agreement has been executed and delivered and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 ACT"). SECTION 1. REPRESENTATIONS AND WARRANTIES. (a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents and warrants to the Underwriter as of the date hereof, as of the date of the Pricing Agreement (such later date being hereinafter referred to as the "REPRESENTATION DATE") and as of the Closing Date and agrees with the Underwriter, as follows: (i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company meets the requirements for use of Form 3 S-3 under the 1933 Act, and at the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations, the 1939 Act and the rules and regulations of the Commission under the 1939 Act (the "1939 ACT REGULATIONS"), and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriter for such use) and at the Closing Time referred to in Section 2(c) hereof, and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriter expressly for use in the Registration Statement or the Prospectus. (ii) INCORPORATED DOCUMENTS. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were filed with the Commission, complied or at the time they hereafter are filed with the Commission will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 ACT REGULATIONS"), and, when read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto became or become effective, and at the Closing Time, did not and will not contain an untrue statement of a material fact or 4 omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading. (iii) INDEPENDENT ACCOUNTANTS. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iv) FINANCIAL STATEMENTS. The financial statements included in the Registration Statement and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included, in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected consolidated financial data included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The Company's ratios of earnings to fixed charges included in the Prospectus under the caption "Summary Consolidated Financial Data" and in Exhibit 12.1 to the Registration Statement have been calculated in compliance with Item 503(d) of Regulation S-K of the Commission. (v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the 5 Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "MATERIAL ADVERSE EFFECT"), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (vi) GOOD STANDING OF THE COMPANY. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement, the Pricing Agreement and the Indenture; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Effect. (vii) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of the Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each such corporate subsidiary has been duly authorized and validly issued, is fully paid and non- 6 assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (viii) CAPITALIZATION. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under "Capitalization" (except for subsequent issuances, if any, pursuant to warrants, options, convertible securities or employee benefit plans). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable; the Common Stock conforms to the statements relating thereto contained in the Prospectus; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (ix) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or By-laws or other corresponding organizational documents or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (collectively, "AGREEMENTS AND INSTRUMENTS") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement, the Pricing Agreement, the Indenture and the Securities and the consummation of the transactions contemplated herein and therein and in the Registration Statement, and compliance by the Company with its obligations hereunder and thereunder and the Securities have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except 7 for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action (i) entitle the holders of any Senior Indebtedness (as such term is defined in the Indenture) to accelerate the maturity thereof, or (ii) result in any violation of the provisions of the Certificate of Incorporation, By-laws or other corresponding organizational documents of the Company or any subsidiary or any applicable law, administrative regulation or administrative or court decree. (x) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware (without independent investigation) of any existing or imminent labor disturbance by the employees of any of its or any subsidiary's principal suppliers, manufacturers, customers or contractors, which, in either case, may reasonably be expected to result in a Material Adverse Effect. (xi) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect other than as disclosed in the Registration Statement, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or which might materially and adversely affect the consummation of the transactions contemplated in this Agreement; all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement (other than applications for product approvals before the United States Food and Drug Administration and health regulatory authorities in foreign countries and applications for patents or trademarks before the United States 8 Patent and Trademark Office and similar authorities in foreign countries), including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material; and there are not contracts or documents of the Company or any of its subsidiaries which are required to be filed as exhibits to the Registration Statement by the 1933 Act or by the 1933 Act Regulations which have not been so filed. (xii) POSSESSION OF INTELLECTUAL PROPERTY. Except as disclosed in the Prospectus, each of the Company and its subsidiaries owns or possesses patents, licenses, trademarks, service marks and trade names necessary to carry on its business as presently conducted and neither the Company nor any of its subsidiaries has received any notice of any infringement of or conflict with asserted rights of others with respect to any of the foregoing which, singly or in the aggregate, would result in a Material Adverse Effect. (xiii) ABSENCE OF FURTHER REQUIREMENTS. No authorization, approval or consent of, any court or governmental authority or agency is necessary in connection with the offering, issuance or sale of the Securities hereunder or the consummation by the Company of any of the other transactions contemplated hereby except such as have been obtained to the extent required as of the date hereof and will have been obtained prior the Closing Time. (xiv) AUTHORIZATION OF THE SECURITIES. The Securities have been duly authorized by all necessary corporate action on the part of the Company, and, at the Closing Time, will have been duly executed, by the Company, and, when authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor specified herein and in the Pricing Agreement, will constitute valid and binding obligations of the Company, subject as to enforcement (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other laws of general applicability relating to or affecting creditors' rights and (ii) to general principles of equity whether such enforcement is considered in a proceeding in equity or at law. 9 (xv) AUTHORIZATION OF COMMON STOCK. The shares of Common Stock issuable upon conversion of the Securities at the initial Conversion Price (as defined in the Indenture) have been duly authorized and validly reserved for issuance upon such conversion, as the case may be, and such shares, when issued and delivered upon such conversion or purchase in the manner provided for in the Indenture, will be validly issued, fully paid and nonassessable; and the issuance of such shares upon such conversion will not be subject to preemptive or other similar rights. (xvi) DESCRIPTION OF THE SECURITIES. The Securities and the Common Stock conform in all material respects to the respective statements relating thereto contained in the Prospectus. (xvii) AUTHORIZATION OF INDENTURE. The Indenture has been duly authorized by all necessary corporate action on the part of the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery thereof by the Trustee), will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject as to enforcement (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other laws of general applicability relating to or affecting creditors' rights and (ii) to general principles of equity, whether such enforcement is considered in a proceeding at equity or at law. The Indenture conforms in all material respects to the description thereof contained in the Prospectus. (xviii) TITLE TO PROPERTY. The Company and its subsidiaries have good and marketable title to their respective material properties, in each case free and clear of all liens, encumbrances and defects, except (A) customary liens and encumbrances arising in the ordinary course of the Company's business, (B) as stated in the Prospectus or (C) such as do not materially affect the value of such properties in the aggregate to the Company and its 10 subsidiaries considered as one enterprise and do not materially interfere with the use made and proposed to be made of such properties. (xix) POSSESSION OF LICENSES AND PERMITS. The Company and its subsidiaries possess such material certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise. (xx) NO CHANGE IN CONTROL. To the knowledge of the Company, no event has occurred nor is any action threatened or pending which would result in a Change in Control (as defined in the Indenture). (xxi) NO PENDING DISTRIBUTION. Except as contemplated by this Agreement, no distribution by the Company or any of its affiliates, and no distribution that could be attributed to the Company (as the result of distributions by an "affiliated purchaser" within the meaning of Rule 10b-6 under the 1934 Act or otherwise), of Securities or shares of Common Stock (collectively, the "SUBJECT SECURITIES"), any securities of the same class and/or series as the Subject Securities, or any securities immediately convertible into or exchangeable for any right to acquire any Subject Security is now in progress or pending or will have commenced at any time prior to the completion of the distribution of the Securities, except for distributions (i) pursuant to employee benefit plans and dividend reinvestment plans, (ii) upon exercise of currently outstanding warrants, options or convertible securities or (iii) made as gifts by officers or directors of the Company. (xxii) AUTHORIZATION OF AGREEMENT. This Agreement has been, and, at the Representation Date, 11 the Pricing Agreement will have been, duly executed and delivered by the Company. (b) OFFICER'S CERTIFICATES. Any certificate designated as such signed by any officer of the Company or any of its subsidiaries delivered to the Underwriter or to counsel for the Underwriter shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. SECTION 2. SALE AND DELIVERY TO UNDERWRITER; CLOSING. (a) SECURITIES. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriter, and the Underwriter agrees to pur chase from the Company, the Initial Securities at the price per $1,000 principal amount set forth in the Pricing Agreement. (1) If the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price, the initial conversion price, the interest rate of the Securities, and the purchase price (per $1,000 principal amount) to be paid by the Underwriter for the Securities have each been determined and set forth in the Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (2) If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the purchase price (per $1,000 principal amount) to be paid by the Underwriter for the Securities shall be an amount equal to the initial public offering price, less an amount per Security to be determined by agreement between the Under- 12 writer and the Company. The initial public offering price (per $1,000 principal amount) of the Securities shall be $1,000. The initial Conversion Price applicable to the Securities and the interest rate of the Securities shall be determined by agreement between the Company and the Underwriter. The initial public offering price, initial Conversion Price, the purchase price and interest rate, when so determined, shall be set forth in the Pricing Agreement. In the event that such interest rate and Conversion Price have not been agreed upon and the Pricing Agreement has not been executed and delivered by the parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company and the Underwriter. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriter to purchase from it any or all of the Option Securities (in multiples of $1,000 principal amount) at the same price (per $1,000 principal amount) as is to be paid by the Underwriter for the Initial Securities on the terms set forth in the Pricing Agreement. The option hereby granted will expire automatically 30 days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations or (ii) the Representation Date, if the company has elected to rely upon Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in part (but only once) only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Underwriter to the Company at least three business days prior to the Date of Delivery (as defined below), or at least two business days prior to the delivery of the Initial Securities, setting forth the number of Option Securities as to which the Underwriter is then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "DATE OF DELIVERY") shall be determined by the Underwriter but shall not be later than seven full business days after the exercise of such 13 option, and not in any event prior to the Closing Time, as hereinafter defined, unless otherwise agreed by the Underwriter and the Company. (c) Delivery of the Initial Securities shall be made at the office of the Underwriter in New York City, and payment of the purchase price for the Initial Securities shall be made at the offices of Heller, Ehrman, White & McAuliffe, 525 University Avenue, Suite 1100, Palo Alto, California, or in each case at such other place as shall be agreed upon by the Underwriter and the Company, at 7:00 A.M., (Palo Alto time) on the third business day following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A, the third business day after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Underwriter and the Company (such time and date of payment and delivery being herein called the "CLOSING TIME"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriter, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices of Heller Ehrman White & McAuliffe and the Underwriter, respectively, or at such other place as shall be agreed upon by the Underwriter and the Company, on the Date of Delivery as specified in the notice from the Underwriter to the Company. Payment shall be made to the Company by federal funds wire transfer of same day funds to an account designated by and against delivery to the Underwriter of certificates for the Securities to be purchased by it. Certificates evidencing the Initial Securities and the Option Securities, if any, shall be registered in such names and in such denominations as the Underwriter may request in writing at least two business days before the Closing Time or the Date of Delivery, as the case may be. The certificates for the Initial Securities or the Option Securities, if any, will be made available for examination and packaging by the Underwriter not later than 10:00 A.M. (New York City time), on the last business day prior to the Closing Time or the Date of Delivery, as the case may be. SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with the Underwriter as follows: 14 (a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The Company will notify the Underwriter immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment) and, if Rule 430A of the 1933 Act Regulations is being relied upon, of the filing of the amended Prospectus pursuant to Rule 430A and Rule 424(b)(1), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) FILING OF AMENDMENTS. The Company will not at any time file or make any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriter in connection with the offering of the Securities which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), whether pursuant to the 1933 Act, the 1934 Act or otherwise, of which the Underwriter shall not have previously been advised and furnished a copy a reasonable amount of time prior to its proposed filing, or to which the Underwriter or counsel for the Underwriter shall reasonably object. (c) DELIVERY OF REGISTRATION STATEMENTS. The Company will deliver to the Underwriter two signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference 15 therein) [and signed copies of all consents and certificates of experts, as the Underwriter may reasonably request] and will also deliver to the Underwriter as many conformed copies of the Registration Statement as originally filed and of each amendment thereto (without exhibits) as the Underwriter may reasonably request. (d) DELIVERY OF PROSPECTUS. The Company will furnish to the Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for purposes contemplated by the 1933 Act or the 1934 Act or the respective applicable rules and regulations of the Commission thereunder. (e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply with the 1933 Act and the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations and the 1939 Act and the 1939 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriter or counsel for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statement of any material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b) hereof such amendment or supplement as may be necessary to correct such untrue statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriter such number of copies of such amendment or supplement as the Underwriter may reasonably request. The Company agrees to notify the Underwriter to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event or 16 the existence of such a condition, and the Underwriter hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission. (f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts in cooperation with the Underwriter, to qualify the Securities and the shares of Common Stock issuable upon conversion of the Securities for offering and sale under the applicable securities, laws of such states and other jurisdictions of the United States as the Underwriter may designate PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service or process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified. In each jurisdiction in which the Securities or such shares of Common Stock have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as may be required by the laws of such jurisdiction in connection with the distribution of the Securities or such shares of Common Stock. The Company will also supply the Underwriter with such information as is reasonably necessary for the determination of the legality of the Securities for investment under the laws of such jurisdictions as the Underwriter may request. (g) RULE 158. The Company will make generally available to holders of its securities as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (h) USE OF PROCEEDS. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds." (i) FILING PURSUANT TO RULE 430A. If, at any time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then immedi- 17 ately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. (j) REPORTING REQUIREMENTS. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations of which the Underwriter shall have previously been advised and furnished a copy, and to which the Underwriter or its counsel shall not have reasonably objected. (k) REPORTS TO STOCKHOLDERS. For a period of five years after the Closing Time, the Company will furnish to the Underwriter copies of all reports and communications delivered to the Company's stockholders to the holders of the Securities as a class and will also furnish copies of all reports (excluding exhibits) filed with the Commission on forms 8-K, 10-Q and 10-K, and all other reports and information furnished to its stockholders generally, not later than the time such reports are first furnished to its stockholders generally. (l) LISTING. The Company will use its best efforts to effect the listing of the Securities and the shares of Common Stock issuable upon conversion of the Securities on the New York Stock Exchange (the "NYSE")(and, in the case of such shares of the Common Stock, any other stock exchange on which the Common Stock is listed) and to cause the Securities to be registered under the 1934 Act. (m) SUFFICIENT SHARES OF COMMON STOCK. The Company will reserve and keep available at all times, free of preemptive rights, sufficient shares of Common Stock for issuance upon conversion of all the Securities. (n) COMPLIANCE WITH FLORIDA STATUTE. The Company has complied and will comply with all the provisions of 18 Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and all regulations promulgated thereunder relating to issuers doing business in Cuba. (o) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days from the date of the Pricing Agreement, the Company will not, without the Underwriter's prior written consent, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of or transfer, any securities similar to the Securities or any Common Stock or any security convertible into or exchangeable or exercisable for any Securities or any such similar securities or Common Stock except for securities (i) sold to the Underwriter pursuant to this Agreement, (ii) issued or sold pursuant to employee benefit plans and dividend reinvestment plans, (iii) issued upon exercise of currently outstanding warrants, options, or convertible securities, or (iv) issued or sold in a transaction exempt from the registration requirements of the 1933 Act; PROVIDED, HOWEVER, that in the case of clause (iv), such securities may not (A) exceed, or be convertible into or exchangeable or exercisable for more than, fifteen percent (15%) of the fully diluted equity interest in the company and (B) be eligible for the PORTAL trading system of the National Association of Securities Dealers, Inc. The foregoing sentence shall not apply to shares of Common Stock issued in connection with investments in, acquisitions of, or mergers or combinations with other companies by the Company. SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the printing and reproduction of this Agreement and the Indenture (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriter, (iv) the fees and disbursements of the Company's counsel and accountants (v) the qualification of the Securities and the shares of Common Stock issuable upon conversion of the Securities under state securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriter in connection therewith and in connection with the preparation of the 19 Blue Sky Survey and any Legal Investment Survey and any supplement or amendment thereto, (vi) the printing and delivery to the Underwriter of copies of the Registration Statement as originally filed and each amendment thereto, of each preliminary prospectus, and of the Prospectus and any amendments or supplements thereto, (vii) the printing and delivery to the Underwriter of copies of the Blue Sky Survey and any Legal Investment Survey and any supplement or amendment thereto, (viii) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee in connection with the Indenture, (ix) any fees payable in connection with the rating of the Securities, and (x) the fee of the National Association of Securities Dealers, Inc. in connection with its review of corporate financings with respect to the Securities and fees and disbursements of counsel to the Underwriter in connection therewith; and (xi) the fees and expenses incurred in connection with the listing on the NYSE of the Securities and shares of Common Stock issuable upon conversion of the Securities (and, in the case of such shares of Common Stock, the fees and expenses incurred in connection with the listing of such shares of Common Stock on each other stock exchange on which the Common Stock is listed). (b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriter for all of its out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriter. SECTION 5. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the Underwriter hereunder are subject to the accuracy of the representations and warranties of the Company herein contained or in certificates of any officer of the Company or any subsidiary delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof, or at such later time and date as may be approved by the Underwriter; and at the Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been 20 issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the initial public offering price, the interest rate for the Securities and initial Conversion Price of the Securities and any other price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to the Closing Time the Company shall have provided evidence satisfactory to the counsel for the Underwriter of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. (b) CLOSING CONDITIONS. At the Closing Time the Underwriter shall have received: (1) A signed opinion of Heller Ehrman White & McAuliffe, counsel to the Company, dated as of the Closing Time, in form and substance satisfactory to counsel for the Underwriter, to the effect that: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware. (ii) The Company has all requisite corporate power and corporate authority to enter into and perform this Agreement, the Pricing Agreement and the Indenture, to own, lease and operate its properties and to carry on its business as, to the knowledge of such counsel, it is now conducted. (iii) The Company is duly qualified to do business and is in good standing in the State of California. (iv) The Indenture has been duly authorized by all necessary corporate action on the part of the Company and has been duly executed and delivered on behalf of the Company. 21 (v) Assuming the due authorization, execution and delivery thereof by the Trustee, the Indenture is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject as to enforcement (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other laws of general applicability relating to or affecting creditors' rights and (ii) to general principles of equity, whether such enforcement is considered in a proceeding in equity or at law. (vi) The form of certificate representing the Securities is in the form contemplated by the Indenture; the Securities have been duly authorized by all necessary corporate action on the part of the Company and, when executed by the Company and authenticated by or on behalf of the Trustee in the manner provided for in the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee) and delivered against payment of the purchase price therefor specified herein and in the Pricing Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject as to enforcement (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and other laws of general applicability relating to or affecting creditors' rights and (ii) to general principles of equity, whether such enforcement is considered in a proceeding in equity or at law and, except as set forth above, will be entitled to the benefits of the Indenture; and the issuance of the Securities is not subject to any preemptive rights or other rights of first refusal arising by operation of law or under the Certificate of Incorporation or Bylaws of the Company. (vii) The shares of Common Stock issuable upon conversion of the Securities at the initial Conversion Price have been duly authorized and validly reserved by the Company for issuance upon such conversion and, when issued and delivered upon such conversion in the manner provided in the Indenture, will be validly issued, fully paid and nonassessable; and the issuance of such shares upon such 22 conversion is not presently subject to any preemptive rights or other rights of first refusal arising by operations of law or under the Certificate of Incorporation or Bylaws of the Company. (viii) The Indenture has been qualified under the 1939 Act. (ix) This Agreement and the Pricing Agreement have been duly authorized by all necessary corporate action on the part of the Company and have been duly executed and delivered on behalf of the Company. (x) The Securities, the Common Stock and the Indenture conform in all material respects to the descriptions thereof contained in the Prospectus. (xi) The form of certificate used to evidence the Common Stock is in due and proper form and complies with applicable provisions of the Delaware General Corporation law. (xii) The Registration Statement is effective under the 1933 Act and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. (xiii) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement (other than the financial statements and supporting schedules included herein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xiv) The information in the Prospectus under the captions "Description of Debentures" and "Certain United States Federal Income Tax Considerations," to the extent that it constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusion, has been reviewed by such counsel and is correct in all material respects. (xv) No government consents, approvals, authorizations, registrations, declarations or filings, 23 or order of any court of which such counsel has knowledge, are required in connection with the offering, issuance or sale of the Securities to the Underwriter, except such as may be required under the 1933 Act, the 1933 Act Regulations, the 1934 Act, the 1934 Act Regulations, the 1939 Act, the 1939 Act Regulations or state securities laws for the offering and sale of the Securities and the qualification of the Indenture under the 1939 Act. (xvi) Neither the execution or delivery of this Agreement, the Pricing Agreement or the Indenture by the Company nor the performance of this Agreement, the Pricing Agreement or the Indenture by the Company (A) conflicts with any provision of the Certificate of Incorporation or Bylaws of the Company or (B) violates any law applicable to the Company. (xvii) Neither the issuance and delivery of the Securities or the Common Stock issuable upon conversion of the Securities nor the repurchase of the Securities by the Company (A) conflicts with any provision of the Certificate of Incorporation or Bylaws of the Company or (B) violates any law applicable to the Company. The opinion expressed in subsection (xv) of this Section 5(b)(1) shall not be construed to relate to, and no opinion need be rendered as to, state laws or regulations applicable to health, drugs and cosmetics. The opinion expressed in subsections (xvi)(B) and (xvii)(B) shall not be construed to relate to, and no opinion need be rendered as to, federal or state securities laws, patent laws or regulations or federal or state laws or regulations applicable to health, drugs or cosmetics. In giving the opinion required by subsection (b)(1) of this Section, Heller Ehrman White & McAuliffe shall additionally state that nothing has come to their attention that would lead them to believe (A) that the Registration Statement or any amendment thereto (other than the financial statements and supporting schedules and other financial data included therein, in the Registration Statement as to which no belief need be expressed), at the time the Registration Statement or 24 any such amendment became effective, contained an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading or that (B) the Prospectus or any amendment or supplement thereto (other that the financial statements and supporting schedules and other financial data included therein as to which no belief need be expressed), at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriter for such use) or at the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (2) A signed opinion of Peter D. Staple, Esq., Vice President and General Counsel of the Company, dated as of the Closing Time, in form and substance satisfactory to counsel for the Underwriter, to the effect that: (i) To the knowledge of such counsel, the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise. (ii) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under "Capitalization" (except for subsequent issuances, if any, pursuant to employee benefit plans and dividend reinvestment plans or issued upon exercise of currently outstanding warrants or options, in each case as the same may be referred to in the Prospectus), and the shares of issued and outstanding Common Stock have been duly authorized 25 and validly issued and are fully paid and nonassessable. (iii) Each subsidiary of the Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and, to such counsel's knowledge, is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise; all of the issued and outstanding capital stock of each such subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and, to such counsel's knowledge, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (iv) The information in the Company's Annual Report on Form 10-K filed with the Commission pursuant to the 1934 Act for the year ended December 31, 1995, under the caption "Item 3. Legal Proceedings", to the extent that it constitutes matters of law, summaries of legal documents or proceedings, or legal conclusions, has been reviewed by such counsel and is correct in all material respects. (v) To such counsel's knowledge, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments or documents required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto; the descriptions thereof or references thereto are correct; and no default exists in the due performance or observance of any obligation, agreement, covenant or condition contained in any 26 contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to, filed or incorporated by reference, which would result in any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company. (vi) The execution and delivery of this Agreement, the Pricing Agreement and Indenture on behalf of the Company, the performance of this Agreement, the Pricing Agreement and the Indenture on behalf of the Company, and the issuance and delivery of the Securities or the Common Stock issuable upon conversion thereof by the Company or the repurchase of the Securities under the Indenture by the Company do not and will not (A) conflict with any provision of the Certificate of Incorporation or Bylaws of the Company or any of its subsidiaries, (B) violate any law, administrative regulation or administrative or court decree applicable to the Company or any of its subsidiaries or (C) result in a breach or violation of or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any term of any material agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties or assets of the Company are subject. (vii) Each document filed pursuant to the 1934 Act and incorporated or deemed to be incorporated by reference in the Prospectus complied, when so filed, as to form in all material respects with the 1934 Act and the 1934 Act Regulations. (viii) Except as disclosed in the Prospectus, each United States patent and registered trademark referred to in the Prospectus as owned by the Company has been issued by the United States Patent and Trademark Office. (ix) Except as disclosed in the Prospectus, such counsel does not know of any pending or threatened legal or governmental proceeding relating to patents or proprietary know-how used by the Company or others to which the Company is a party or to 27 which any of the properties of the Company are the subject which, if adversely decided, could result in any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise. (x) Neither the issuance of the Securities nor the shares of Common Stock issuable upon conversion of the Securities are subject to any preemptive rights or other rights of first refusal arising by operation of law, under the Certificate of Incorporation or Bylaws of the Company or, to such counsel's knowledge, otherwise. (3) The favorable opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for the Underwriter, dated as of Closing Time, with respect to such matters as the Underwriter may reasonably require. (c) At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Underwriter shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the Commission, and (v) to such officers' knowledge, there are no contracts, inden- 28 tures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto. (d) At the time of the execution of this Agreement, the Underwriter shall have received from Ernst & Young, LLP a letter dated the date that the Registration Statement first became effective (the "First E & Y Letter"), in form and substance satisfactory to the Underwriter. (e) At the Closing Time, the Underwriter shall have received from Ernst & Young, LLP a letter, dated as of the Closing Time, confirming, on the basis of a review in accordance with the procedures set forth in the First E & Y Letter, that nothing has come to their attention from the date of the most recent financial statements of the Company filed with the Commission, audited or interim, as the case may be, to a date not more that five days prior to the Closing Time which would require any change in the First E & Y Letter if it were required to be dated and delivered at the Closing Time, except in each case as described in the second such letter. (f) Subsequent to the execution of this Agreement, no downgrading shall have occurred in the rating accorded any of the Company's debt securities by Standard & Poor's Corporation or Moody's Investors Service, and neither such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating accorded any of the Company's debt securities, if in the reasonable judgement of the Underwriter any such development is so material and adverse as to make it impracticable or inadvisable to consummate the sale and delivery of the Securities by the Underwriter as contemplated in the Prospectus. (g) At the Closing Time, the Securities and the Common Stock issuable upon conversion thereof shall have been approved for listing on the NYSE upon notice of issuance. (h) At the Closing Time, and at the Date of Delivery, if any, counsel for the Underwriter shall have been furnished with such documents and opinions as they may 29 reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Underwriter and counsel for the Underwriter. (i) In the event that the Underwriter exercises its option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities and the Date of Delivery is not the same as the Closing Time, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder shall be true and correct as of the Date of Delivery, and, at the Date of Delivery, the Underwriter shall have received: (1) A certificate, dated the Date of Delivery, of the President or a Vice President of the Company and the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(c) hereof remains true and correct as of the Date of Delivery. (2) The favorable opinion of Heller Ehrman White & McAuliffe, counsel to the Company, in form and substance satisfactory to counsel for the Underwriter, dated the Date of Delivery, relating to the Option Securities to be purchased on the Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b)(1) hereof. (3) The favorable opinion of Peter D. Staple, Esq., Vice President and General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriter, dated the Date of Delivery, and to the same effect as the opinion required by Section 5(b)(2) hereof. (4) The favorable opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for the Underwriter, dated the Date of Delivery, relating to the Option Securities to be purchased on the Date of Delivery and otherwise to 30 the same effect as the opinion required by Section 5(b)(3) hereof. (5) A letter from Ernst & Young, LLP, in form and substance satisfactory to the Underwriter and dated the Date of Delivery, substantially the same in form and substance as the letter furnished to the Underwriter pursuant to Section 5(e) hereof, except that the "specified date" in the letter furnished pursuant to this Section 5(i)(5) shall be a date not more than five days prior to the Date of Delivery. If any of the conditions specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriter by notice to the Company at any time prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Section 6 and 7 shall survive such termination. SECTION 6. INDEMNIFICATION (a) INDEMNIFICATION OF UNDERWRITER. The Company agrees to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regula- tions, if applicable, and all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not mis- leading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in 31 light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in set- tlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based, in each case, upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by the Underwriter), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based, in each case, upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Underwriter, or any person controlling the Underwriter, expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and PROVIDED, FURTHER, that the Company shall not be liable to the Underwriter under the indemnity agreement in this subsection (a) with respect to any preliminary prospectus to the extent that any such loss, liability, claim, damage or expense of the Underwriter results from the fact that the Underwriter sold Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supple- mented (excluding documents incorporated by reference therein) in any case where such delivery is required by 32 the 1933 Act if the Company has previously furnished copies thereof to the Underwriter and the loss, liability, claim, damage or expense of the Underwriter results from an untrue statement or omission or alleged untrue statement or omission of a material fact contained in the preliminary prospectus which was corrected in the Prospectus (or the Prospectus as amended or supplemented). (b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. The Underwriter agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action, PROVIDED that, if such indemnified party or parties reasonably determine that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party or parties, then such indemnifying party or parties shall not be entitled to assume such de- 33 fense. If the indemnifying party or parties are not entitled to assume the defense of such action as a result of the proviso to the preceding sentence, counsel for the indemnifying party or parties shall be entitled to conduct the defense of such indemnifying party or parties and counsel for the indemnified party or parties shall be entitled to conduct the defense of such indemnified party or parties. If an indemnifying party is entitled to so assume the defense of such action and does in fact assume the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. SECTION 7. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 6 hereof is for any reason held to be unenforceable by indemnified parties although applicable in accordance with its terms, the Company and the Underwriter shall contribute to the aggregate losses, liabilities, claims damages and expenses of the nature contemplated by said indemnification incurred by the Company and the Underwriter as incurred, in such proportions that the Underwriter is responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial public offering price appearing thereon and the Company is responsible for the balance; PROVIDED, HOWEVER, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the 34 meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The representations, warranties, indemnities, agreements and other statements of the Company or its officers set forth in this Agreement and the Pricing Agreement or contained in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or controlling, person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriter. The indemnities of the Underwriter set forth in this Agreement and the Pricing Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Company, its directors, officers or controlling persons, or by or on behalf of the Underwriter, and shall survive delivery to the Securities by, and payment for the Securities to, the Company. SECTION 9. TERMINATION OF AGREEMENT. (a) TERMINATION; GENERAL. The Underwriter may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation thereof or other calamity or crisis the effect of which is such as to make it, in the judgment of the Underwriter, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in the Common Stock has been suspended by the Commission, or if trading generally on the American Stock Exchange or the NYSE or in the Nasdaq National Market has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by order of the Commission, or any other governmental authority, or (iv) if a banking moratorium 35 has been declared by either Federal, New York or California authorities. (b) LIABILITIES. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 6, 7 and 8 shall survive such termination. SECTION 10. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriter shall be directed to it at 101 California Street, San Francisco, California 94111, Attention: D. Casey Safreno, Vice President, with copy to Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Los Angeles, California 90071, Attention: Thomas C. Janson, Jr.; notices to the Company shall be directed to it at 950 Page Mill Road, P.O. Box 10950, Palo Alto, California 94303-0802, Attention: Peter D. Staple, Vice President and General Counsel, with a copy to Heller Ehrman White & McAuliffe, 525 University Avenue, Palo Alto, California 94301, Attention: Sarah A. O'Dowd. SECTION 11. PARTIES. This Agreement and the Pricing Agreement are made solely for the benefit of the Company and the Underwriter, and, to the extent expressed, any person controlling the Company or the Underwriter within the meaning of Section 15 of the 1933 Act, and the directors of the Company and its officers who have signed the Registration Statement, and their respective executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser, as such purchaser, of Securities from the Underwriter. SECTION 12. GOVERNING LAW AND TIME. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Unless otherwise set forth herein, specified times of day refer to New York City time. SECTION 13. AMENDMENTS. No amendment or waiver of any provision of this Agreement, nor any consent or 36 approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto. SECTION 14. COUNTERPARTS. This Agreement may be executed in one or more counterparts and when a counterpart has been executed by each party, all such counterparts taken together shall constitute one and the same agreement. 37 SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriter and the Company in accordance with its terms. Very truly yours, ALZA CORPORATION By: -------------------------------------------- Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ------------------------------------- Authorized Signatory 38 EXHIBIT A ALZA CORPORATION (a Delaware corporation) $400,000,000 Principal Amount at Maturity ____% Convertible Subordinated Debentures due 2006 ____________, 1996 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: Reference is made to the Purchase Agreement dated as of __________, 1996 (the "Purchase Agreement") relating to the purchase by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Purchaser") of the above __% Convertible Subordinated Debentures due 2006 (the "Securities") of ALZA Corporation (the "Company"). Pursuant to Section 2 of the Purchase Agreement, the Company agrees with the Purchaser as follows: 1. The initial issue price per $1,000 principal amount of Securities shall be $1,000. 2. The interest rate on the Securities shall be ____% per annum. 3. The initial Conversion Price shall be $___ per share of the Company's Common Stock, $0.01 par value per share. 4. The purchase price per $1,000 principal amount of Securities to be paid by the Purchaser shall be $_______, being an amount equal to the initial public offering price set forth above, less $___ per $1,000 principal amount of Securities. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Purchaser and the Company in accordance with its terms. Very truly yours, ALZA CORPORATION By: ------------------------------------------- Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ------------------------------------- Authorized Signatory 2 EX-4.2 3 EXHIBIT 4.2 - -------------------------------------------------------------------------------- ALZA CORPORATION TO THE CHASE MANHATTAN BANK, N.A. Trustee INDENTURE Dated as of April __, 1996 $400,000,000* __% Convertible Subordinated Debentures due 2006 - -------------------------------------------------------------------------------- - ---------------------------- * $460,000,000 if the Over-Allotment Option is exercised in full. INDENTURE, dated as of April __, 1996, between ALZA Corporation, a Delaware corporation (the "Company," as more fully set forth in Section 1.1), and The Chase Manhattan Bank, N.A., a national banking association duly organized and existing under the laws of the United States, not in its individual capacity but solely as trustee (the "TRUSTEE," as more fully set forth in Section 1.1). W I T N E S S E T H: WHEREAS, the Company has duly authorized the issue of its __% Convertible Subordinated Debentures due 2006 (the "DEBENTURES"), in an aggregate principal amount specified herein and has duly authorized the execution and delivery of this Indenture. NOW, THEREFORE: Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the respective holders from time to time of the Debentures: ARTICLE I DEFINITIONS Section 1.1 DEFINITIONS. The terms defined in this Section 1.1 (except as otherwise expressly provided herein or in any indenture supplemental hereto) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings set forth in this Section 1.1. AFFILIATE: The term "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purpose of this definition, "control," when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. BOARD OF DIRECTORS: The term "Board of Directors" or "Board" shall mean, with respect to any matter, the Board of Directors of the Company or a committee of such Board duly authorized, with respect to such matter, to exercise the power of such Board. BUSINESS DAY: The term "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday on which banking institutions in The City of New York are not authorized or obligated by law or executive order to close. Cash or cash: The term "cash" means such coin or currency of The ---- ---- United States of America as at any time of payment is legal tender for the payment of public and private debts. COMMISSION: The term "Commission" shall mean the Securities and Exchange Commission. COMMON STOCK: The term "Common Stock" means the Common Stock, par value $.01 per share, of the Company as it exists on the date of this Indenture or any other shares of capital stock of the Company into which such common stock shall be reclassified or changed. COMPANY: The term "Company" shall mean ALZA Corporation, a Delaware corporation, until a successor replaces it pursuant to the provisions of Article XI and, thereafter, shall mean such successors. The foregoing sentence shall likewise apply to any subsequent successor or successors. COMPANY ORDER: The term "Company Order" shall mean a written order signed in the name of the Company by (a) either of its Co-Chairmen of the Board, its Chief Executive Officer, President or any Vice President, and (b) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. CORPORATE TRUST OFFICE: The term "Corporate Trust Office" shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office is, at the date as of which this Indenture is dated, located at 4 Chase MetroTech Center, 3rd Floor, Brooklyn, New York, 11245 Attention: Institutional Trust Group. DEBENTURE or DEBENTURES: The terms "Debenture" or "Debentures" shall mean any Debenture or Debentures, as the case may be, authenticated and delivered under this Indenture. DEBENTUREHOLDER or HOLDER: The terms "Debentureholder" or "Holder" as applied to any Debenture, shall mean any person in whose name such Debenture is registered on the Registrar's books. DEFAULT: The term "Default" shall mean any event that is, or after notice or passage of time, or both, would be, an Event of Default. EXCHANGE ACT: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and the rules and regulations of the Commission promulgated thereunder, as in effect from time to time. 2 EVENT OF DEFAULT: The term "Event of Default": shall mean any event specified in Section 6.1(a), (b), (c), (d), (e), (f) or (g). INDENTURE: The term "Indenture" shall mean this instrument as originally executed or, if amended or supplemented in accordance with the terms hereof, as so amended or supplemented. OFFICER: The term "Officer" means either Co-Chairman of the Board, the Chief Executive Officer, President, any Vice President, the Treasurer, the Secretary, any Assistant Treasurer or Assistant Secretary of the Company. OFFICERS' CERTIFICATE: The term "Officers' Certificate," when used with respect to the Company, shall mean a written certificate containing the information specified in Section 11.3, 16.5 or 16.6 signed by both (a) the President, the Chief Executive Officer, Executive or Senior Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and (b) by the Treasurer or any Assistant Treasurer or Secretary or any Assistant Secretary of the Company. OPINION OF COUNSEL: The term "Opinion of Counsel" shall mean a written opinion containing the information specified in Section 11.3, 16.5 or 16.6, of counsel who may be an employee of or counsel to the Company, or other counsel acceptable to the Trustee. OVER-ALLOTMENT OPTION: The term "Over-Allotment Option" shall mean the option of the Underwriter to purchase additional Debentures in the aggregate principal amount of up to $60,000,000 as provided in the Purchase Agreement referred to in Section 2.2 hereof. PERSON: The term "Person" shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. PREDECESSOR DEBENTURE: The term "Predecessor Debenture" of any particular Debenture shall mean every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debentures; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.7 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture that it replaces. 3 REDEMPTION DATE: The term "Redemption Date" means the date specified for redemption of any of the Debentures in accordance with the terms of the Debentures and this Indenture. REDEMPTION PRICE: The term "Redemption Price" shall have the meaning set forth in the Debentures. RESPONSIBLE OFFICER: The term "Responsible Officer," shall mean, with respect to the Trustee, any officer within the Corporate Trust Office, including any Vice President, Managing Director, Assistant Vice President, Secretary, Assistant Secretary or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge and familiarity with the particular subject. SECURITIES ACT: The term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. SENIOR INDEBTEDNESS: The term "Senior Indebtedness" means the principal of, and premium, if any, and unpaid interest on, all present and future (i) indebtedness of the Company for borrowed money, (ii) obligations of the Company evidenced by bonds, debentures, notes or similar instruments, (iii) indebtedness incurred, assumed or guaranteed by the Company in connection with the acquisition by it or a Subsidiary of any business, properties or assets (except purchase-money indebtedness classified as accounts payable under generally accepted accounting principles), (iv) obligations of the Company as lessee under (A) leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and (B) leases of property or assets made as part of any sale and leaseback transaction to which the Company is a party, (v) reimbursement obligations of the Company in respect of letters of credit relating to indebtedness or other obligations of the Company that qualify as indebtedness or obligations of the kind referred to in clauses (i) through (iv) above, and (vi) obligations of the Company under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (v) above, in each case unless in the instrument creating or evidencing the indebtedness or obligation or pursuant to which the same is outstanding it is provided that such indebtedness or obligation is not superior in right of payment to the Debentures. Notwithstanding the foregoing, the term Senior Indebtedness shall not include any Indebtedness of the Company to any subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company or any indebtedness or obligations under the Company's Liquid Yield Option Notes due 2014 (Zero Coupon- Subordinated). 4 SUBSIDIARY: The term "Subsidiary" means (i) a corporation, a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly owned by the Company, by one or more Subsidiaries of the Company or by the Company and one or more Subsidiaries of the Company or (ii) a partnership in which the Company or a Subsidiary of the Company, at the date of determination holds in excess of 50% of the profits or voting interests of, or (iii) any other person (other than a corporation or a partnership) in which the Company, a Subsidiary of the Company or the Company and one or more Subsidiaries of the Company, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person. TRUST INDENTURE ACT: The term "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended as it was in force at the date of execution of this Indenture. TRUST OFFICER: The term "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. TRUSTEE: The term "Trustee" shall mean The Chase Manhattan Bank, N.A. and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. UNDERWRITER: The term "Underwriter" means Merrill Lynch, Pierce Fenner & Smith Incorporated. Section 1.2 OTHER DEFINITIONS: Defined in Term Section ---- ---------- "Beneficial Owner" . . . . . . . . . . . . . . . . . . . . . . . 15.3(1) "Capital Stock". . . . . . . . . . . . . . . . . . . . . . . . . 14.6 "Change in Control". . . . . . . . . . . . . . . . . . . . . . . 15.4 "Closing Price". . . . . . . . . . . . . . . . . . . . . . . . . 14.5(g)(1) "Company Notice" . . . . . . . . . . . . . . . . . . . . . . . . 15.2(a) "Conversion Agent" . . . . . . . . . . . . . . . . . . . . . . . 2.3 "Conversion Price" . . . . . . . . . . . . . . . . . . . . . . . 14.4 "Current Market Price" . . . . . . . . . . . . . . . . . . . . . 14.5(g)(2) "Legal Holiday". . . . . . . . . . . . . . . . . . . . . . . . . 16.7 "Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 "Purchase Agreement" . . . . . . . . . . . . . . . . . . . . . . 2.2 "Registrar". . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 5 "Repurchase Date". . . . . . . . . . . . . . . . . . . . . . . . 15.1 "Repurchase Price" . . . . . . . . . . . . . . . . . . . . . . . 15.1 "Senior Indebtedness Default". . . . . . . . . . . . . . . . . . 4.2 "Trading Day". . . . . . . . . . . . . . . . . . . . . . . . . . 14.5(g)(5) "Trigger Event". . . . . . . . . . . . . . . . . . . . . . . . . 14.5(d) Section 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the Trust Indenture Act, such provision is incorporated by reference in and made a part of this Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings: "Commission" means the Securities and Exchange Commission. "indenture securities" means the Debentures. "indenture security holder" means a Debentureholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company. All other Trust Indenture Act terms used in this Indenture that are defined by the Trust Indenture Act or defined by Trust Indenture Act reference to another statute or regulation have the meanings assigned to them by such definitions. Section 1.4 RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time in The United States of America; (3) "or" is not exclusive; (4) "including" means including, without limitation; (5) words in the singular include the plural, and words in the plural include the singular; and 6 (6) the words "herein," "hereof," "hereunder," and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. ARTICLE II THE DEBENTURES Section 2.1 FORM AND DATING. The Debentures and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is a part of this Indenture. The Debentures may have notations, legends or endorsements required by law, stock exchange rule or usage (provided that any such notation, legend or endorsement required by usage is in a form acceptable to the Company and the Trustee). Each Debenture shall be dated the date of its authentication. Section 2.2 EXECUTION AND AUTHENTICATION. The Debentures shall be executed by the Company by either of its Co-Chairmen of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Debentures may be manual or facsimile. Debentures bearing the manual or facsimile signatures of individuals who were the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the time of issuance of such Debentures. No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and delivered hereunder. The Trustee shall authenticate and make available for delivery Debentures for original issue in an aggregate principal amount of up to $400,000,000 upon a Company Order without any further action by the Company; PROVIDED, HOWEVER, that in the event that the Company sells any Debentures pursuant to the Over Allotment Option granted pursuant to Section 2(b) of the Purchase Agreement, dated _________, 1996, between the Company and the Underwriter (the "PURCHASE AGREEMENT"), then the Trustee shall authenticate and deliver Debentures for original issue in an aggregate principal amount of up to $400,000,000 plus up to 7 $60,000,000 aggregate principal amount of the Debentures sold pursuant to the Over-Allotment Option upon a Company Order without any further action by the Company. The aggregate principal amount of the Debentures outstanding at any time may not exceed the amount set forth in the foregoing sentence, subject to the proviso set forth therein, except as provided in Section 2.7. Section 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT. The Company shall maintain an office or agency where the Debentures may be presented for registration of transfer or for exchange ("REGISTRAR"), an office or agency where the Debentures may be presented for repurchase or payment ("PAYING AGENT") and an office or agency where the Debentures may be presented for conversion ("CONVERSION AGENT"). The Registrar shall keep a register of the Debentures and of their transfer and exchange. The Company may have one or more co-registrars, one or more additional paying agents and one or more additional conversion agents. The term Paying Agent includes any additional paying agents. The term Conversion Agent includes any additional conversion agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent or co-registrar (with the consent of the Trustee) other than the Trustee. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee and the Holders of the name and address of any such agent and of any change in the office or agency referred to in Section 5.2. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar, Conversion Agent or co- registrar. The Company initially appoints the Trustee as Registrar, Conversion Agent and Paying Agent in connection with the Debentures. Section 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST. Except as otherwise provided herein, prior to or on each due date of payments in respect of any Debenture, the Company shall deposit with the Paying Agent cash or, if permitted by the terms hereof, securities sufficient to make such payments when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Debentureholders or the Trustee all assets held by the Paying Agent for the making of payments in respect of the Debentures and shall notify the Trustee of any default by the Company in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the written request of the Trustee, forthwith pay to 8 the Trustee all assets so held in trust. If the Company, a Subsidiary or an affiliate of either of them acts as Paying Agent, it shall segregate the assets held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all assets held by it to the Trustee and to account for any assets disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money and securities. Section 2.5 DEBENTUREHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Debentureholders. If the Trustee is not the Registrar, the Company shall furnish or cause to be furnished to the Trustee (i) at least semiannually on January 1 and July 1 a list of the names and addresses of Debentureholders dated within 15 days of the date on which the list is furnished and (ii) at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonable require, of the names and addresses of Debentureholders. Section 2.6 TRANSFER AND EXCHANGE. Upon surrender for registration of transfer of any Debenture, together with a written instrument of transfer satisfactory to the Registrar duly executed by the Debentureholder or such Debentureholder's attorney duly authorized in writing, at the office or agency of the Company designated as Registrar or co-registrar pursuant to Section 2.3 or at the office or agency referred to in Section 5.2, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Debentures of any authorized denomination or denominations, of a like aggregate principal amount. The Company shall not charge a service charge for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer or exchange of the Debentures from the Debentureholder requesting such transfer or exchange (other than any exchange of a temporary Debenture for a definitive Debenture not involving any change in ownership). Transfers of Debentures may be effected only by surrender of the Debentures to the Company for registration and the issuance by the Company of one or more new Debentures. As provided in Section 9.3, until such surrender and registration, the Company may treat the holders of Debentures appearing on the Debenture register as the absolute owners of such Debentures. At the option of the Holder, Debentures may be exchanged for other Debentures of any authorized denomination or denominations, of a like aggregate principal amount, upon surrender of the Debentures to be exchanged, together with a written 9 instrument of transfer satisfactory to the Registrar duly executed by the Debentureholder or such Debentureholder's attorney duly authorized in writing, at such office or agency. Whenever any Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Debentures which the Holder making the exchange is entitled to receive. The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of (a) Debentures selected for redemption (except, in the case of Debentures to be redeemed in part, the portion thereof not to be redeemed), (b) any Debentures in respect of which a repurchase notice has been given and not withdrawn by the Holder thereof in accordance with Section 15.2 (except, in the case of Debentures to be purchased in part, the portion thereof not to be purchased) or (c) any Debentures for a period of 15 days before a selection of the Debentures to be redeemed. Section 2.7 REPLACEMENT DEBENTURES. If (a) any mutilated Debenture is surrendered to the Company or the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debenture, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a BONA FIDE purchaser, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Debenture or in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, or is about to be redeemed by the Company pursuant to Article III hereof, the Company in its discretion may, instead of issuing a new Debenture, pay or redeem such Debenture, as the case may be. Upon the issuance of any new Debentures under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Debenture issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled 10 to all benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. Section 2.8 OUTSTANDING DEBENTURES; DETERMINATIONS OF HOLDERS' ACTION. Debentures outstanding at any time are all the Debentures authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, mutilated, destroyed, lost or stolen Debentures for which the Trustee has authenticated and made available for delivery a new Debenture in lieu therefor pursuant to Section 2.7 and those described in this Section 2.8 as not outstanding. A Debenture does not cease to be outstanding because the Company or an Affiliate thereof holds the Debenture; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of Debentures have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debentures which the Trustee knows to be so owned shall be so disregarded. Subject to the foregoing, only Debentures outstanding at the time of such determination shall be considered in any such determination (including, without limitation, determinations pursuant to Articles VI and X). If a Debenture is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Debenture is held by a BONA FIDE purchaser. If the Paying Agent holds, in accordance with this Indenture, on a Redemption Date or on a Repurchase Date, or on the stated maturity date, cash or, if permitted by the terms hereof, securities sufficient to pay the Debentures payable on that date, then on and after that date such Debentures shall cease to be outstanding and interest, if any, on such Debentures shall cease to accrue and all other rights of the Holder shall terminate (other than the right to receive the applicable Redemption Price or Repurchase Price, upon delivery of the Debenture in accordance with the terms of this Indenture); PROVIDED, that if such Debentures are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made. 11 If a Debenture is converted in accordance with Article XIV then from and after such conversion the Debenture shall cease to be outstanding and interest, if any, shall cease to accrue on such Debenture. Section 2.9 TEMPORARY DEBENTURES. Pending the preparation of definitive Debentures, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Debentures which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers executing such Debentures may determine, as conclusively evidenced by their execution of such Debentures. If temporary Debentures are issued, the Company will cause definitive Debentures to be prepared without unreasonable delay. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures upon surrender of the temporary Debentures at the office or agency of the Company designated for such purpose pursuant to Section 2.3 or 5.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Debentures of authorized denominations. Until so exchanged the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. Section 2.10 CANCELLATION. All Debentures surrendered for payment, redemption by the Company pursuant to Article III, conversion pursuant to Article XIV, repurchase by the Company pursuant to Article XV, registration of transfer or exchange shall, if surrendered to any person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly cancelled by the Trustee. The Company may not issue new Debentures to replace Debentures it has paid or delivered to the Trustee for cancellation or that any Holder has converted pursuant to Article XIV. No Debentures shall be authenticated in lieu of or in exchange for any Debentures cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Debentures held by the Trustee shall be disposed of by the Trustee in accordance with its normal procedures and evidence of such disposition shall be delivered to the Company unless the Company directs by Company Order that the Trustee deliver cancelled Debentures to the Company. 12 ARTICLE III REDEMPTION Section 3.1 RIGHT TO REDEEM; NOTICES TO TRUSTEE. The Company, at its option, may redeem the Debentures for cash in accordance with the provisions set forth in the Debentures. If the Company elects to redeem Debentures pursuant to such provisions, it shall notify the Trustee in writing of the Redemption Date, the principal amount of Debentures to be redeemed and the Redemption Price. The Company shall give the notice to the Trustee provided for in this Section 3.1 at least 60 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). If fewer than all the Debentures are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall not be less than ten days after the date of notice to the Trustee (unless a shorter notice shall be satisfactory to the Trustee). Section 3.2 SELECTION OF DEBENTURES TO BE REDEEMED. If less than all the Debentures are to be redeemed, the Trustee shall select the Debentures to be redeemed PRO RATA or by lot, or by any other method the Trustee considers fair and appropriate (so long as such method is not prohibited by the rules of any stock exchange on which the Debentures are then listed). The Trustee shall make the selection at least 35 but not more than 60 days before the Redemption Date from outstanding Debentures not previously called for redemption. The Trustee may select for redemption portions of the principal amounts of Debentures that have denominations larger than $1,000. Debentures and portions of them the Trustee selects shall be in principal amounts of $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to Debentures called for redemption also apply to portions of Debentures called for redemption. The Trustee shall notify the Company promptly, but not less than 35 days before the Redemption Date, of the Debentures or portions of Debentures to be redeemed. If any Debenture selected for partial redemption is thereafter surrendered for conversion in part before termination of the conversion right with respect to the portion of the Debenture so selected, the converted portion of such Debenture shall be deemed (so far as may be), solely for purposes of determining the aggregate principal amount of Debentures to be redeemed by the Company, to be the portion selected for redemption. Debentures that have been converted during a selection of Debentures to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection. Nothing in this Section 3.2 shall affect the right of any Holder to convert any 13 Debenture pursuant to Article XIV before the termination of the conversion right with respect thereto. Section 3.3 NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail to each Holder of Debentures to be redeemed in the manner provided in Section 16.3. The notice shall identify the Debentures to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the Conversion Price; (4) the name and address of the Paying Agent and Conversion Agent and of the office or agency referred to in Section 5.2; (5) that Debentures called for redemption may be converted at any time before the close of business on the Redemption Date; (6) that Holders who want to convert Debentures must satisfy the requirements set forth in the Debentures; (7) that Debentures called for redemption must be surrendered to the Paying Agent or at the office or agency referred to in Section 5.2 to collect the Redemption Price; (8) the CUSIP number of the Debentures; (9) if fewer than all the outstanding Debentures are to be redeemed, the certificate numbers and principal amounts of the particular Debentures to be redeemed; and (10) that, unless the Company defaults in payment of the Redemption Price, interest, if any, on Debentures selected for redemption, will cease to accrue on and after the Redemption Date. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Section 3.4 EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is given, Debentures called for redemption become due and payable on the Redemption Date stated in the 14 notice and at the Redemption Price therefor except for Debentures that are converted in accordance with the terms of this Indenture. Upon the later of the Redemption Date and the date such Debentures are surrendered to the Paying Agent or at the office or agency referred to in Section 5.2, such Debentures called for redemption shall be paid at the Redemption Price therefor. Section 3.5 DEPOSIT OF REDEMPTION PRICE. Prior to or on the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them is the Paying Agent, shall segregate and hold in trust) cash sufficient to pay the Redemption Price of all Debentures to be redeemed on that date other than Debentures or portions of Debentures called for redemption which prior thereto have been delivered by the Company to the Trustee for cancellation. The Paying Agent shall as promptly as practicable return to the Company any cash, with interest, if any, thereon, not required for that purpose because of conversion of Debentures pursuant to Article XIV. If such cash is then held by the Company or a Subsidiary or an Affiliate of the Company in trust and is not required for such purpose it shall be discharged from such trust. Section 3.6 DEBENTURES REDEEMED IN PART. Upon surrender of a Debenture that is redeemed in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Debenture in an authorized denomination equal in principal amount to the unredeemed portion of the Debenture surrendered. Section 3.7 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In connection with any redemption of Debentures, the Company may arrange for the purchase and conversion of any Debentures called for redemption by an agreement with one or more investment bankers or other purchasers to purchase all or a portion of such Debentures by paying to the Trustee in trust for the Debentureholders whose Debentures are to be so purchased, on or before the close of business on the Redemption Date, an amount that, together with any amounts deposited with the Trustee by the Company for redemption of such Debentures is not less than the Redemption Price, together with interest, if any, accrued to the Redemption Date, of such Debentures. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the Redemption Price of such Debentures, including all accrued interest, if any, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers but no such agreement shall relieve the Company of its obligation to pay such Redemption Price and interest, if any. If such an agreement is entered into, any Debentures not duly surrendered for conversion by the Holders thereof may, at the option of the Company be deemed, to the fullest extent permitted (notwithstanding anything to the contrary contained in Article 15 XIV), surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the Redemption Date, subject to payment of the above amount as aforesaid. The Trustee shall hold and pay to the Holders whose Debentures are selected for redemption any such amount paid to it for purchase and conversion in the same manner as it would moneys deposited with it by the Company for the redemption of Debentures. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Debentures shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Debentures between the Company and such purchasers, including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. ARTICLE IV SUBORDINATION OF DEBENTURES Section 4.1 DEBENTURES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and each Holder of a Debenture, by such Holder's acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article IV, the indebtedness represented by the Debentures and the payment of the principal, Redemption Price, Repurchase Price and interest, if any, in respect of each and all of the Debentures are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. No provision of this Article IV shall prevent the occurrence of any Default or Event of Default hereunder. Section 4.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION. Upon any distribution of assets of the Company in the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event the Holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness, or 16 provision shall be made for such payment in money or money's worth, before the holders of the Debentures are entitled to receive any payment of the principal of, premium, if any, and interest on all Debentures (including, but not limited to, the Redemption Price with respect to Debentures called for redemption in accordance with Section 3.2 or the Repurchase Price of Debentures submitted for repurchase in accordance with Section 15.2) and to that end the holders of Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, which may be payable or deliverable in respect of the Debentures in any such case, proceeding, dissolution, liquidation or other winding up or event, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Debentures. In the event that, notwithstanding the foregoing provisions of this Section 4.2, the Trustee or the holder of any Debenture shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Debentures, before all Senior Indebtedness is paid in full or payment thereof provided for, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such holder, then in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. The consolidation of the Company with, or the merger of the Company into, another person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another person upon the terms and conditions set forth in Article XI shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshalling of assets and liabilities of the Company for the purposes of this Section 4.2 if the person formed by such consolidation or into which the Company is merged or the person which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall as part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article XI. 17 Section 4.3 PRIOR PAYMENT OF SENIOR INDEBTEDNESS UPON ACCELERATION OF DEBENTURES. In the event that any Debentures are declared due and payable before their stated maturity, then and in such event the holders of Senior Indebtedness outstanding at the time such Debentures so become due and payable shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness, or provision shall be made for such payment in money or money's worth, before the Holders of the Debentures are entitled to receive any payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Debentures) by the Company of the principal of, premium, if any, and interest on all Debentures (including, but not limited to, the Redemption Price with respect to the Debentures called for redemption in accordance with Section 3.2 or the Repurchase Price of any Debentures submitted for repurchase in accordance with Section 15.2 or on account of the purchase or other acquisition of Debentures). In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the holder of any Debenture prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 4.2 would be applicable. Section 4.4 NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT. In the event and during the continuation of any default in the payment of principal of (or premium, if any) or interest on any Senior Indebtedness beyond any applicable grace period with respect thereto, or in the event that any event of default with respect to any Senior Indebtedness shall have occurred and be continuing, permitting the holders of such Senior Indebtedness (or a trustee on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable (a "SENIOR INDEBTEDNESS DEFAULT"), unless and until such Senior Indebtedness Default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or in the event any judicial proceeding shall be pending with respect to any such Default, then no payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Debentures) of principal of, premium, if any, and interest on all Debentures (including, but not limited to, the Redemption Price with respect to the Debentures called for redemption in accordance with Section 3.2 or the Repurchase Price of any Debentures submitted for repurchase in accordance with Section 15.2 or on 18 account of the purchase or other acquisition of Debentures shall be made, nor may the Company pay cash with respect to the purchase price or upon conversion of any Debentures (other than cash in lieu of fractional shares). In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the holder of any Debentures prohibited by the foregoing provisions of this Section 4.4, and if such fact shall then have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 4.2 would be applicable. Section 4.5 PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in this Article or elsewhere in this Indenture or in any of the Debentures shall prevent (a) the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshalling of assets and liabilities of the Company referred to in Section 4.2 or under the conditions described in Section 4.3 or 4.4, from making payments at any time of principal of, premium, if any, and interest on all Debentures (including, but not limited to, the Redemption Price with respect to the Debentures called for redemption in accordance with Section 3.2 or the Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 15.2) or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of, premium, if any, and interest on all Debentures (including, but not limited to, the Redemption Price with respect to the Debentures called for redemption in accordance with Section 3.2 or the Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 15.2), or the retention of such payment by the Holders of the Debentures, if, at the time of such application by the Trustee, the Trustee did not have actual knowledge that such payment would have been prohibited by the provisions of this Article IV. Section 4.6 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject to payment in full of all Senior Indebtedness, the holders of the Debentures shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article IV (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to indebtedness of the Company to substantially the same extent as the Debentures are subordinated and is entitled to like rights of subrogation) to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property and 19 securities applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on all Debentures (including, but not limited to, the Redemption Price with respect to the Debentures called for redemption in accordance with Section 3.2 or the Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 15.2), shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Debentures or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by holders of the Debentures or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Debentures, be deemed to be a payment or distribution by the Company to or of the Senior Indebtedness. Section 4.7 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provi- sions of this Article are and are intended solely for the purpose of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of Senior Indebtedness, on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Debentures is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Debentures, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the holders of the Debentures the principal of, premium, if any, and interest on all Debentures (including, but not limited to, the Redemption Price with respect to the Debentures called for redemption in accordance with Section 3.2 or the Repurchase Price with respect to Debentures submitted for repurchase in accordance with Section 15.2) as and when the same shall become due and payable in accordance with the terms of the Debentures and this Indenture; or (b) affect the relative rights against the Company of the holders of the Debentures and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such holder. Section 4.8 TRUSTEE TO EFFECTUATE SUBORDINATION. Each holder of a Debenture by such holder's acceptance thereof authorizes and directs the Trustee on such holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. 20 Section 4.9 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the holders of the Debentures, without incurring responsibility to the holders of the Debentures and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the holders of the Debentures to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. Section 4.10 NOTICE TO TRUSTEE. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Debentures. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Debentures, unless and until the Trustee shall have received written notice therefor from the Company or a holder of Senior Indebtedness or from any trustee thereof; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects to assume that no such facts exist. Subject to the provision of Section 7.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence required with respect to the right of any Person as a holder of Senior Indebtedness to partic- 21 ipate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 4.11 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 7.1, and the holders of the Debentures shall be entitled to rely conclusively upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bank-ruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of Debentures, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. Section 4.12 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to holders of Debentures or to the Company or to any other person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. Section 4.13 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.7. Section 4.14 ARTICLE APPLICABLE TO PAYING AGENTS. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, 22 the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; PROVIDED, HOWEVER, that Sections 4.10 and 4.12 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. Section 4.15 CERTAIN CONVERSIONS DEEMED PAYMENT. For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of Debentures in accordance with Article XV shall not be deemed to constitute a payment or distribution on account of the principal of, premium, if any, and interest on all Debentures (including, but not limited to, the redemption price with respect to the Debentures called for redemption in accordance with Section 3.2 or submitted for repurchase in accordance with Section 15.2) or on account of the purchase or other acquisition of Debentures, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Debenture shall be deemed to constitute payment on account of principal of such Debenture. For the purposes of this Section, the term "JUNIOR SECURITIES" means (a) shares of any stock of any class of the Company and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to the same extent as, or to a greater extent than, the Debentures are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the holders of the Debentures, the right, which is absolute and unconditional, of the holder of any Debenture to convert such Debenture in accordance with Article XV. ARTICLE V PARTICULAR COVENANTS OF THE COMPANY Section 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any, and interest on each of the Debentures at the places, at the respective times and in the manner provided herein and in the Debentures. Each installment of interest on the Debentures due on any semi- annual interest payment date may be paid by mailing checks for the interest payable to or upon the written order of the holders of Debentures entitled thereto as they shall appear on the Debenture register. 23 Section 5.2 MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in The City of New York, an office or agency where the Debentures may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion or redemption and where notices and deeds to or upon the Company in respect of the Debentures and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations surrenders, notices and demands may be made or served at the Corporate Trust Office or the office or agency of the Trustee in The City of New York. The Company may also from time to time designate one or more other offices or agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York, for such purposes. The Company will give prompt written notice to the holders of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office of the Trustee and the office or agency of the Trustee in the Borough of Brooklyn, The City of New York (which shall initially be The Chase Manhattan Bank, N.A. located at 4 Chase MetroTech Center, Brooklyn, New York 11245, as an office or agency of the Company for each of the aforesaid purposes. Section 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.8, a successor Trustee, so that there shall at all times be a Trustee qualified and acting hereunder. Section 5.4 CORPORATE EXISTENCE. Subject to Article XI, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. Section 5.5 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the princi- 24 pal of or interest on the Debentures as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. Section 5.6 COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending closest to December 31, 1996) an Officers' Certificate stating whether or not the signers know of any Default that occurred during such period. If they do, such Officers' Certificate shall describe the Default and its status. Section 5.7 SEC REPORTS. The Company shall file with the Trustee, within 15 days after it files such annual and quarterly reports, information, documents and other reports with the Commission, copies of its annual and quarterly reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act (or any such successor provisions thereto). In the event the Company is at any time no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act (or any such successor provisions), it shall continue to provide the Trustee with reports containing substantially the same information as would have been required to be filed with the Commission had the Company continued to have been subject to such reporting requirements, and the Trustee shall make any such reports available to Debentureholders upon request. In such event, such reports shall be provided at the times the Company would have been required to provide reports had it continued to have been subject to such reporting requirements. The Company also shall comply with the other provisions of Trust Indenture Act Section 314(a). ARTICLE VI DEFAULTS AND REMEDIES Section 6.1 EVENTS OF DEFAULT. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: 25 (a) default in the payment of any installment of interest upon any of the Debentures as and when the same shall become due and payable, and continuance of such default for a period of thirty (30) days, whether or not such payment is permitted under Article IV hereof; or (b) default in the payment of the principal of or premium, if any, on any of the Debentures as and when the same shall become due and payable either at maturity or in connection with any redemption pursuant to Article III or repurchase pursuant to Article XV, by acceleration or otherwise, whether or not such payment is permitted under Article IV hereof; or (c) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Debentures or in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is else- where in this Section 6.1 specifically dealt with) continued for a period of sixty (60) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or to the Company and the Trustee by the holders of at least 25 percent in aggregate principal amount of the Debentures at the time outstanding; or (d) failure on the part of the Company to make any payment at maturity, including any applicable grace period, in respect of indebtedness for borrowed money of the Company, which payment is in an amount in excess of $30 million, and continuance of such failure within a period of thirty (30) days after the date on which the written notice of such failure shall have been given to the Company by the Trustee, or to the Company and the Trustee by the holders of at least 25 percent in aggregate principal amount of the Debentures at the time outstanding; or (e) default by the Company with respect to any indebtedness for borrowed money of the Company, which default results in acceleration of any such indebtedness which is in an amount of in excess of $30 million without such indebtedness having been discharged, or there having been deposited in trust a sum of money sufficient to discharge in full such indebtedness, or such acceleration having been rescinded or annulled within thirty (30) days after the date on which the written notice of such default shall have been given to the Company by the Trustee, or to the Company 26 and the Trustee by the holders of at least 25 percent in aggregate principal amount of the Debentures at the time outstanding; or (f) the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (g) an involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) consecutive days; then, and in each and every such case (other than an Event of Default specified in Section 6.1(f) or (g)), unless the principal of all of the Debentures shall have already become due and payable, either the Trustee or the holders of not less than 25 percent in aggregate principal amount of the Debentures then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by Debentureholders), may declare the principal of all the Debentures and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Debentures contained to the contrary notwithstanding. If an Event of Default specified in Section 6.1(f) or (g) occurs, the principal of all the Debentures and the interest accrued thereon shall be immediately and automatically due and payable without any further action on the part of the Company, the Trustee or the holders of the Debentures. This provision, however, is subject to the condition that if, at any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments 27 of interest upon all Debentures and the principal of and premium, if any, on any and all Debentures which shall have become due otherwise than by acceleration (with interest on overdue installments of interest (to the extent that payments of such interest is enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Debentures, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 7.7, and if any and all Defaults under this Indenture, other than the nonpayment of principal of and premium, if any, and accrued interest on Debentures which shall have become due by acceleration, shall have been cured or waived pursuant to Section 6.7, then the holders of a majority in aggregate principal amount of the Debentures then outstanding, by written notice to the Company and to the Trustee, may waive all Defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent Default or Event of Default, or shall impair any right consequent thereon. The Company shall notify the Trustee in writing promptly upon becoming aware of any Default or Event of Default. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then the Company, the holders of Debentures, and the Trustee shall continue as though no such proceeding had been taken. Section 6.2 PAYMENTS OF DEBENTURES ON DEFAULT; SUIT THEREFOR. The Company covenants that (a) if the Company defaults in the payment of any installment of interest upon any of the Debentures as and when the same shall become due and payable, and such Default shall have continued for a period of thirty (30) days, or (b) the Company Defaults pursuant to Section 6.1(b) then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debentures, the whole amount that then shall have become due and payable on all such Debentures for principal and premium, if any, or interest, or both, as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest at the rate borne by the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest on the Debentures to the registered holders, whether or not the Debentures are overdue. 28 If the Company fails promptly to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Debentures and collect in the manner provided by law out of the property of the Company or any other obligor on the Debentures wherever situated the monies adjudged or decreed to be payable. If there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Debentures under Title 11 of the United States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Debentures, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Debentures shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 6.2, shall be entitled and empowered, by intervention in such proceeding or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Debentures, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Debentureholders allowed in such judicial proceedings relative to the Company or any other obligor on the Debentures, its or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee under Section 7.7. All rights of action and of asserting claims under this Indenture, or under any of the Debentures, may be enforced by the Trustee without the possession of any of the Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the holders of the Debentures. 29 In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Debentures, and it shall not be necessary to make any holders of the Debentures parties to any such proceedings. Section 6.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any monies collected by the Trustee pursuant to this Article VI shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Debentures, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: First: To the payment of all amounts due the Trustee under Section 7.7; Second: Subject to the provisions of Article IV, if the principal of the outstanding Debentures shall not have become due and be unpaid, to the payment of interest on the Debentures in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the rate borne by the Debentures, such payments to be made ratably to the persons entitled thereto; Third: Subject to the provisions of Article IV, if the principal of the outstanding Debentures shall have become due, by declaration or otherwise, and be unpaid to the payment of the whole amount then owing and unpaid upon the Debentures for principal and premium, if any, and interest, with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the rate borne by the Debentures; and PROVIDED, that if such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Debentures, then to the payment of such principal and premium, if any, and interest without preference or priority of principal and premium, if any, over interest, or of interest over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Debenture over any other Debenture, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest; and 30 Fourth: Subject to the provisions of Article IV, to the payment of the remainder, if any, to the Company or any other person lawfully entitled thereto. Section 6.4 PROCEEDINGS BY DEBENTUREHOLDER. No holder of any Debenture shall have any right to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless the holders of not less than 25 percent in aggregate principal amount of the Debentures then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 6.7; no one or more holders of Debentures shall have any right in any manner whatever to affect, disturb or prejudice the rights of any other holder of Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures (except as otherwise provided herein). For the protection and enforcement of this Section 6.4, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given at law or in equity. Notwithstanding any other provision of this Indenture and the Debentures, the right of the holder of any Debenture to receive payment of the principal of and premium, if any, and interest on such Debenture, on or after the respective due dates expressed in such Debenture, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder. Anything in this Indenture or the Debentures to the contrary notwithstanding, the holder of any Debenture, without the consent of either the Trustee or the holder of any other Debenture, in his own behalf and for his own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, his rights of conversion as provided herein. Section 6.5 PROCEEDINGS BY TRUSTEE. In case of an Event of Default the Trustee may in its discretion proceed to 31 protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 6.6 REMEDIES CUMULATIVE AND CONTINUING. Except as provided in Section 2.7, all powers and remedies given by this Article VI to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of the Debentures to exercise any right or power accruing upon any Default or Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or any acquiescence therein; and subject to the provisions of Section 6.4, every power and remedy given by this Article VI or by law to the Trustee or to the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. Section 6.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY OF DEBENTUREHOLDERS. The holders of a majority in aggregate principal amount of the Debentures at the time outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; PROVIDED, HOWEVER, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. The holders of a majority in aggregate principal amount of the Debentures at the time outstanding may on behalf of the holders of all of the Debentures waive any past Default or Event of Default hereunder and its consequences except (i) a Default in the payment of interest or premium, if any, on, or the principal of, the Debentures, (ii) a failure by the Company to convert any Debentures into Common Stock, (iii) a Default in the payment of Redemption Price pursuant to Article III or Repurchase Price pursuant to Article XV or (iv) a Default in respect of a covenant or provisions hereof which under Article X cannot be modified or amended without the consent of the holders of all Debentures then outstanding. Upon any such waiver the Company, the Trustee and the holders of the Debentures shall be restored to their former 32 positions and rights hereunder; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Whenever any Default or Event of Default hereunder shall have been waived as permitted by this Section 6.7, said Default or Event of Default shall for all purposes of the Debentures and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Section 6.8 UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each holder of any Debenture by such Holder's acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; PROVIDED that the provisions of this Section 6.8 (to the extent permitted by law) shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders, holding in the aggregate more than ten percent in principal amount of the Debentures at the time outstanding determined in accordance with Section 8.4, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of or premium, if any, or interest on any Debenture on or after the due date expressed in such Debenture or to any suit for the enforcement of the right to convert any Debenture in accordance with the provisions of Article XIV or to require the Company to repurchase any Debenture in accordance with Article XV. ARTICLE VII TRUSTEE Section 7.1 DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: 33 (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificate or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.7. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.1. (e) The Trustee (and its directors, officers, employees and agents) may refuse to perform any duty or exercise any right or power hereunder or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee (acting in any capacity hereunder) shall be under no liability for interest on any money received by it hereunder except as the Trustee may otherwise have agreed in writing with the Company. 34 Section 7.2 RIGHTS OF TRUSTEE. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate and an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) Subject to the provisions of Section 7.1(c), the Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee (and its directors, officers, employees and agents) security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney. Section 7.3 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of the Debentures and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, Conversion Agent or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. 35 Section 7.4 TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Debentures, it shall not be accountable for the Company's use of the proceeds from the Debentures, it shall not be responsible for any statement in the registration statement for the Debentures under the Securities Act or in the Indenture or the Debentures (other than its certificate of authentication), or the determination as to the Persons entitled to receive any notices hereunder. Section 7.5 NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is actually known to a Responsible Officer of the Trustee, the Trustee shall give to each Debentureholder notice of the Default within 90 days after it occurs. Except in the case of a Default described in Section 6.1(a) or (b), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Debentureholders. Section 7.6 REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each June 15 beginning with the June 15 following the date of this Indenture, the Trustee shall mail to each Debentureholder a brief report dated as of such June 15 that complies with Trust Indenture Act Section 313(a). The Trustee also shall comply with Trust Indenture Act Section 313(b). A copy of each report at the time of its mailing to Debentureholders shall be provided to the Company and shall be filed with the Commission and each stock exchange on which the Debentures are listed. The Company agrees promptly to notify the Trustee whenever the Debentures become listed on any stock exchange and of any delisting thereof. Section 7.7 COMPENSATION AND INDEMNITY. The Company agrees: (a) to pay to the Trustee from time to time such compensation as shall have been agreed to in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not (to the extent permitted by law) be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee upon its request and, if required by the Company, submission of reasonable documentation for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, advances and disbursements of its agents and counsel), except any such expense, disbursement or advance 36 as may be attributable to its negligence or bad faith; and (c) to indemnify each of the Trustee or any predecessor Trustee (and its directors, officers, employees and agents) for, and to hold it harmless against, any and all loss, liability, damage, claim or expense, including taxes (other than taxes based upon, measured or determined by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall give the Company prompt notice of any claim or liability for which the Trustee might be entitled to indemnification under subparagraph (c) of this Section 7.7. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Debentures on all money or property held or collected by the Trustee. The Company's payment obligations pursuant to this Section 7.7 shall survive the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 7.1(f) or (g), the expenses are intended to constitute expenses of administration under Federal or State bankruptcy laws. The provisions of this Section shall survive the termination of this Indenture. Section 7.8 REPLACEMENT OF TRUSTEE. The Trustee may resign by so notifying the Company; PROVIDED, HOWEVER, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.8. The Holders of a majority in aggregate principal amount of the Debentures at the time outstanding may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee (subject to the consent of the Company, such consent not to be unreasonably withheld). The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. 37 If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint, by resolution of its Board of Directors, a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Debentureholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.7. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the Debentures at the time outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Debentureholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. From and as of the appointment of a successor Trustee, the predecessor Trustee shall have no liability for acts or omissions of the successor Trustee and the successor Trustee shall be responsible for all fees and expenses incurred from and as of the date of such appointment. Section 7.9 SUCCESSOR TRUSTEE BY MERGER. Except as otherwise provided in Section 7.8(1) or 7.8(4), if the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. Section 7.10 ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of Trust Indenture Act Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Trust Indenture Act Section 310(b), including the optional provision permitted by the second sentence of Trust Indenture Act Section 310(b)(9). In determining whether the Trustee has conflicting interests as defined in Trust Indenture Act Section 310(b)(1), the provisions contained in the proviso to Trust Indenture Act Section 310(b)(1) shall be deemed incorporated herein. Section 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with Trust Indenture Act Section 311(a), excluding any creditor relationship listed in Trust Indenture Act Section 311(b). A trustee who has resigned or been 38 removed shall be subject to Trust Indenture Act Section 311(a) to the extent indicated therein. ARTICLE VIII CONCERNING THE DEBENTUREHOLDERS Section 8.1 ACTION BY DEBENTUREHOLDERS. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Debentureholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Debentures voting in favor thereof at any meeting of Debentureholders duly called and held in accordance with the provisions of Article IX, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Debentureholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Debentures, the Company or the Trustee shall fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than fifteen (15) days prior to the date of commencement of solicitation of such action. Section 8.2 PROOF OF EXECUTION BY DEBENTUREHOLDERS. Subject to the provisions of Sections 7.1, 7.2 and 9.6, proof of the execution of any instrument by a Debentureholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Debentures shall be proved by the registry of such Debentures or by a certificate of the Debenture registrar. The record of any Debentureholders' meeting shall be proved in the manner provided in Section 9.6. Section 8.3 WHO ARE DEEMED ABSOLUTE OWNERS. The Company, the Trustee, any authenticating agent, any Paying Agent, any Conversion Agent and any Registrar may deem the Person in whose name such Debenture shall be registered upon the Debenture register to be, and may treat him as, the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Debenture, for conversion of such Debenture and for all other purpos- 39 es and neither the Company nor the Trustee nor any Paying Agent nor any Conversion Agent nor any authenticating agent nor any Registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Debenture. Section 8.4 REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 8.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder of a Debenture which is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice with the Company or with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 8.2, revoke such action so far as it concerns such Debenture. Except as aforesaid, any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture and of any Debentures issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Debenture or any Debenture issued in exchange or substitution therefor. ARTICLE IX DEBENTUREHOLDERS' MEETINGS Section 9.1 PURPOSE OF MEETINGS. A meeting of Debentureholders may be called at any time and from time to time pursuant to the provisions of this Article IX for any of the following purposes: (a) to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under this Indenture, or to consent to the waiving of any Default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Debentureholders pursuant to any of the provisions of Article VI; (b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VII; (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 10.2; or 40 (d) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Debentures under any other provision of this Indenture or under applicable law. Section 9.2 CALL OF MEETINGS BY TRUSTEE. The Trustee may at any time call a meeting of Debentureholders to take any action specified in Section 9.1, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Debentureholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 8.1, shall be mailed to holders of Debentures at their addresses as they shall appear on the Debenture register. Such notice shall also be mailed to the Company. Such notices shall be mailed not less than twenty (20) nor more than ninety (90) days prior to the date fixed for the meeting. Any meeting of Debentureholders shall be valid without notice if the holders of all Debentures then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Debentures outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 9.3 CALL OF MEETINGS BY COMPANY OR DEBENTUREHOLDERS. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least ten percent in aggregate principal amount of the Debentures then outstanding, shall have requested the Trustee to call a meeting of Debentureholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or such Debentureholders may determine the time and the place at any location for such meeting and may call such meeting to take any action authorized in Section 9.1, by mailing notice thereof as provided in Section 9.2. Section 9.4 QUALIFICATIONS FOR VOTING. To be entitled to vote at any meeting of Debentureholders a Person shall (a) be a holder of one or more Debentures on the record date pertaining to such meeting or (b) be appointed by an instrument in writing as proxy by a holder of one or more Debentures. The only Persons who shall be entitled to be present or to speak at any meeting of Debentureholders shall be the Persons entitled to vote at such meeting and their counsel and any representative of the Trustee and its counsel and any representatives of the Company and its counsel. 41 Section 9.5 REGULATIONS. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Debentureholders, in regard to proof of the holding of Debentures and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Debentureholders as provided in Section 9.3, in which case the Company or the Debentureholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Debentures represented at the meeting and entitled to vote at the meeting. Subject to the provisions of Section 8.4, at any meeting each Debentureholder or proxyholder shall be entitled to one vote for each $1,000 principal amount of Debentures held or represented by him; PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting in respect of any Debenture challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Debentures held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Debentureholders. Any meeting of Debentureholders duly called pursuant to the provisions of Section 9.2 or 9.3 may be adjourned from time to time by the holders of a majority of the aggregate principal amount of Debentures represented at the meeting, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 9.6 VOTING. The vote upon any resolution submitted to any meeting of Debentureholders shall be by written ballot on which shall be subscribed the signatures of the holders of Debentures or of their representatives by proxy and the principal amount of the Debentures held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Debentureholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one 42 or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 9.2. The record shall show the principal amount of the Debentures voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 9.7 NO DELAY OF RIGHTS BY MEETING. Nothing in this Article IX contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Debentureholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Debentureholders under any of the provisions of this Indenture or of the Debentures. ARTICLE X SUPPLEMENTAL INDENTURES Section 10.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF DEBENTUREHOLDERS. The Company, when authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to make provision with respect to the conversion rights of the holders of Debentures pursuant to the requirements of Section 14.6 or the repurchase obligations of the Company pursuant to the requirements of Section 15.5; (b) subject to Article IV, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Debentures, any property or assets; (c) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article XI; (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be 43 for the benefit of the holders of Debentures, and to make the occurrence, or the occurrence and continuance, of a Default in any such additional covenants, restrictions or conditions a Default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; PROVIDED, HOWEVER, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (e) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not adversely affect the interest of any holder of the Debentures; or (f) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debentures. The Trustee shall join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provision of this Section 10.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 10.2. Section 10.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS. With the consent (evidenced as provided in Article XIII) of the holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, the Company, when authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture 44 or any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; PROVIDED, HOWEVER, that no such supplemental indenture shall (A) (i) extend the fixed maturity of any Debenture, (ii) reduce the rate or extend the time of payment of interest thereon, (iii) reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, (iv) impair the right of any Debentureholder to institute suit for the payment thereof, (v) make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than cash, (vi) modify the provisions of this Indenture with respect to the subordination of the Debentures in a manner adverse to the Debentureholders in any material respect, (vii) change the obligation of the Company to repurchase any Debenture upon the occurrence of a Change in Control in a manner adverse to the holder of Debentures, (viii) impair the right to convert the Debentures into Common Stock subject to the terms set forth herein, including Section 14.6, without the consent of the holder of each Debenture so affected, or (B) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Debentures then outstanding. Upon the request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or an Assistant Secretary authorizing the execution or any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Debentureholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to enter into such supplemental indenture. It shall not be necessary for the consent of the Debentureholders under this Section 10.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 10.3 EFFECT OF SUPPLEMENTAL INDENTURE. Any supplemental indenture executed pursuant to the provisions of this Article X shall comply with the Trust Indenture Act, as then in effect. Upon the execution of any supplemental indenture pursuant to the provisions of this Article X, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be 45 and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 10.4 NOTATION ON DEBENTURES. Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article X may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may, at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 16.11) and delivered in exchange for the Debentures then outstanding, upon surrender of such Debentures then outstanding. Section 10.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE FURNISHED TRUSTEE. The Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be entitled to receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article X. ARTICLE XI CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 11.1 COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS. Subject to the provisions of Section 11.2, nothing contained in this Indenture or in any of the Debentures shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance or lease (or successive sales, conveyances or leases) of all or substantially all of the property of the Company, to any other corporation (whether or not affiliated with the Company), authorized to acquire and operate the same and which, in each case, shall be organized under the laws of the United States of America, any state thereof or the District of Columbia; PROVIDED, that upon any such consolidation, merger, sale, conveyance or lease, the due and punctual payment of the principal of and premium, if any, and interest on all of the Debentures, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company, shall be expressly assumed, by supplemental indenture reasonably satisfactory in form to the Trustee, executed and delivered to the Trustee by the corporation (if other than the Company) formed by such consolidation, or into which the Company 46 shall have been merged, or by the corporation which shall have acquired or leased such property, and such supplemental indenture shall provide for the applicable conversion rights set forth in Section 14.6. Section 11.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any such consolidation, merger, sale, conveyance or lease and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest on all of the Debentures and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of ALZA Corporation any or all of the Debentures issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Debentures which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Debentures which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale or conveyance (but not in the event of any such lease), the person named as the "Company" in the first paragraph of this Indenture or any successor which shall thereafter have become such in the manner prescribed in this Article XI may be dissolved, wound up and liquidated at any time thereafter and such person shall be released from its liabilities as obligor and maker of the Debentures and from its obligations under this Indenture. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. Section 11.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee, subject to Sections 7.1 and 7.2, shall be entitled to receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, 47 conveyance or lease and any such assumption complies with the provisions of this Article XI. ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE Section 12.1 DISCHARGE OF INDENTURE. When (a) the Company shall deliver to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures which have been destroyed, lost or stolen and in lieu of or in substitution for which other Debentures shall have been authenticated and delivered) and not theretofore cancelled, or (b) all the Debentures not theretofore cancelled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all of the Debentures (other than any Debentures which shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Debentures shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Debentures, (ii) rights hereunder of Debentureholders to receive payments of principal of and premium, if any, and interest on, the Debentures and the other rights, duties and obligations of Debentureholders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 16.5 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Debentures. Section 12.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE. Subject to Section 12.4, all monies deposited with the Trustee pursuant to Section 12.1 and not in violation of Article IV shall be held in trust for the sole benefit of the 48 Debentureholders and not to be subject to the subordination provisions of Article IV, and such monies shall be applied by the Trustee to the payment, either directly or through any Paying Agent (including the Company if acting as its own Paying Agent), to the holders of the particular Debentures for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest and premium, if any. Section 12.3 PAYING AGENT TO REPAY MONIES HELD. Upon the satisfaction and discharge of this Indenture, all monies then held by any Paying Agent (other than the Trustee) shall, upon written request of the Company, be repaid to the Company or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such monies. Section 12.4 RETURN OF UNCLAIMED MONIES. Subject to the requirements of applicable law, any monies deposited with or paid to the Trustee for payment of the principal of, premium, if any, or interest on Debentures and not applied but remaining unclaimed by the holders of Debentures for two years after the date upon which the principal of, premium, if any, or interest on such Debentures, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee on demand and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Debentures shall thereafter look only to the Company for any payment which such holder may be entitled to collect unless an applicable abandoned property law designates another Person. Section 12.5 REINSTATEMENT. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 12.2 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Debentures shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.1 until such time as the Trustee or the Paying Agent is permitted to apply all such money in accordance with Section 12.2; PROVIDED, HOWEVER, that if the Company makes any payment of interest on or principal of any Debenture following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Debentures to receive such payment from the money held by the Trustee or Paying Agent. 49 ARTICLE XIII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 13.1 INDENTURE AND DEBENTURES SOLELY CORPORATE OBLIGATIONS. No recourse for the payment of the principal of or premium, if any, or interest on any Debenture, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Debenture, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporations, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Debentures. ARTICLE XIV CONVERSION OF DEBENTURES Section 14.1 RIGHT TO CONVERT. Subject to and upon compliance with the provisions of this Indenture, the holder of any Debenture shall have the right, at such Holder's option, at any time prior to the close of business on [____], 2006 (except that, with respect to any Debenture or portion of a Debenture which shall be called for redemption, such right shall terminate, except as provided in Section 14.2 or Section 3.4, at the close of business on the Business Day next preceding the date fixed for redemption of such Debenture or portion of a Debenture unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Debenture, or any portion of such principal amount which is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the principal amount of the Debenture or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Debenture so to be converted in whole or in part, together with any required funds, in the manner provided in Section 14.2. A holder of Debentures is not entitled to any rights of a holder of Common Stock until such holder has converted his Debentures to Common Stock, and only to the extent such Debentures are deemed to have been converted to Common Stock under this Article XIV. 50 Section 14.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to exercise the conversion privilege with respect to any Debenture, the holder of such Debenture shall surrender such Debenture, duly endorsed, at an office or agency maintained by the Company pursuant to Section 5.2, accompanied by the funds, if any, required by the penultimate paragraph of this Section 14.2, and shall give written notice of conversion in the form provided on the Debentures (or such other notice which is acceptable to the Company) to the office or agency that the holder elects to convert such Debenture or the portion thereof specified in said notice. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 14.7. Each such Debenture surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Debenture, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Debentureholder (as if such transfer were a transfer of the Debenture or Debentures (or portion thereof) so converted), the Company shall issue and shall deliver to such holder at the office or agency maintained by the Company for such purpose pursuant to Section 5.2, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Debenture or portion thereof in accordance with the provisions of this Article and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 14.3. In case any Debenture of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and deliver to the holder of the Debenture so surrendered, without charge to him, a new Debenture or Debentures in authorized denominations in an aggregated principal amount equal to the unconverted portion of the surrendered Debenture. Each conversion shall be deemed to have been effected as to any such Debenture (or portion thereof) on the date on which the requirements set forth above in this Section 14.2 have been satisfied as to such Debenture (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the 51 shares represented thereby; PROVIDED, HOWEVER, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Debenture shall be surrendered. Any Debenture or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day next preceding the following interest payment date shall (unless such Debenture or portion thereof being converted shall have been called for redemption during the period from the close of business on such record date to the close of business on the Business Day next preceding the following interest payment date) be accompanied by payment, in New York Clearing House funds or other funds acceptable to the Company, of an amount equal to the interest payable on such interest payment date on the principal amount being converted; PROVIDED, HOWEVER, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Debentures. Except as provided above in this Section 14.2, no adjustment shall be made for interest accrued on any Debenture converted or for dividends on any shares issued upon the conversion of such Debenture as provided in this Article. Section 14.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Debentures. If more than one Debenture shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Debentures (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Debenture or Debentures, the Company shall make an adjustment and payment therefor in cash at the current market value thereof to the holder of Debentures. The current market value of a share of Common Stock shall be the Closing Price on the first Trading Day immediately preceding the day on which the Debentures (or specified portions thereof) are deemed to have been converted. Section 14.4 CONVERSION PRICE. The conversion price shall be as specified in the form of Debenture (herein called the "Conversion Price") attached as Exhibit A hereto, subject to adjustment as provided in this Article XIV. 52 Section 14.5 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 14.5(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, no adjustment need be made to the Conversion Price if the holders of the Debentures are to participate in such issuance of rights or warrants on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in such issuance of rights or warrants; PROVIDED that no Holder shall be required to convert such Holder's Debenture. In the event that such Board of Directors determination is not made, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction of which the numerator 53 shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the total number of additional shares of Common Stock offered for subscription or purchase. Such adjustments shall be successively made whenever any such rights and warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of 54 business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 14.5(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 14.5(b), and excluding any dividend or distribution paid exclusively in cash (any of the foregoing hereinafter in this Section 14.5(d) called the "SECURITIES")), then, in each such case (unless (i) the Company elects to reserve such Securities for distribution to the Debentureholders upon the conversion of the Debentures so that any such holder converting Debentures will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had converted its Debentures into Common Stock immediately prior to the Record Date (as defined in Section 14.5(g) for such distribution of the Securities) or (ii)the Holders are entitled to participate in such distribution on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in such distribution), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect on the Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock on such Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Record Date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be the Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Record Date; PROVIDED, HOWEVER, that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Debentureholder shall have the right to receive upon conversion the amount of Securities such 55 holder would have received had such holder converted each Debenture on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 14.5(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock. In the event the Company implements a stockholder rights plan, such rights plan shall provide that upon conversion of the Debentures the Holders will receive, in addition to the Common Stock issuable upon such conversion, the rights issued under such rights plan (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion). Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("TRIGGER EVENT"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 14.5 (and no adjustment to the Conversion Price under this Section 14.5 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Price shall be made under this Section 14.5(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 14.5 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exer- 56 cise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Section 14.5(d) and Sections 14.5(a) and (b), any dividend or distribution to which this Section 14.5(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both) referred to in Section 14.5(b), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Price reduction required by this Section 14.5(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 14.5(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 14.5(a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 14.5(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any 57 cash dividend or other cash distribution on the Common Stock paid during any 12-month period which when combined with (A) all such all-cash distributions made within such 12-month period in respect of which no adjustment has been made plus (B) any cash and the fair market value of other consideration payable in respect of any tender offers by the Company or any of its subsidiaries for Common Stock concluded within such 12-month period in respect of which no adjustment has been made, does not exceed 15% of the Company's market capitalization (being the product of the Current Market Price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such dividend or distribution, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the Conversion Price shall be reduced so that the, same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date for such distribution by a fraction of which the numerator shall be the Current Market Price of the Common Stock on the Record Date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock and the denominator shall be such Current Market Price of the Common Stock, such reduction to be effective immediately prior to the opening of business on the day following the Record Date; PROVIDED, HOWEVER, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Debentureholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Debenture on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. 58 (f) In case a tender or exchange offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that as of the last time (the "EXPIRATION TIME") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "PURCHASED SHARES") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective as of immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made. 59 (g) For purposes of this Section 14.5, the following terms shall have the meaning indicated: 60 (1) "CLOSING PRICE" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in the case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the- counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (2) "CURRENT MARKET PRICE" shall mean the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; PROVIDED, HOWEVER, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of Section 14.5(d) or (f) whose determination 61 shall be conclusive and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 14.5(f) the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; PROVIDED, HOWEVER, that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time of such offer. (3) "FAIR MARKET VALUE" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (4) "RECORD DATE" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "TRADING DAY" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (y) if the applicable security 62 is quoted on the Nasdaq National Market, a day on which trades may be made on thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (h) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 14. 5(a), (b), (c), (d), (e) and (f) as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) business days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to holders of record of the Debentures a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 14.5(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article XIV shall be made by the Company and shall be made to the nearest cent or to the nearest one thousandth of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Debentures become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash. 63 (j) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any Conversion Agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Debenture at his last address appearing on the Debenture register, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (k) In any case in which this Section 14.5 provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Debenture converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 14.3. (l) For purposes of this Section 14.5, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. 64 Section 14.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 14.5(c) applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation (as 67 as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Debentures shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Debentures (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Debentures) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise such holder's rights of election, if any, as to the kind or amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("nonelecting share"), then for the purposes of this Section 14.6 the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Debentures, at his address appearing on the Debenture register provided for in Section 2.5 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 14.6 applies to any event or occurrence, Section 14.5 shall not apply. 68 Section 14.7 TAXES ON SHARES ISSUED. The issue of stock certificates on conversions of Debentures shall be made without charge to the converting Debentureholder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Debenture converted, and, in such event, the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax had been paid. Section 14.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The Company shall reserve, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Debentures from time to time as such Debentures are presented for conversion. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Debentures, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Debentures will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Debentures hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. The Company further covenants that if at any time the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange the Company will, if permitted by the rules of such exchange, list and keep listed so long as the Common Stock shall be so listed on such exchange, all Common Stock issuable upon conversion of the Debentures. Section 14.9 RESPONSIBILITY OF TRUSTEE. The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility to any holder of Debentures to 69 determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debenture; and the Trustee and any other Conversion Agent make no representations with respect thereto. Subject to the provisions of Section 7.1, neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Debenture for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 14.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Debentureholders upon the conversion of their Debentures after any event referred to in such Section 14.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 14.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Price pursuant to Section 14.5; or (2) the Company shall authorize the granting to all or substantially all the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (3) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the 70 Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall cause to be filed with the Trustee and to be mailed to each holder of Debentures, as promptly as possible but in any event at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, or rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. ARTICLE XV REPURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER UPON CHANGE IN CONTROL Section 15.1 RIGHT TO REQUIRE REPURCHASE. In the event that a Change in Control (as hereinafter defined) shall occur, then each Holder shall have the right, at the Holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such holder's Debentures, or any portion of the principal amount thereof that is an integral multiple of $1,000 (provided that no single Debenture may be repurchased in part unless the portion of the principal amount of such Debenture to be outstanding after such repurchase is equal to $1,000 or an integral multiple of $1,000), on the date (the "REPURCHASE DATE") that is 30 days after the date of the Company Notice (as defined in Section 15.2) for cash at a purchase price equal to 100% of the principal amount (the "REPURCHASE PRICE"), plus interest accrued and unpaid interest to, but excluding, the Repurchase Date; PROVIDED that if the Repurchase Date is _________ or ________, then the interest payable on such date shall be paid to the holder of record of the Debenture on the next preceding __________ or _____________, respectively. Whenever in this Indenture there is a reference, in any context, to the principal of any Debenture as of any time, 71 such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Debenture to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made. Section 15.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC. (a) Unless the Company shall have theretofore called for redemption all of the outstanding Debentures pursuant to Article III, on or before the 30th day after the occurrence of a Change in Control, the Company or, at the request of the Company on or before the 15th day after such occurrence, the Trustee shall give to all holders of Debentures notice (the "Company Notice") of the occurrence of the Change in Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee. Each Company Notice shall state: (i) the Repurchase Date, (ii) the date by which the repurchase right must be exercised, (iii) the Repurchase Price, (iv) a description of the procedure which a holder must follow to exercise a repurchase right, (v) that on the Repurchase Date the Repurchase Price will become due and payable upon each such note designated by the holder to be repurchased, and that interest thereon shall cease to accrue on and after said date, (vi) the Conversion Price, the date on which the right to convert the Debentures to be repurchased will terminate and the places where such Debentures may be surrendered for conversion, and (vii) the place or places where such Debentures are to be surrendered for payment of the Repurchase Price and accrued interest, if any. No failure of the Company to give the foregoing notices or defect therein shall limit any holder's right to exercise a 72 repurchase right or affect the validity of the proceedings for the repurchase of Debentures. If any of the foregoing provisions or other provisions of this Article are inconsistent with applicable law, such law shall govern. (b) To exercise a repurchase right, a holder shall deliver to the Trustee or any Paying Agent on or before the 30th day after the date of the Company Notice (i) written notice of the holder's exercise of such right, which notice shall set forth the name of the holder, the principal amount of the Debentures to be repurchased (and, if any Debenture is to be repurchased in part, the serial number thereof, the portion of the principal amount thereof to be repurchased and the name of the Person in which the portion thereof to remain outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Debentures with respect to which the repurchase is being exercised. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee or the Paying Agent the Repurchase Price in cash, for payment to the holder on the Repurchase Date, together with accrued and unpaid interest to, but excluding, the Repurchase Date payable with respect to the Debentures as to which the purchase right has been exercised. (d) If any Debenture (or portion thereof) surrendered for repurchase to be paid on the Repurchase Date, the principal amount of such Debenture (or portion thereof, as the case may be) shall, until paid, bear interest from the Repurchase Date at the rate borne by the Debentures, and each Debenture shall remain convertible into Common Stock until the principal of such Debenture (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) Any Debenture which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee authenticate and deliver to the holder of such Debenture without service charge, a new Debenture or Debentures, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the portion of the principal of the Debenture so surrendered that was not repurchased. 73 (f) Any holder that has delivered to the Trustee its written notice exercising its right to require the Company to repurchase its Debentures upon a Change in Control shall have the right to withdraw such notice at any time prior to the close of business on the Repurchase Date by delivery of a written notice of withdrawal to the Trustee prior to the close of business on such date. A Debenture in respect of which a holder is exercising its option to require repurchase upon a Change in Control may be converted into Common Stock in accordance with Article XV only if such holder withdraws its notice in accordance with the preceding sentence. Section 15.3 CERTAIN DEFINITIONS. For purposes of this Article XV only, (1) the term "BENEFICIAL OWNER" shall be determined in accordance with Rule 13d-3 promulgated by the Commission pursuant to the Exchange Act; and (2) the term "PERSON" shall include any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act. Section 15.4 CHANGE IN CONTROL. A "CHANGE IN CONTROL" shall be deemed to have occurred at such time after the original issuance of the Debentures as: (1) there is a report filed by any Person, other than the Company, any Subsidiary of the Company, or any employee benefit plan of the Company or any such Subsidiary, on Schedule 13D or 14D-1 pursuant to the Exchange Act, disclosing that such Person has become the Beneficial Owner, directly or indirectly, through a purchase or other acquisition transaction or series of transactions (other than a merger or consolidation involving the Company), of shares of capital stock of the Company which entitle such Person to exercise in excess of 50% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors; or (2) there occurs any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sale or transfer of all or substantially all of the assets of the Company to another Person (other than (i) any such transaction pursuant to which the holders of the Common Stock immediately prior to such transaction have, directly or indirectly, shares of capital stock of the continuing or surviving corporation immediately after such transaction which entitle such holders to exercise in excess of 50% of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in the election of directors and (ii) any merger (1) which does not result in any reclassification, conversion, exchange or 74 cancellation of outstanding shares of Common Stock or (2) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of common stock). Section 15.5 CONSOLIDATION, MERGER, ETC. In the case of any reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 14.6 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive shares of stock and other securities or property or assets (including cash) which includes shares of Common Stock of the Company or common stock of another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such shares of stock and other securities, property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or combination or which acquires the properties or assets (including cash) of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of the Debentures to cause the company to repurchase the Debentures following a Change in Control, including without limitation the applicable provisions of this Article XV and the definitions of the Common Stock and Change in Control, as appropriate, and such other related definitions set forth herein as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to the common stock and the issuer thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). ARTICLE XVI MISCELLANEOUS PROVISIONS Section 16.1 SUCCESSORS. All agreements of the Company in this Indenture and the Debentures shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 16.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act of proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee 75 or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. Section 16.3 NOTICES. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows: if to the Company: ALZA Corporation 950 Page Mill Road P O Box 10950 Palo Alto, California 94303 - 0802 Attention: Vice President and General Counsel if to the Trustee: The Chase Manhattan Bank, N.A. 4 Chase MetroTech Center, 3rd Floor Brooklyn, New York 11245 Attention: Institutional Trust Group The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Debentureholder shall be mailed to such Holder by first class mail, postage prepaid, at his address as it appears on the Debenture register and shall be sufficiently given to such Holder if so mailed with the time prescribed. Failure to mail a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 16.4 GOVERNING LAW. This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the state of New York, as applied to contracts made and performed within the state of New York, without regard to principles of conflict of laws. Section 16.5 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provid- 76 ed for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 16.6 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each Officers' Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that each person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such person, such covenant or condition has been complied with. Section 16.7 LEGAL HOLIDAYS. A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action shall be taken on the next succeeding day that is not a Legal Holiday, and to the extent applicable no interest, if any, shall accrue for the intervening period. Section 16.8 TRUST INDENTURE ACT CONTROLS. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in an indenture qualified under the Trust Indenture Act, such required provision shall control. Section 16.9 NO SECURITY INTEREST CREATED. Nothing in this Indenture or in the Debentures, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction where property of the Company or its subsidiaries is located. Section 16.10 BENEFITS OF INDENTURE. Nothing in this Indenture or in the Debentures, expressed or implied, shall give 77 to any Person, other than the parties hereto, any Paying Agent, any authenticating agent, any Debenture registrar and their successors hereunder, the holders of Debentures and the holders of Senior Indebtedness, any benefit or any legal for equitable right, remedy or claim under this Indenture. Section 16.11 TABLE OF CONTENTS, HEADINGS, ETC. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 16.12 AUTHENTICATING AGENT. The Trustee may appoint an authenticating agent which shall be authorized to act on its behalf and subject to its direction in the authenticating and delivery of Debentures in connection with the original issuance thereof and transfers and exchanges of Debentures hereunder, including under Sections 2.2, 2.6, 2.7, 2.9, 3.3, 14.2 and 15.2, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Debentures. For all purposes of this Indenture, the authentication and delivery of Debentures by the authenticating agent shall be deemed to be authentication and delivery of such Debentures "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Debentures for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a person eligible to serve as trustee hereunder pursuant to Section 7.9. Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticated agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation is otherwise eligible under this Section 16.12, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall either promptly appoint a successor authenticating agent or itself assume the 78 duties and obligations of the former authenticating agent under this Indenture, and upon such appointment of a successor authenticating agent, if made, shall give written notice of such appointment of a successor authenticating agent to the Company and shall mail notice of such appointment of a successor authenticating agent to all holders of Debentures as the names and addresses of such holders appear on the Debenture register. The Trustee agrees to pay to the authenticating agent from time to time reasonable compensation for its services (to the extent pre-approved by the Company in writing), and the Trustee shall be entitled to be reimbursed for such pre-approved payments, subject to Section 7.6. The provisions of Sections 7.2, 7.3, 7.4, 8.3 and this Section 16.12 shall be applicable to any authenticating agent. Section 16.13 SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 16.14 RULES BY TRUSTEE, PAYING AGENT, CONVERSION AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of the Debentureholders. The Registrar, Conversion Agent and the Paying Agent may make reasonable rules for their functions. Section 16.15 NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Debentures or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Debenture, each Debentureholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Debentures. Section 16.16 EXECUTION IN COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. The Chase Manhattan Bank, N.A. hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. 79 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly signed, all as of the date first written above. ALZA CORPORATION By: _______________________________ Name: _____________________________ Title: ____________________________ Attest: ____________________ Title: THE CHASE MANHATTAN BANK, N.A. not in its individual capacity but solely as Trustee By: _______________________________ Name: _____________________________ Title: ____________________________ Attest: ____________________ Title: EXHIBIT A ALZA CORPORATION % CONVERTIBLE SUBORDINATED DEBENTURE DUE 2006 ---- No. __ CUSIP ________ ALZA Corporation, a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company"), which term includes any successor corporation under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to _____________________ or registered assigns, the principal sum of __________ ($__________) on , 2006, at the office or agency of the Company main- tained for that purpose in The City of New York, or, at the option of the holder of this Debenture, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on ___________ and ___________ of each year, commencing [___________, 1996], on said principal sum at said office or agency, in like coin or currency, at the rate per annum of %, from ___________ or ___________, as the case may be, next preceding the date of this Debenture to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Debenture, or unless no interest has been paid or duly provided for on the Debentures, in which case from [___________ ,] until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any ___________ or ___________, as the case may be, and before the following ___________ or ___________, this Debenture shall bear interest from such ___________ or ___________; PROVIDED, HOWEVER, that if the Company shall default in the payment of interest due on such ___________ or ___________, then this Debenture shall bear interest from the next preceding ___________ or ___________ to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Debenture, from [___________] 1996. The interest payable on the Debenture pursuant to the Indenture on any ___________ or ___________ will be paid to the person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on the record date, which shall be the ___________ or ___________ (whether or not a Business Day) next preceding such ___________ or ___________, as provided in the Indenture; PROVIDED that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest may, at the option of the Company, be paid by check mailed to the registered address of such person. Reference is made to the further provisions of this Debenture set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on the Debentures to the prior payment in full of all Senior Indebtedness, as defined in the Indenture, and provisions giving the holder of this Debenture the right to convert this Debenture into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed under its corporate seal. Dated: ALZA CORPORATION By: ------------------------------------------ [SEAL] Attest: -------------------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-named Indenture. THE CHASE MANHATTAN BANK, N.A., not in its individual capacity but solely as Trustee By: -------------------------------- Authorized Signatory By: ------------------------------- As Authenticating Agent (if different from Trustee) [FORM OF REVERSE OF DEBENTURE] ALZA CORPORATION % CONVERTIBLE SUBORDINATED DEBENTURE DUE 2006 ---- This Debenture is one of a duly authorized issue of Debentures of the Company, designated as its ___% Convertible Subordinated Debentures due 2006 (the "Debentures"), issued pursuant to an indenture, dated as of April ___, 1996 (the "Indenture"), between the Company and The Chase Manhattan Bank, N.A., not in its individual capacity but solely as trustee (the "Trustee"). Reference is hereby made to the Indenture for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of and accrued interest on all Debentures may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Debentures; PROVIDED, HOWEVER, that no such supplemental indenture shall (i) extend the fixed maturity of any Debenture, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, or impair the right of any Debentureholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Debenture, or modify the provisions of the Indenture with respect to the subordination of the Debentures in a manner adverse to the Debentureholders in any material respect, or change the obligation of the Company to repurchase any Debenture upon the occurrence of a Change in Control in a manner adverse to the holder of the Debentures, or impair the right to convert the Debentures into Common Stock subject to the terms set forth in the Indenture, including Section 14.7 thereof, without the consent of the holder of each Debenture so affected or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Debentures then out- standing. It is also provided in the Indenture that the holders of a majority in aggregate principal amount of the Debentures at the time outstanding may on behalf of the holders of all of the Debentures waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Debentures, a default in the payment of redemption price pursuant to Article III or repurchase price pursuant to Article XV or a failure by the Company to convert any Debentures into Common Stock of the Company. Any such consent or waiver by the holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and any Debentures which may be issued in exchange or substitute hereof, irrespective of whether or not any notation thereof is made upon this Debenture or such other Debentures. The indebtedness evidenced by the Debentures is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture, whether outstanding at the date of the Indenture or thereafter incurred, and this Debenture is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Debenture, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney-in-fact for such purpose. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Debenture at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Debentures shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The Debentures are issuable in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Debentures, Debentures may be exchanged for a like aggregate principal amount of Debentures of other authorized denominations. The Debentures will not be redeemable at the option of the Company prior to _____, 1999. At any time on or after _____, 1999, and prior to maturity the Debentures may be redeemed at the option of the Company as a whole, or from time to time in part, upon mailing a notice of such redemption not less than 30 nor more than 60 days before the date fixed for redemption to the holders of Debentures at their last registered addresses, all as provided in the Indenture, at the following optional redemption prices (expressed as percentages of the principal amount), together in each case with accrued interest to, but excluding, the date fixed for redemption. If redeemed during the 12-month period beginning ______________: Redemption Year Price ---- ----- 1999. . . . . . . . . . . . ___.___% 2000. . . . . . . . . . . . ___.___% 2001. . . . . . . . . . . . ___.___% 2002. . . . . . . . . . . . ___.___% 2003 and thereafter . . . . 100.000% provided that any semi-annual payment of interest becoming due on the date fixed for redemption shall be payable to the holders of record on the relevant record date of the Debentures being redeemed. The Debentures are not subject to redemption through the operation of any sinking fund. If a Change in Control (as defined in the Indenture) occurs, the holder of this Debenture shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase this Debenture or any portion of the principal amount hereof that is an integral multiple of $1,000 for cash at a Repurchase Price equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding, the Repurchase Date; PROVIDED that if such Repurchase Date is ___________ or ___________, then the interest payable on such date shall be paid to the holder of record of the Debenture on the next preceding ___________ or _____________, respectively. Within 15 days after the occurrence of a Change in Control, the Company is obligated to give all holders of record of Debentures notice of the occurrence of such Change in Control and of the repurchase right arising as a result thereof. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 60 days following the latest date of original issuance of the Debentures and prior to the close of business on ___________, 2006, or, as to all or any portion hereof called for redemption, prior to the close of business on the Business Day immediately preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple thereof, into that number of shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Debenture or portion thereof to be converted by the Conversion Price of $_____ or such Conversion Price as adjusted from time to time as provided in the Indenture, upon surrender of this Debenture, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in The City of New York, or at the option of such holder, the Corporate Trust Office, and, unless the shares issuable on conversion are to be issued in the same name as this Debenture, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or divi- dends will be made upon any conversion; PROVIDED, HOWEVER, that if this Debenture shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date, this Debenture (unless it or the portion being converted shall have been called for redemption during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the interest payment date) must be accompanied by an amount, in New York Clearing House funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Debenture or Debentures for conversion. Any Debentures called for redemption, unless surrendered for conversion on or before the close of business on the date fixed for redemption, may be deemed to be purchased from the holder of such Debentures at an amount equal to the applicable redemption price, together with accrued interest to the date fixed for redemption, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Debentures from the holders thereof and convert them into Common Stock of the Company and to make payment for such Debentures as aforesaid to the Trustee in trust for such holders. Upon due presentment for registration of transfer of this Debenture at the office or agency of the Company in The City of New York, or at the option of the holder of this Debenture, at the Corporate Trust Office, a new Debenture or Debentures of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any Paying Agent, any Conversion Agent and any Debenture registrar may deem and treat the registered holder hereof as the absolute owner of this Debenture (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any Paying Agent nor any other Conversion Agent nor any Debenture registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Debenture. No recourse for the payment of the principal of or any premium or interest on this Debenture, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Deben- ture, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. Terms used in this Debenture and defined in the Indenture are used herein as therein defined. ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Debenture, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT-- ______ Custodian ______ TEN ENT - as tenants by the (Cust.) (Minor) entireties under Uniform Gifts to Minors Act JT TEN - as joint tenants with right of survivorship and not -------------------------------------- as tenants in common (State)
Additional abbreviations may also be used though not in the above list. CONVERSION NOTICE To: ALZA CORPORATION The undersigned registered owner of this Debenture hereby irrevocably exercises the option to convert this Debenture, or the portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of ALZA Corporation in accordance with the terms of the Indenture referred to in this Debenture, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Debentures representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Debenture not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Debenture. Dated: -------------- ----------------------------------------------------- ----------------------------------------------------- Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stockbrokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Debentures to be delivered, other than to and in the name of the registered holder. ----------------------------------------------------- Signature Guarantee Fill in for registration of shares of Common Stock if to be issued, and Debentures if to be delivered, other than to and in the name of the registered holder: - ------------------------- (Name) - ------------------------- (Street Address) - ------------------------- (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all): $________ ------------------------------------------------ Social Security or Other Taxpayer Identification Number OPTION TO ELECT REPURCHASE UPON A CHANGE IN CONTROL To: ALZA CORPORATION The undersigned registered owner of this Debenture hereby irrevocably acknowledges receipt of a notice from ALZA Corporation (the "Company") as to the occurrence of a Change in Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Debenture, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Debenture at the repurchase price, together with accrued interest to, but excluding, such date, to the registered holder hereof. Dated: -------------- ------------------------------------------------ ------------------------------------------------ Signature(s) NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Debenture in every particular without alteration or enlargement or any change whatever. Principal amount to be repurchased (if less than all): $________ ------------------------------------------------ Social Security or Other Taxpayer Identification Number TABLE OF CONTENTS ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 1 Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Cash or cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Company Order . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Corporate Trust Office. . . . . . . . . . . . . . . . . . . . . . 2 Debenture or Debentures . . . . . . . . . . . . . . . . . . . . . 2 Debentureholder or Holder . . . . . . . . . . . . . . . . . . . . 2 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . 3 Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . 3 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . 3 Over-Allotment Option . . . . . . . . . . . . . . . . . . . . . . 3 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Predecessor Debenture . . . . . . . . . . . . . . . . . . . . . . 3 Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . 4 Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . 4 Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . 4 Securities Act. . . . . . . . . . . . . . . . . . . . . . . . . . 4 Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 4 Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 5 Trust Officer . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . . 5 Section 1.3 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . 6 Section 1.4 Rules of Construction . . . . . . . . . . . . . . . . . . 6 ARTICLE II THE DEBENTURES. . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.1 Form and Dating . . . . . . . . . . . . . . . . . . . . . 7 Section 2.2 Execution and Authentication. . . . . . . . . . . . . . . 7 Section 2.3 Registrar, Paying Agent and Conversion Agent. . . . . . . . . . . . . . . . . . . . . 8 Section 2.4 Paying Agent To Hold Assets in Trust. . . . . . . . . . . 8 i Section 2.5 Debentureholder Lists . . . . . . . . . . . . . . . . . . 9 Section 2.6 Transfer and Exchange . . . . . . . . . . . . . . . . . . 9 Section 2.7 Replacement Debentures. . . . . . . . . . . . . . . . . . 10 Section 2.8 Outstanding Debentures; Determinations of Holders' Action . . . . . . . . . . . . 11 Section 2.9 Temporary Debentures. . . . . . . . . . . . . . . . . . . 12 Section 2.10 Cancellation. . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE III REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.1 Right to Redeem; Notices to Trustee . . . . . . . . . . . 13 Section 3.2 Selection of Debentures to Be Redeemed. . . . . . . . . . . . . . . . . . . . . . 13 Section 3.3 Notice of Redemption. . . . . . . . . . . . . . . . . . . 14 Section 3.4 Effect of Notice of Redemption. . . . . . . . . . . . . . 14 Section 3.5 Deposit of Redemption Price . . . . . . . . . . . . . . . 15 Section 3.6 Debentures Redeemed in Part.. . . . . . . . . . . . . . . 15 Section 3.7 Conversion Arrangement on Call for Redemption. . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IV SUBORDINATION OF DEBENTURES . . . . . . . . . . . . . . . . . . 16 Section 4.1 Debentures Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . 16 Section 4.2 Payment Over of Proceeds Upon Dissolution. . . . . . . . . . . . . . . . . . . . . 16 Section 4.3 Prior Payment of Senior Indebtedness Upon Acceleration of Debentures . . . . . . . . . . . . . 18 Section 4.4 No Payment When Senior Indebtedness in Default. . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.5 Payment Permitted If No Default . . . . . . . . . . . . . 19 Section 4.6 Subrogation to Rights of Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . . 19 Section 4.7 Provisions Solely to Define Relative Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.8 Trustee to Effectuate Subordination . . . . . . . . . . . 20 Section 4.9 No Waiver of Subordination Provisions. . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.10 Notice to Trustee . . . . . . . . . . . . . . . . . . . . 21 Section 4.11 Reliance on Judicial Order or Certificate of Liquidating Agent. . . . . . . . . . . . . 22 Section 4.12 Trustee Not Fiduciary for Holders of Senior Indebtedness. . . . . . . . . . . . . . 22 Section 4.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. . . . . . . . . . . . . . . . . . . . . 22 Section 4.14 Article Applicable to Paying Agents . . . . . . . . . . . 22 Section 4.15 Certain Conversions Deemed Payment. . . . . . . . . . . . 23 ARTICLE V PARTICULAR COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . 23 Section 5.1 Payment of Principal, Premium ii and Interest. . . . . . . . . . . . . . . . . . . . . . . 23 Section 5.2 Maintenance of Office or Agency . . . . . . . . . . . . . 24 Section 5.3 Appointments to Fill Vacancies in Trustee's Office. . . . . . . . . . . . . . . . . . . . . 24 Section 5.4 Corporate Existence . . . . . . . . . . . . . . . . . . . 24 Section 5.5 Stay, Extension and Usury Laws. . . . . . . . . . . . . . 24 Section 5.6 Compliance Certificate. . . . . . . . . . . . . . . . . . 25 Section 5.7 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VI DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . 25 Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . 25 Section 6.2 Payments of Debentures on Default; Suit Therefor . . . . . . . . . . . . . . . . . . . . . . 28 Section 6.3 Application of Monies Collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.4 Proceedings by Debentureholder. . . . . . . . . . . . . . 31 Section 6.5 Proceedings by Trustee. . . . . . . . . . . . . . . . . . 31 Section 6.6 Remedies Cumulative and Continuing. . . . . . . . . . . . 32 Section 6.7 Direction of Proceedings and Waiver of Defaults by Majority of Debentureholders. . . . . . . . . . . . . . . . . . . . . 32 Section 6.8 Undertaking to Pay Costs. . . . . . . . . . . . . . . . . 33 ARTICLE VII TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.1 Duties of Trustee . . . . . . . . . . . . . . . . . . . . 33 Section 7.2 Rights of Trustee . . . . . . . . . . . . . . . . . . . . 35 Section 7.3 Individual Rights of Trustee. . . . . . . . . . . . . . . 35 Section 7.4 Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . 36 Section 7.5 Notice of Defaults. . . . . . . . . . . . . . . . . . . . 36 Section 7.6 Reports by Trustee to Holders . . . . . . . . . . . . . . 36 Section 7.7 Compensation and Indemnity. . . . . . . . . . . . . . . . 36 Section 7.8 Replacement of Trustee. . . . . . . . . . . . . . . . . . 37 Section 7.9 Successor Trustee by Merger . . . . . . . . . . . . . . . 38 Section 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . 38 Section 7.11 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE VIII CONCERNING THE DEBENTUREHOLDERS . . . . . . . . . . . . . . . 39 Section 8.1 Action by Debentureholders. . . . . . . . . . . . . . . . 39 Section 8.2 Proof of Execution by Debentureholders. . . . . . . . . . . . . . . . . . . . . 39 Section 8.3 Who Are Deemed Absolute Owners. . . . . . . . . . . . . . 40 Section 8.4 Revocation of Consents; Future Holders Bound. . . . . . . . . . . . . . . . . . . 40 ARTICLE IX DEBENTUREHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . 40 Section 9.1 Purpose of Meetings . . . . . . . . . . . . . . . . . . . 40 Section 9.2 Call of Meetings by Trustee . . . . . . . . . . . . . . . 41 iii Section 9.3 Call of Meetings by Company or Debentureholders. . . . . . . . . . . . . . . . . . . . . 41 Section 9.4 Qualifications for Voting . . . . . . . . . . . . . . . . 42 Section 9.5 Regulations . . . . . . . . . . . . . . . . . . . . . . . 42 Section 9.6 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 9.7 No Delay of Rights by Meeting . . . . . . . . . . . . . . 43 ARTICLE X SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . 43 Section 10.1 Supplemental Indentures without Consent of Debentureholders. . . . . . . . . . . . . . . 43 Section 10.2 Supplemental Indentures with Consent of Debentureholders . . . . . . . . . . . . . . . . . . . . 45 Section 10.3 Effect of Supplemental Indenture . . . . . . . . . . . . 46 Section 10.4 Notation on Debentures . . . . . . . . . . . . . . . . . 46 Section 10.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. . . . . . . . . . . . 46 ARTICLE XI CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 11.1 Company May Consolidate Etc. on Certain Terms. . . . . . . . . . . . . . . . . . . . . . 46 Section 11.2 Successor Corporation to Be Substituted. . . . . . . . . . . . . . . . . . . . . . . 47 Section 11.3 Opinion of Counsel to Be Given Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . . . . 48 Section 12.1 Discharge of Indenture . . . . . . . . . . . . . . . . . 48 Section 12.2 Deposited Monies to Be Held in Trust by Trustee . . . . . . . . . . . . . . . . . . . . 49 Section 12.3 Paying Agent to Repay Monies Held. . . . . . . . . . . . 49 Section 12.4 Return of Unclaimed Monies . . . . . . . . . . . . . . . 49 Section 12.5 Reinstatement. . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE XIII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS. . . . . . . . . . . . . . . . . . . . 50 Section 13.1 Indenture and Debentures Solely Corporate Obligations. . . . . . . . . . . . . . . . . . 50 ARTICLE XIV CONVERSION OF DEBENTURES . . . . . . . . . . . . . . . . . . . 50 Section 14.1 Right to Convert . . . . . . . . . . . . . . . . . . . . 50 Section 14.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. . . . . . . . . . . . . . . . . . 51 Section 14.3 Cash Payments in Lieu of Fractional iv Shares . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 14.4 Conversion Price . . . . . . . . . . . . . . . . . . . . 53 Section 14.5 Adjustment of Conversion Price . . . . . . . . . . . . . 53 Section 14.6 Effect of Reclassification, Consolidation, Merger or Sale. . . . . . . . . . . . . . 63 Section 14.7 Taxes on Shares Issued . . . . . . . . . . . . . . . . . 64 Section 14.8 Reservation of Shares; Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. . . . . . . . . . 64 Section 14.9 Responsibility of Trustee. . . . . . . . . . . . . . . . 65 Section 14.10 Notice to Holders Prior to Certain Actions. . . . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE XV REPURCHASE OF DEBENTURES AT OPTION OF THE HOLDER UPON CHANGE IN CONTROL. . . . . . . . . . . . . . . . 67 Section 15.1 Right to Require Repurchase. . . . . . . . . . . . . . . 67 Section 15.2 Notices; Method of Exercising Repurchase Right, Etc. . . . . . . . . . . . . . . . . . 67 Section 15.3 Certain Definitions. . . . . . . . . . . . . . . . . . . 69 Section 15.4 Change in Control. . . . . . . . . . . . . . . . . . . . 70 Section 15.5 Consolidation, Merger, Etc.. . . . . . . . . . . . . . . 70 ARTICLE XVI MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 71 Section 16.1 Successors . . . . . . . . . . . . . . . . . . . . . . . 71 Section 16.2 Official Acts by Successor Corporation. . . . . . . . . . . . . . . . . . . . . . . 71 Section 16.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 16.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . 72 Section 16.5 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . 72 Section 16.6 Statements Required in Certificate or Opinion.. . . . . . . . . . . . . . . . . . . . . . . 72 Section 16.7 Legal Holidays . . . . . . . . . . . . . . . . . . . . . 73 Section 16.8 Trust Indenture Act Controls . . . . . . . . . . . . . . 73 Section 16.9 No Security Interest Created . . . . . . . . . . . . . . 73 Section 16.10 Benefits of Indenture. . . . . . . . . . . . . . . . . . 73 Section 16.11 Table of Contents, Headings, Etc.. . . . . . . . . . . . 73 Section 16.12 Authenticating Agent . . . . . . . . . . . . . . . . . . 73 Section 16.13 Separability Clause. . . . . . . . . . . . . . . . . . . 75 Section 16.14 Rules By Trustee, Paying Agent, Conversion Agent and Registrar . . . . . . . . . . . . . 75 Section 16.15 No Recourse Against Others . . . . . . . . . . . . . . . 75 Section 16.16 Execution in Counterparts. . . . . . . . . . . . . . . . 75 v - - - - - - - - - - - - - - - - COMPARISON OF FOOTNOTES - - - - - - - - - - - - - - - - - -FOOTNOTE * - $460,000,000 if the Over-Allotment Option is exercised in full. - - - - - - - - - - - - - - - - COMPARISON OF FOOTERS - - - - - - - - - - - - - - - -FOOTER 1 - 0038247.06 - San Francisco Server la Draft April 4, 1996 - 8:18 pm vi EX-5.1 4 EXHIBIT 5.1 Exhibit 5.1 April 8, 1996 10034-0086 ALZA Corporation 950 Page Mill Road Palo Alto, California 94303-0802 REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: We have acted as counsel to ALZA Corporation, a Delaware corporation ("ALZA"), in connection with the Registration Statement on Form S-3 to be filed with the Securities and Exchange Commission on or about April 8, 1996 (the "Registration Statement"), relating to $460,000,000 principal amount of Convertible Subordinated Debentures Due 2006 (the "Debentures"), including the shares of Common Stock issuable upon conversion thereof (the "Shares") at the initial Conversion Price defined in the form of Indenture included as Exhibit 4.2 to the Registration Statement (the "Indenture"), all as disclosed in the Registration Statement. I. We have assumed the authenticity of all records, documents and instruments submitted to us as originals, the genuineness of all signatures, the legal capacity of all natural persons and the conformity to the originals of all records, documents and instruments submitted to us as copies. We have based our opinion upon the following records, documents, instruments and certificates and such additional certificates relating to factual matters as we have deemed necessary or appropriate for our opinion: ALZA Corporation April 8, 1996 Page 2 (a) The Certificate of Incorporation of ALZA, certified by the Secretary of State of the State of Delaware as of April 3, 1996 and certified to us by an officer of ALZA as being complete and in full force and effect as of the date of this opinion; (b) The Bylaws of ALZA certified to us by an officer of ALZA as being complete and in full force and effect as of the date of this opinion; (c) Certifications by officers of ALZA (i) as to all of the proceedings and actions of the Board of Directors of ALZA relating to the Debentures and the Shares, and (ii) as to certain other factual matters; (d) The Registration Statement; (e) The Indenture; and (f) Certification by an officer of The First National Bank of Boston, transfer agent for ALZA's Common Stock, as to ceratin factual matters. We have assumed that the number of Shares issuable upon exercise of the Debentures at the initial Conversion Price is less than 196,676,527, the number of shares of Common Stock of ALZA, currently authorized but not outstanding or otherwise reserved for issuance and that this number of shares of Common Stock will be available for issuance at the time of conversion. This opinion is limited to the General Corporation Law of the State of Delaware, and we disclaim any opinion as to the laws of any other jurisdiction. We further disclaim any opinion as to any statute, rule, regulation, ordinance, order or other promulgation of any regional or local governmental body or as to any related judicial or administrative opinion. ALZA Corporation April 8, 1996 Page 3 Based upon the foregoing and our examination of such questions of law as we have deemed necessary or appropriate for the purpose of this opinion, and assuming (i) that the full consideration for each Debenture and each Share as stated in the Indenture and the Registration Statement is paid, and (ii) that all applicable securities laws are complied with, it is our opinion that, when issued and sold by ALZA, the Debentures and the Shares will be legally issued, fully paid and nonassessable. This opinion is rendered to you in connection with the Registration Statement and is solely for your benefit. This opinion may not be relied upon by any other person, firm, corporation or other entity without our prior written consent. We disclaim any obligation to advise you of any change of law that occurs, or any facts of which we become aware, after the date of this opinion. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ HELLER EHRMAN WHITE & McAULIFFE EX-8.1 5 EXHIBIT 8.1 Exhibit 8.1 April 8, 1996 10034-0086 ALZA Corporation 950 Page Mill Road Palo Alto, California 94303 REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: We have acted as United States federal income tax counsel to ALZA Corporation, a Delaware corporation ("ALZA"), in connection with the registration under the Securities Act of 1933, as amended, of $400,000,000 aggregate principal amount ($460,000,000 aggregate principal amount if the Underwriter's over-allotment option is exercised) of Subordinated Convertible Debentures Due 2006 (the "Debentures"). In that capacity, we have examined the Registration Statement on Form S-3 (the "Registration Statement") to be filed by ALZA with the Securities and Exchange Commission in connection with the proposed public offering of the Debentures. We are of the opinion that the information in the Registration Statement under the caption "Certain United States Federal Income Tax Considerations," while not purporting to discuss all tax consequences to persons acquiring the Debentures, is correct in all material respects. The foregoing is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (including proposed Treasury Regulations) promulgated thereunder, rulings, official pronouncements and judicial decisions, all as in effect on the date hereof and all of which are subject to change or different interpretations by the Internal Revenue Service or the courts, which change may have retroactive effect. We disclaim any undertaking to advise you of any change in the law that may ALZA Corporation April 8, 1996 Page 2 affect this opinion. We express no opinion as to the laws of any jurisdictions other than the federal income tax laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and further consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement and the Prospectus which forms a part thereof. Very truly yours, /S/ HELLER EHRMAN WHITE & MCAULIFFE EX-12.1 6 EXHIBIT 12.1 EXHIBIT 12.1 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT RATIOS) Interest expense..................................... $ 23,453 $ 19,379 $ 19,204 $ 17,538 $ 16,156 Capitalized interest................................. 1,349 287 1,879 1,325 1,801 Amortization of debt issue expense................... 486 281 318 321 345 Estimated interest portion of rent expense........... 570 528 567 526 412 ---------- ---------- ---------- ---------- ---------- Fixed charges........................................ $ 25,858 $ 20,475 $ 21,968 $ 19,710 $ 18,714 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes, extraordinary refinancing charge and cumulative effect of accounting change................................... $ 116,787 $ 93,290 $ 65,953 $ 105,455 $ (41,407) Fixed charges........................................ 25,858 20,475 21,968 19,710 18,714 Capitalized interest................................. (1,349) (287) (1,879) (1,325) (1,801) ---------- ---------- ---------- ---------- ---------- Earnings............................................. $ 141,296 $ 113,478 $ 86,042 $ 123,840 $ (24,494) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ratio of earnings to fixed charges................... 5.5x 5.5x 3.9x 6.3x --
EX-23.1 7 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of ALZA Corporation for the registration of Convertible Subordinated Debentures due 2006 (the "Debentures") and such indeterminate number of shares of Common Stock as may be issuable upon conversion of the Debentures and to the incorporation by reference therein of our reports dated February 16, 1996, with respect to the consolidated financial statements of ALZA Corporation incorporated by reference in its Annual Report (Form 10-K) for the year ended December 31, 1995 and the related financial statement schedule included therein, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Palo Alto, California April 8, 1996 EX-25.1 8 EXHIBIT 25.1 Securities Act of 1933 File No. _________ (If application to determine eligibility of trustee for delayed offering pursuant to Section 305 (b) (2)) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)___________ __________________ THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) (Exact name of trustee as specified in its charter) 13-2633612 (I.R.S. Employer Identification Number) 1 CHASE MANHATTAN PLAZA, NEW YORK, NEW YORK (Address of principal executive offices) 10081 (Zip Code) ________________ ALZA CORPORATION (Exact name of obligor as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 77-0142070 (I.R.S. Employer Identification No.) 950 PAGE MILL ROAD P.O. BOX 10950 PALO ALTO, CA (Address of principal executive offices) 94303-0802 (Zip Code) __________________________________ SUBORDINATED CONVERTIBLE DEBENTURES DUE 2006 (Title of the indenture securities) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency, Washington, D.C. Board of Governors of The Federal Reserve System, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each such affiliation. The Trustee is not the obligor, nor is the Trustee directly or indirectly controlling, controlled by, or under common control with the obligor. (See Note on Page 2.) ITEM 16. LIST OF EXHIBITS. List below all exhibits filed as a part of this statement of eligibility. *1. -- A copy of the articles of association of the trustee as now in effect. (See Exhibit T-1 (Item 12) , Registration No. 33-55626.) *2. -- Copies of the respective authorizations of The Chase Manhattan Bank (National Association) and The Chase Bank of New York (National Association) to commence business and a copy of approval of merger of said corporations, all of which documents are still in effect.(See Exhibit T-1 (Item 12), Registration No. 2-67437.) *3. -- Copies of authorizations of The Chase Manhattan Bank (National Association) to exercise corporate trust powers, both of which documents are still in effect. (See Exhibit T-1 (Item 12), Registration No. 2-67437). *4. -- A copy of the existing by-laws of the trustee. (See Exhibit T-1 (Item 16) (25.1), Registration No. 33-60809.) *5. -- A copy of each indenture referred to in Item 4, if the obligor is in default. (Not applicable). *6. -- The consents of United States institutional trustees required by Section 321(b) of the Act. (See Exhibit T-1, (Item 12), Registration No. 22-19019.) 7. -- A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. ___________________ *The Exhibits thus designated are incorporated herein by reference. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. ___________________ 1. NOTE Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base a responsive answer to Item 2 the answer to said Item is based on incomplete information. Item 2 may, however, be considered as correct unless amended by an amendment to this Form T-1. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, The Chase Manhattan Bank (National Association), a corporation organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and the State of New York, on the 5th day April, 1996. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By /s/TIMOTHY E. BURKE -------------------- Timothy E. Burke Second Vice President _________________ 2. EXHIBIT 7 REPORT OF CONDITION Consolidating domestic and foreign subsidiaries of the THE CHASE MANHATTAN BANK, N.A. of New York in the State of New York, at the close of business on December 31, 1995, published in response to call made by Comptroller of the Currency, under title 12, United States Code, Section 161.
CHARTER NUMBER 2370 COMPTROLLER OF THE CURRENCY NORTHEASTERN DISTRICT STATEMENT OF RESOURCES AND LIABILITIES ASSETS THOUSANDS OF DOLLARS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,574,000 Interest-bearing balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,950,000 Held to maturity securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,731,000 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,488,000 Securities purchased under agreements to resell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 Loans and lease financing receivable: Loans and leases, net of unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,786,000 LESS: Allowance for loan and lease losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,114,000 LESS: Allocated transfer risk reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 ------------ Loans and leases, net of unearned income, allowance, and reserve . . . . . . . . . . . . . . . . . . . . . . . 56,672,000 Assets held in trading accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,994,000 Premises and fixed assets (including capitalized leases) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,723,000 Other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364,000 Investments in unconsolidated subsidiaries and associated companies. . . . . . . . . . . . . . . . . . . . . . . 28,000 Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 944,000 Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,343,000 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,506,000 --------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,352,000 ------------ ------------ LIABILITIES Deposits: In domestic offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,483,000 Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,704,000 Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,779,000 ---------- In foreign offices, Edge and Agreement subsidiaries, and IBFs. . . . . . . . . . . . . . . . . . . . . . . . . 37,639,000 Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,555,000 Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,084,000 ------------- Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal funds purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,572,000 Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,000 Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 Trading liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,146,000 Other borrowed money: With original maturity of one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,562,000 With original maturity of more than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,000 Mortgage indebtedness and obligations under capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949,000 Subordinated notes and debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,960,000 Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,411,000 --------- TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,377,000 ---------- Limited-life preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 EQUITY CAPITAL Perpetual preferred stock and related surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 921,000 Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,285,000 Undivided profits and capital reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,751,000 Net unrealized holding gains (losses) on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . 7,000 Cumulative foreign currency translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 ------ TOTAL EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,975,000 --------- TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK, AND EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,352,000 ------------- -------------
I, Lester J. Stephens, Jr., Senior Vice President and Controller of the above named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief. (Signed) Lester J. Stephens, Jr. We the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct. (Signed) Thomas G. Labrecque (Signed) Donald Trautlein Directors (Signed) Richard J. Boyle -----END PRIVACY-ENHANCED MESSAGE-----