-----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, GGqKimKy2buCiJzi45n25u0SodtFBIKaHSqoETcbXtE8nd5m3m8LEQNDXrK8GA/I Mk3h/BasijVAzB6t1Z4SRA== 0000891618-97-004310.txt : 19971103 0000891618-97-004310.hdr.sgml : 19971103 ACCESSION NUMBER: 0000891618-97-004310 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19971031 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAM RESEARCH CORP CENTRAL INDEX KEY: 0000707549 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 942634797 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-39167 FILM NUMBER: 97705437 BUSINESS ADDRESS: STREET 1: 4650 CUSHING PKWY CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5106590200 MAIL ADDRESS: STREET 1: 4650 CUSHING PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 LAM RESEARCH CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2634797 (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER) OR ORGANIZATION)
4650 CUSHING PARKWAY FREMONT, CALIFORNIA 94538 (510) 659-0200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) RICHARD H. LOVGREN VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY LAM RESEARCH CORPORATION 4650 CUSHING PARKWAY FREMONT, CALIFORNIA 94538 (510) 659-0200 (NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF AGENT FOR SERVICE) COPIES TO: TWILA FOSTER, ESQ. JACKSON TUFTS COLE & BLACK, LLP 650 CALIFORNIA STREET; 32ND FLOOR SAN JOSE, CA 95113 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans please check the following box [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement of the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE ========================================================================================================== TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE FEE(4) - ---------------------------------------------------------------------------------------------------------- 5% Convertible Subordinated Notes Due 2002........................ $310,000,000 100% $310,000,000 $93,939.39 - ---------------------------------------------------------------------------------------------------------- Common Stock, Par Value $.001 per share(3)........................ 3,531,958(3) N/A N/A ==========================================================================================================
(1) Or, if Notes were issued with a principal amount denominated in a foreign currency or composite currency such greater amount as shall result in an aggregate offering price equivalent to $310,000,000. (2) Exclusive of accrued interest, if any. Estimated solely for purposes of calculating the registration fee. (3) Up to 3,531,958 shares of Common Stock as may from time to time be issuable upon conversion or exchange of the Notes, at a conversion price of $87.77 per share (equal to a conversion rate of approximately 11.39 shares per $1,000.00 principal amount of the Notes). Represents shares originally issuable upon conversion of the Notes being registered under this Registration Statement plus an additional indeterminate number of shares as may become issuable upon conversion of the Notes being registered hereunder by means of adjustment in the conversion price thereof. (4) Pursuant to Rule 457(i), there is no filing fee with respect to the shares of Common Stock being registered hereunder because no additional consideration will be received in connection with the exercise of the conversion privilege. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 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, DATED OCTOBER 31, 1997 PROSPECTUS LAM RESEARCH CORPORATION 5% CONVERTIBLE SUBORDINATED NOTES DUE 2002 3,531,958 SHARES OF COMMON STOCK, PAR VALUE $.001 This prospectus relates to the resale of (i) $310 Million aggregate principal amount of 5% Convertible Subordinated Notes (the "Notes," each a "Note" ) of Lam Research Corporation, a Delaware corporation (the "Company" or "Lam"), and (ii) 3,531,958 shares of Lam Common Stock, par value $.001 per share (the "Common Stock"), which are initially issuable upon conversion thereof, plus an indeterminable number of shares of Common Stock as may become issuable upon conversion of the Notes as a result of adjustment to the conversion price thereunder (collectively, the "Shares"). The Notes and the Shares that are being registered hereby are to be offered for the account of the holders thereof (the "Selling Securityholders"). The Registration Statement of which this prospectus is a part has been filed with the Securities and Exchange Commission pursuant to a Registration Rights Agreement dated as of August 15, 1997 (the "Registration Rights Agreement") entered into in connection with the initial private placement. The Notes are convertible into Common Stock at any time prior to the close of business on the maturity date, as defined herein, unless previously redeemed or repurchased, at a conversion price of $87.77 per share (equivalent to a conversion rate of approximately 11.39 shares per $1,000 principal amount of Notes), subject to adjustment. See "Description of Notes -- Payment and Conversion." The Notes were initially sold by the Company to the initial purchasers (the "Initial Purchasers," see "Plan of Distribution") on August 26, 1997 (the "Private Placement"). The Initial Purchasers have engaged in initial resales of the Notes only to persons reasonably believed by the Initial Purchasers to be Qualified Institutional Buyers ("QIBs"), as defined in Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"), and in accordance with the provisions of Regulation S, Rules 901-904 inclusive, of the Securities Act. Interest on the Notes is payable on September 1 and March 1 of each year, commencing on March 1, 1998. Principal and interest payments will be made without any deduction for U.S. withholding taxes, except to the extent described under "Certain Federal Income Tax Consequences." For a description of certain income tax consequences to holders of the Notes, see "Certain Federal Income Tax Consequences." The Notes are redeemable by the Company in the event of certain developments involving withholding taxes of the United States. See "Description of Notes -- Redemption -- Redemption for Taxation Reasons." Otherwise, the Notes are not redeemable prior to September 6, 2000. On or after September 6, 2000, the Notes will be redeemable at the option of the Company, in whole, or from time to time, in part, at the redemption prices set forth in this Prospectus plus accrued interest, if the closing price of the Common Stock shall have exceeded 130% of the conversion price then in effect for 20 trading days within a period of 30 consecutive trading days ending within five trading days prior to the notice of redemption. See "Description of Notes -- Redemption -- Optional Redemption." In the event of a Fundamental Change (as later defined herein), each holder of Notes may require the Company to repurchase its Notes, in whole or in part, for cash, at the repurchase prices set forth herein plus accrued interest. See "Description of Notes -- Repurchase at Option of Holders Upon a Fundamental Change." The Notes are general, unsecured obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of the Company. The Notes also are structurally subordinated to all liabilities of subsidiaries of the Company. The Notes were issued under an indenture dated as of August 15, 1997 (the "Indenture"), between the Company and LaSalle National Bank, as trustee (the "Trustee") which is summarized herein. See "Description of Notes." The Notes do not provide for a sinking fund. The Indenture does not restrict the Company from incurring additional Senior Indebtedness or the Company or its subsidiaries from incurring other indebtedness and liabilities. The Common Stock is listed on the Nasdaq National Market under the symbol "LRCX." The last reported bid price of the Common Stock on the Nasdaq National Market on October 29, 1997 was $38.00 per share. There is no existing public market for the Notes and there can be no assurance as to the liquidity of any markets that may develop for the Notes, the ability of the holders to sell their Notes or what price holders of the Notes will be able to sell their Notes. The Initial Purchasers have informed the Company that they are making and currently intend to continue making a market in the Notes. The Initial Purchasers, however, are not obligated to do so and any such market making may be discontinued at any time without notice, in the sole discretion of the Initial Purchasers. Prior to the resale of the Notes pursuant to this Prospectus, each of the Notes was eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market (the "PORTAL Market"). Notes sold pursuant to this Prospectus will no longer be eligible for trading in the PORTAL Market. The Company has applied to list the Notes on the Luxembourg Stock Exchange. The Notes and the Shares are being registered to permit public secondary trading of the Notes and, upon conversion, the underlying Common Stock, by the holders thereof from time to time after the date of this Prospectus. The Company has agreed, among other things, to bear all expenses (other than underwriting discounts, selling commissions and fees and the expenses of advisors to the holders of the Notes or the underlying Common Stock), including the fees of special counsel to the holders of the Notes, Wilson Sonsini Goodrich & Rosati LLP, in connection with the registration and sale of the Notes and the Shares covered by this Prospectus. The Company will not receive any of the proceeds from the sales of the Notes or the Shares by the Selling Securityholders. The Notes and the Shares may be offered in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices. In addition, the Shares may be offered from time to time through ordinary brokerage transactions on the Nasdaq National Market. See "Plan of Distribution." The Selling Securityholders may be deemed to be "underwriters" as defined in the Securities Act. If any broker-dealers are used by the Selling Securityholders, any commissions paid to broker-dealers and, if broker-dealers purchase any Notes or Shares as principals, any profits received by such broker-dealers on the resale of the Notes or Shares may be deemed to be underwriting discounts or commissions under the Securities Act. In addition, any profits realized by the Selling Securityholders may be deemed to be underwriting commissions. THE NOTES AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS. ------------------------ 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. ------------------------ No underwriting commissions or discounts will be paid by the Company in connection with this offering. Estimated expenses payable by the Company in connection with the offering pursuant to this Prospectus are approximately $400,000. See "Plan of Distribution." The Company has agreed to indemnify the Selling Securityholders and certain other persons against certain liabilities, including liabilities under the Securities Act. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE OR JURISDICTION. THE COMPANY ENDEAVORS TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS AND HAS RIGHTS TO CERTAIN TRADEMARKS THAT APPEAR IN THIS PROSPECTUS. THE DATE OF THIS PROSPECTUS IS OCTOBER , 1997 3 AVAILABLE INFORMATION The Company 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 concerning the Company can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024; the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, New York, New York 10048, 14th Floor. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. This Prospectus constitutes a part of a registration statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") filed by the Company with the Commission under the Securities Act. This Prospectus does not contain all of the information included in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements contained herein concerning the provisions of any document do not purport to be complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is subject to and qualified in its entirety by such reference. Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the securities offered hereby. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed with the Commission by the Company and are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year June 30, 1997 including all material incorporated by reference therein; 2. The Company's Current Report on Form 8-K reporting events on August 5, 1997 as filed on August 15, 1997 and amended on October 3, 1997; 3. The Company's Current Report on Form 8-K reporting events on August 18, 1997 and August 19, 1997 as filed on August 28, 1997; 4. The Company's Current Report on Form 8-K reporting events on August 19, 1997 as filed on September 8, 1997; 5. The description of the Company's Rights Agreement and the Lam Preferred Stock Purchase Rights contained in the Company's Registration Statement on Form 8-A as filed on January 28, 1997 and amended on January 30, 1997; and 6. The Company's Registration Statement on Form 8-A registering the Common Stock under Section 12(g) of the Exchange Act. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the initial filing date of this Prospectus and to the termination of the resale of the Notes and the Common Stock issuable upon the conversion of the Notes shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing 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 which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon the request of such person, a copy of any or all of the foregoing documents incorporated herein by reference, other 2 4 than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be directed to the Director of Investor Relations of the Company at 4650 Cushing Parkway, Fremont, California 94538, Attn: David L. Ringler. SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, INCLUDING, BUT NOT LIMITED TO, STATEMENTS AS TO BENEFITS OF THE MERGER OF ONTRAK SYSTEMS, INC. ("ONTRAK") WITH AND INTO THE COMPANY, CONSUMMATED ON AUGUST 5, 1997 (THE "MERGER") AND FUTURE OPERATING RESULTS AND BUSINESS PLANS OF THE COMPANY, THAT INVOLVE RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR FINANCIAL CONDITION TO DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, A DOWNTURN IN THE SEMICONDUCTOR INDUSTRY, COMPETITION, ADDITIONAL OR CONTINUED DIFFICULTIES ARISING OUT OF THE COMPANY'S PRODUCT SHIFT. OTHER IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR FINANCIAL CONDITION OF THE COMPANY TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS AS DISCLOSED IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN ("CAUTIONARY STATEMENTS"), INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS MADE IN CONJUNCTION WITH ANY SUCH FORWARD-LOOKING STATEMENTS, THOSE INCLUDED UNDER "RISK FACTORS" AND OTHERWISE HEREIN AND THEREIN. ANY SUCH WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. 3 5 SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
FOR THE YEARS ENDED JUNE 30, ---------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Total revenue.................... $1,073,197 $1,332,713 $836,581 $505,192 $270,489 Operating income (loss)(1)....... (60,776) 218,855 119,945 62,603 28,625 Net income (loss)(1)............. (30,676) 145,878 90,279 39,269 19,231 Net income (loss) per share Primary........................ $ (0.83) $ 4.11 $ 2.79 $ 1.33 $ 0.67 ========== ========== ======== ======== ======== Fully diluted.................. $ (0.83) $ 3.95 $ 2.65 $ 1.31 $ 0.67 ========== ========== ======== ======== ======== OTHER DATA: Ratio of earnings to fixed charges(2) n/a 10.6x 11.2x 9.0x 7.9x
AS OF JUNE 30, 1997 ---------------------------- AS ADJUSTED(3) -------------- BALANCE SHEET DATA: Working capital(1)................................................. $ 462,171 $ 764,971 Total assets(1).................................................... 1,035,049 1,345,049 Long-term obligations, less current portion........................ 46,592 356,592 Total stockholders' equity......................................... $ 647,482 $ 647,482
- --------------- (1) During fiscal 1997, Lam recorded one-time charges and other significant adjustments totaling approximately $78 million on a pre-tax basis for restructuring costs; inventory, product warranty and other adjustments; and bad debt reserves. (2) For purposes of calculating the ratio of earnings to fixed charges, (i) earnings consist of consolidated income (loss) before income taxes plus fixed charges and (ii) fixed charges consist of interest expense incurred, including capital leases, amortization of interest costs and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor. Earnings were not sufficient to cover fixed charges for fiscal 1997 by approximately $36 million. (3) The as adjusted balance sheet data gives effect to the sale by the Company of the Notes offered hereby and the application of the estimated proceeds therefrom, net of debt issuance costs of approximately $9.0 million, on June 30, 1997. 4 6 THE COMPANY The Company designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. Lam is recognized by its customers worldwide as a leading supplier of semiconductor production equipment. The Company's products are used to deposit special films on silicon wafers ("deposition") and to selectively etch away portions of various films ("etch") to create an integrated circuit. Deposition and etch processes, which are repeated numerous times during the fabrication cycle, are required to manufacture every semiconductor device produced today. The Company's etch technology is also used to process device features in flat panel displays ("FPDs"). With the acquisition of OnTrak, consummated in August 1997, Lam has added both chemical mechanical planarization ("CMP") cleaning and polishing product lines. CMP enables the fabrication of devices featuring design rules of 0.5 micron and below with multiple metal layers and is currently the fastest growing segment of the semiconductor capital equipment industry. The postal address for the Company's principal executive offices is 4650 Cushing Parkway, Fremont, CA 94538. The telephone number for the Company's principal executive offices is (510) 659-0200. 5 7 RISK FACTORS THE NOTES AND COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING THE NOTES OR COMMON STOCK OFFERED HEREBY. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, INCLUDING, BUT NOT LIMITED TO, STATEMENTS AS TO BENEFITS OF THE MERGER AND THE FUTURE OPERATING RESULTS AND BUSINESS PLANS OF THE COMPANY, THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, A DOWNTURN IN THE SEMICONDUCTOR INDUSTRY, COMPETITION, ADDITIONAL OR CONTINUED DIFFICULTIES ARISING OUT OF THE COMPANY'S PRODUCT SHIFT AND OTHER RISKS DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS AND IN ANY DOCUMENTS INCORPORATED HEREIN BY REFERENCE. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS AND IN ANY DOCUMENTS INCORPORATED HEREIN BY REFERENCE, THE FOLLOWING SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE NOTES OR COMMON STOCK OFFERED BY THIS PROSPECTUS. FLUCTUATIONS IN QUARTERLY REVENUES The Company's quarterly revenues have fluctuated in the past and may fluctuate in the future. The Company's revenues are dependent on many factors, including but not limited to the economic conditions in the semiconductor industry, customer capacity requirements, the size and timing of the receipt of orders from customers, customer cancellations or delays of shipments, the Company's ability to develop, introduce and market new and enhanced products on a timely basis, the introduction of new products by its competitors, changes in average selling prices and product mix, and exchange rate fluctuations, among others. The Company's expense levels will be based, in part, on expectations of future revenues. If revenue levels in a particular quarter do not meet expectations, operating results could be adversely affected. The Company derives its revenue primarily from the sale of a relatively small number of high-priced systems. The Company's systems can range in price from approximately $150,000 to over $3 million per unit. The sale of fewer systems than anticipated in any quarter may have a substantial negative impact on the operating results for the quarter. The Company's results of operations for a particular quarter could be adversely affected if anticipated orders are not received in time to enable shipment during such quarter, if anticipated shipments are delayed or canceled by one or more customers, or if shipments are delayed due to procurement shortages or manufacturing difficulties. The slowdown in the semiconductor industry and in the construction of new wafer fabrication facilities has resulted in the Company experiencing a reduction in new orders as well as rescheduled and canceled orders. There can be no assurance that this slowdown will not continue. The Company generally realizes a higher margin on sales of its mature products, such as Rainbow etch systems and CMP cleaning systems, and on revenue from service and spare parts than on sales of Alliance, Chemical Vapor Deposition ("CVD"), FPD, and newly released Transformer Coupled Plasma ("TCP") products. Newer products usually have lower margins in the initial phase of production. The impact of these and other factors on the Company's revenues and operating results in any future period is difficult for the Company to forecast. There can be no assurance that these and other factors will not materially adversely affect the Company's future business and financial results. VOLATILITY IN THE SEMICONDUCTOR EQUIPMENT INDUSTRY The business of the Company depends on the capital equipment expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits and products utilizing integrated circuits. The semiconductor industry has been cyclical in nature and historically 6 8 has experienced periodic downturns. The semiconductor industry has been experiencing a slowdown of product demand and volatility in product pricing. This slowdown and volatility have caused the semiconductor industry to reduce or delay purchases of semiconductor manufacturing equipment and construction of new fabrication facilities. These conditions have adversely affected and may continue to adversely affect the Company's aggregate bookings, revenues and operating results, and no assurance can be given that the Company's bookings, revenue and operating results will not be adversely affected by future downturns in the semiconductor industry. Even during periods of reduced revenues, in order to remain competitive, the Company will be required to continue to invest in research and development ("R&D") and to maintain extensive ongoing worldwide customer service and support capability, which could adversely affect its financial results. RISKS RELATED TO THE MERGER WITH ONTRAK Integration of Operations The realization of the benefits sought from the Merger depends on the ability of the combined company to effectively utilize the joint product development capabilities, sales and marketing capabilities, administrative organizations and facilities of the two companies. There can be no assurance that these benefits will be achieved or that the activities of the Company will be integrated in a coordinated, timely and efficient manner. The combination of the two organizations also will require the dedication of management resources, which will detract such persons' attention from the day-to-day business of the Company. There can be no assurance that the integration will be completed without disrupting the Company's business. The inability of the Company to effectively utilize resources and to achieve integration in a timely and coordinated fashion could result in a material adverse effect on the Company's financial condition, operating results and cash flows. There can be no assurance that the Company will retain and successfully integrate its key management, technical, sales and customer support personnel, or that it will obtain any of the anticipated benefits of the Merger. Substantial Expenses Resulting from the Merger Costs associated with the Merger of approximately $17.7 million negatively impacted results of operations in the fiscal quarter ended September 30, 1997. Such expenses included investment advisory fees, legal and accounting fees, financial printing costs and other Merger-related costs. Although the Company does not believe that actual Merger costs will exceed the aforementioned estimated amount, there can be no assurance that the Company's estimate is correct or that unanticipated contingencies will not occur that will substantially increase the costs of combining the operations of the two companies. Potential Dilutive Effect to Stockholders Although the Company believes that beneficial synergies will result from the Merger, there can be no assurance that combining the two companies' businesses, even in an efficient, effective and timely manner, will result in combined results of operations and financial condition superior to what would have been achieved by each company independently, or as to the period of time required to achieve such result. The issuance of the Company's Common Stock in connection with the Merger may have the effect of reducing the Company's net income per share from levels otherwise expected for the Company and could reduce the market price of the Company's Common Stock unless revenue growth or cost savings and other business synergies sufficient to offset the effect of such issuance can be achieved. DEPENDENCE ON NEW PRODUCTS AND PROCESSES; RAPID TECHNOLOGICAL CHANGE Rapid technological changes in semiconductor manufacturing processes subject the semiconductor manufacturing equipment industry to increased pressure to maintain technological parity with deep submicron process technology. The Company believes that the future success of the Company will depend in part upon its ability to develop, manufacture and successfully introduce new products and product lines with improved capabilities and to continue to enhance existing products. Due to the risks inherent in transitioning to new products, the Company will be required to accurately forecast demand for new products while managing the 7 9 transition from older products. If new products have reliability or quality problems, reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products and additional service and warranty expenses may result. In the past, the Company has experienced some delays as well as reliability and quality problems in connection with product introductions, resulting in some of these consequences. There can be no assurance that the Company will successfully develop and manufacture new products, or that new products introduced by the Company will be accepted in the marketplace. If the Company does not successfully introduce new products, the Company's results of operations will be materially adversely affected. In addition, the Company expects to continue to make significant investments in R&D. The Company also must manage product transitions successfully, as introduction of new products could adversely affect sales of existing products. There can be no assurance that future technologies, processes or product developments will not render the Company's current product offerings obsolete or that the Company will be able to develop and introduce new products or enhancements to existing products which satisfy customer needs in a timely manner or achieve market acceptance. The failure to do so could adversely affect the Company's business. Furthermore, if the Company is not successful in the marketing and selling of advanced processes or equipment to customers with whom the Company has formed strategic alliances, the results of operations of the Company could be adversely affected. In addition, in connection with the development of the Company's new products, the Company will invest in high levels of preproduction inventory, and the failure to complete development and commercialization of these new products in a timely manner could result in inventory obsolescence, which could have an adverse effect on the Company's financial results. PRODUCT CONCENTRATION; LACK OF PRODUCT REVENUE DIVERSIFICATION A substantial percentage of the Company's revenues to date have been derived from a limited number of products, and such products are expected to continue to account for a substantial percentage of the Company's revenues in the near term. Collective sales of the Company's two primary products, Alliance multi-chamber etch cluster tools and TCP single-chamber etch systems, accounted for approximately 66% of the Company's total combined machine revenue for the fiscal year ended June 30, 1997. Continued market acceptance of the Company's primary products is therefore critical to the future success of the Company. Any decline in demand for or failure to achieve continued market acceptance of such products or any new version of these products, if any, as a result of competition, technological change, failure of the Company to timely release new versions of these products, or otherwise, could have a material adverse effect on the business, operating results, financial condition and cash flows of the Company. During the quarter ended March 31, 1997, the Company experienced a faster than anticipated transition from its single-chamber etch products to its next generation, multi-chamber etch cluster tools, which resulted in the need for higher-than-anticipated reserve provisions for excess and obsolete manufacturing and spare parts inventories and additional provisions for installation and warranty costs. These factors, among others, resulted in the Company reporting a loss for the fiscal year ended June 30, 1997. DEPENDENCE UPON KEY SUPPLIERS AND KEY DISTRIBUTORS Certain of the components and subassemblies included in the products of the Company are obtained from a single supplier or a limited group of suppliers. The Company's key suppliers include Bullen Ultrasonics, Inc., which supplies electrodes, Edwards High Vacuum Inc., Lam's supplier of chillers, and Advanced Energy Industries, Lam's RF generator supplier. Lam purchases in excess of $500,000 of supplies on a monthly basis from these suppliers. Each of these suppliers has a one year blanket purchase contract with Lam under which Lam may issue purchase orders. These contracts may be renewed annually. Each of these suppliers has sold products to Lam during at least the last four years, and Lam has no reason to expect that they will not continue to renew these contracts in the future. Lam believes that alternative sources could be obtained and qualified to supply these products. Nevertheless, a prolonged inability to obtain certain components could have an adverse effect on the Company's operating results and could result in damage to customer relationships. 8 10 HIGHLY COMPETITIVE INDUSTRY The semiconductor processing industry is highly competitive. The Company has experienced and expects to continue to face substantial competition throughout the world. A substantial investment is required by semiconductor manufacturers to install and integrate capital equipment into a semiconductor production line. The Company believes that as a result, once a semiconductor manufacturer has selected a particular supplier's capital equipment, the manufacturer generally relies upon that equipment for the specific production line application and frequently will attempt to consolidate its other capital equipment requirements with the same supplier. Accordingly, the Company would expect to experience difficulty in selling to a given customer if that customer had initially selected or selects a competitor's capital equipment. The Company believes that to remain competitive, the Company will require significant financial resources in order to offer a broad range of products, to maintain customer service and support centers worldwide, and to invest in product and process R&D. The Company intends to continue to invest substantial resources to increase sales of its systems to Japanese semiconductor manufacturers, who represent a substantial portion of the worldwide semiconductor market and whose market is difficult for non-Japanese equipment companies to penetrate. The Company believes that the semiconductor equipment industry is becoming increasingly dominated by large manufacturers who have the resources to support customers on a worldwide basis, and certain of its competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer service and support capabilities than the Company. In addition, there are smaller emerging semiconductor equipment companies that provide innovative technology that may have performance advantages over systems offered by the Company. The Company faces significant competitive factors in the etch equipment market which include etch quality, repeatability, process capability and flexibility and overall cost of ownership, including reliability, software automation, throughput, customer support and system price. Although the Company believes that it competes favorably with respect to each of these factors, the Company's ability to compete successfully in this market will depend upon its ability to introduce product enhancements and new products on a timely basis. There can be no assurance that the Company will continue to compete successfully in the future. In the etch equipment market, the Company's primary competitors are Applied Materials, Inc., Tokyo Electronics Limited and Hitachi Ltd. The Company faces significant competitive factors in the CVD equipment market, including film quality, flow uniformity, contamination control, temperature control and overall cost of ownership, including throughput, system reliability, cost of consumables, system price and customer support. In the CVD equipment market, the principal suppliers of equipment are Applied Materials, Inc., Canon Sales Co. Inc., Novellus Systems, Inc. and Watkins-Johnson Company. The CMP polishing system under development by the Company is expected to face significant competition from multiple current and future competitors. Companies currently offering polishing systems include Applied Materials, Inc., Cybeq Systems, Ebara Corporation, Integrated Process Equipment Corp. ("IPEC"), SpeedFam Corp., Strasbaugh and Sumitomo Metals Limited. IPEC currently has the largest installed base of CMP polishers and also offers an integrated CMP polishing and cleaning system. Lam believes that other companies are developing polishing systems and are planning to introduce new products to this market before or during the same time frame as the Company's planned introduction of its CMP polishing system. In CMP slurry removal and cleaning applications, as developed by OnTrak, the Company's principal competitor is Dainippon Screen Manufacturing Co. Ltd. ("Dainippon Screen"). The Company expects that it will face increased competition from IPEC, which currently offers a slurry removal cleaning system, and SpeedFam, as well as others as the CMP market continues to develop. In general cleaning applications, the Company competes against Dainippon Screen and others. The Company expects its competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with improved price and performance 9 11 characteristics. If the Company's competitors enter into strategic relationships with leading semiconductor manufacturers covering etch, CMP or CVD products similar to those sold or being developed by the Company, the Company's ability to sell its products to those manufacturers could be adversely affected. No assurance can be given that the Company will continue to compete successfully in the United States or worldwide. Present or future competitors may be able to develop products comparable or superior to those offered by the Company or adapt more quickly to new technologies or evolving customer requirements. In particular, while the Company currently is developing additional product enhancements that it believes address customer requirements, there can be no assurance that the development or introduction of these additional product enhancements will be successfully completed on a timely basis or that these product enhancements will achieve market acceptance. Accordingly, there can be no assurance that the Company will be able to continue to compete effectively in its markets, that competition will not intensify or that future competition will not have a material adverse effect on the business, operating results, financial condition and cash flows of the Company. INTERNATIONAL OPERATIONS AND EXPANSION International sales accounted for 57%, 63%, and 53%, respectively, of the Company's net revenues in the fiscal years 1997, 1996 and 1995. The Company anticipates that international sales will continue to account for a significant portion of net sales. Additionally, the Company intends to continue expansion of international operations, including expansion of facilities in the Asia Pacific region. As a result, a significant portion of the Company's sales and operations will be subject to certain risks, including tariffs and other barriers, difficulties in staffing and managing foreign subsidiary and branch operations, difficulties in managing distributors, potentially adverse tax consequences and the possibility of difficulties in accounts receivable collection. In addition to the uncertainty as to the Company's ability to expand its international presence, there are certain risks inherent in doing business on an international level, such as unexpected changes in regulatory requirements, political instability, fluctuations in currency exchange rates, and seasonal reductions in business activity during summer months in Europe and certain other parts of the world, any of which could have an adverse impact on the success of international operations. Sales of products by the Company currently are denominated principally in United States dollars. Accordingly, any increase in the value of the United States dollar as compared to currencies in the Company's principal overseas markets would increase the foreign currency-denominated cost of the Company's products, which may negatively affect the Company's sales in those markets. The Japanese yen has decreased in value relative to the United States dollar in recent months. In addition to the potential impact on the pricing of the Company's products, this decline will likely lower the rate of dollar revenue growth. Currently, the Company enters into foreign currency forward contracts to minimize the impact of exchange rate fluctuations on the value of the yen-denominated assets and liabilities, and the Company will enter into such hedging transactions in the future. In addition, effective patent, copyright, trademark and trade secret protection may be limited or unavailable under the laws of certain foreign jurisdictions. It is also possible that the Company's Korean manufacturing facility may experience difficulties in management, procurement, production and staffing. There can be no assurance that one or more of such factors will not have a material adverse effect on the Company's international operations and, consequently, on the business, operating results, financial condition and cash flows of the Company. INTELLECTUAL PROPERTY MATTERS From time to time, the Company has received notices from third parties alleging infringement of such parties' patent rights by the Company's products. In such cases, it is the policy of the Company to defend against the claims or negotiate licenses on commercially reasonable terms where considered appropriate. However, no assurance can be given that the Company will be able to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse effect on the Company's business and financial results. 10 12 In October 1993, Varian Associates, Inc. ("Varian") brought suit against the Company in the United States District Court for the Northern District of California, seeking monetary damages and injunctive relief based on the Company's alleged infringement of certain patents held by Varian. The lawsuit is in the late stages of discovery and has been reassigned to a new judge. The trial date has been set for March 1998. The Company has asserted defenses of invalidity and unenforceability of the patents that are the subject of the lawsuit, as well as noninfringement of such patents by the Company's products. While litigation is subject to inherent uncertainties and no assurance can be given that Lam will prevail in such litigation or will obtain a license under such patents on commercially reasonable terms, or at all, if such patents are held valid and infringed by the Company's products, the Company believes that the Varian lawsuit will not have a material adverse effect on the Company's operating results or the Company's financial position. The Company's success depends in part on its proprietary technology. While the Company attempts to protect its proprietary technology through patents, copyrights and trade secret protection, it believes that the success of the Company will depend on more technological expertise, continuing the development of new systems, market penetration and growth of its installed base and the ability to provide comprehensive support and service to customers. There can be no assurance that the Company will be able to protect its technology or that competitors will not be able to develop similar technology independently. The Company currently has a number of United States and foreign patents and patent applications. There can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. ENVIRONMENTAL REGULATIONS The Company is subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals used in the manufacturing process. The Company believes that it is in general compliance with these regulations and that it has obtained (or otherwise addressed) all necessary environmental permits to conduct its business, which permits generally relate to the disposal of hazardous wastes. Nevertheless, the failure to comply with present or future regulations could result in fines being imposed on the Company, suspension of production or cessation of operations. Such regulations could require the Company to acquire significant equipment or to incur substantial other expenses to comply with environmental regulations. Any failure by the Company to control the use of, or adequately restrict the discharge or disposal of, hazardous substances could subject the Company to future liabilities. DEPENDENCE ON KEY PERSONNEL AND DIFFICULTY OF IDENTIFYING AND HIRING CERTAIN PERSONNEL The performance of the Company is substantially dependent on the performance of its executive officers and key employees. The loss of the services of any of the executive officers or other key employees of the Company could have a material adverse effect on the business, operating results, financial condition and cash flows of the Company. The future success of the Company also depends on its continuing ability to identify, hire, train and retain other highly qualified technical and managerial personnel. Competition for such personnel is intense, and the Company has experienced difficulty in identifying and hiring qualified engineering personnel. There can be no assurance that the Company will be able to attract, assimilate or retain highly qualified technical and managerial personnel in the future. The inability to attract and retain the necessary technical and managerial personnel could have a material adverse effect on the Company's business, operating results, financial condition and cash flows. MANAGEMENT TRANSITION In recent years, the Company has experienced expansion of its operations that has placed significant demands on its respective administrative, operational and financial resources, the demands of which are expected to intensify as a result of the Merger. James W. Bagley, the Chairman and Chief Executive Officer of OnTrak, became the Chief Executive Officer of Lam on August 6, 1997. In addition, Lam hired a new Chief Financial Officer, Mercedes Johnson, in April 1997 and a new Chief Operating Officer, Stephen G. 11 13 Newberry, in August 1997. There can be no assurance that such management transitions can be accomplished in an efficient manner without business disruption. MANAGEMENT OF POTENTIAL GROWTH; INTEGRATION OF POTENTIAL ACQUISITIONS To manage future growth, if any, management of the Company will face significant challenges in improving financial and management controls, management processes, business and management information systems and procedures on a timely basis and expanding, training and managing its work force. There can be no assurance that the Company will be able to perform such actions successfully. In the future, the Company may make additional acquisitions of complementary companies, products or technologies. Managing an acquired business entails numerous operational and financial risks, including difficulties in assimilating acquired operations and new personnel, diversion of management's attention to other business concerns, amortization of acquired intangible assets and potential loss of key employees or customers of acquired operations. The Company's success will depend, to a significant extent, on the ability of its executive officers and other members of senior management to respond to these challenges effectively. There can be no assurance that the Company will be able to effectively achieve and manage any such growth, or that its management, personnel or systems will be adequate to support the Company's operations. Any such inabilities or inadequacies would have a material adverse effect on the Company's business, operating results, financial condition and cash flows. An important element of the Company's management strategy is to review acquisition prospects that would complement the Company's existing products, augment its market coverage and distribution ability or enhance its technological capabilities. While the Company has no current agreements or negotiations underway with respect to any new acquisitions, the Company may acquire additional businesses, products or technologies in the future. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expense related to goodwill and other intangible assets, and other changes which could materially adversely affect the Company's business, financial condition and results of operations and/or the price of Lam Common Stock. POTENTIAL VOLATILITY OF NOTES AND COMMON STOCK PRICE The market price for Lam Common Stock has been volatile. The market price of Lam Common Stock, and, in turn the market price of the Notes, could be subject to significant fluctuations in response to variations in quarterly operating results, shortfalls in revenues or earnings from levels expected by securities analysts and other factors such as announcements of technological innovations or new products by the Company or by the Company's competitors, government regulations, developments in patent or other proprietary rights. In addition, the stock market has in recent years experienced significant price fluctuations. These fluctuations often have been unrelated to the operating performance of the specific companies whose stocks are traded. Broad market fluctuations, as well as economic conditions generally in the semiconductor industry, may adversely affect the market price of Lam Common Stock, and, in turn, the market price of the Notes. POTENTIAL ANTI-TAKEOVER EFFECTS OF RIGHTS PLAN AND BYLAWS On January 23, 1997, the Company adopted a Rights Plan (the "Rights Plan") in which rights were distributed as a dividend at the rate of one right for each share of Common Stock, par value $0.001 per share, of the Company held by stockholders of record as of the close of business on January 31, 1997 and thereafter. In connection with the adoption of the Rights Plan, the Board of Directors also adopted a number of amendments to the Company's Bylaws, including amendments requiring advance notice of stockholder nominations of directors and stockholder proposals. The Rights Plan may have certain anti-takeover effects. The Rights Plan will cause substantial dilution to a person or group that attempts to acquire the Company in certain circumstances. Accordingly, the existence of the Rights Plan and the issuance of the related rights may deter certain acquirers from making takeover proposals or tender offers. The Rights Plan, however, is not intended to prevent a takeover but rather is 12 14 designed to enhance the ability of the Board of Directors to negotiate with a potential acquirer on behalf of all of the stockholders. In addition, the Certificate of Incorporation authorizes 5,000,000 shares of undesignated preferred stock. The Board of Directors of the Company, without further stockholder approval, may issue this preferred stock with such terms as the Board of Directors may determine, which could have the effect of delaying or preventing a change in control of the Company. The issuance of preferred stock could also adversely affect the voting power of the holders of Common Stock, causing the loss of voting control. The Company's Bylaws and indemnity agreements with officers and directors provide that the Company will indemnify officers and directors against losses that they may incur in legal proceedings resulting from their service to the Company. Moreover, Section 203 of the Delaware General Corporation Law restricts certain business combinations with "interested stockholders" as defined by that statute. SIGNIFICANT LEVERAGE; DEBT SERVICE; REQUIRED RESTRUCTURING OF SENIOR INDEBTEDNESS In connection with the issuance of the Notes, the Company incurred $310 million of indebtedness which results in a ratio of long-term debt to total capitalization at June 30, 1997 of approximately 34%, restated to give effect to the issuance of the Notes. As a result of this additional indebtedness, the Company's principal and interest obligations will increase substantially. The degree to which the Company is leveraged could materially and adversely affect the Company's ability to obtain financing for working capital, acquisitions or other purposes and could make it more vulnerable to industry downturns and competitive pressures. The Company's ability to meet its debt service obligations will be dependent upon the Company's future performance, which will be subject to financial, business and other factors affecting the operations of the Company, many of which are beyond its control. The Company will require substantial amounts of cash to fund scheduled payments of principal and interest on its outstanding indebtedness, including the Notes, future capital expenditures and any increased working capital requirements. If the Company is unable to meet its cash requirements out of cash flow from operations and its available borrowings, there can be no assurance that it will be able to obtain alternative financing or that it will be permitted to do so under the terms of its existing financing arrangements. In the absence of such financing, the Company's ability to respond to changing business and economic conditions, to make future acquisitions, to absorb adverse operating results or to fund capital expenditures or increased working capital requirements may be adversely affected. If the Company does not generate sufficient increases in cash flow from operations to repay the Notes at maturity, it could attempt to refinance the Notes; however, no assurance can be given that such a refinancing would be available on terms acceptable to the Company, if at all. Any failure by the Company to satisfy its obligations with respect to the Notes at maturity (with respect to payments of principal) or prior thereto (with respect to payments of interest or required repurchases) would constitute a default under the Indenture and could cause a default under agreements governing other indebtedness, if any, of the Company. As a consequence of the issuance of the Notes offered hereby, the Company in August 1997 obtained consents and waivers for certain financial and other covenants contained in agreements related to certain existing financing arrangements. These financing arrangements include the Company's revolving credit facility, synthetic real estate leases, a receivable purchase arrangement and a yen denominated term loan of the Company's Japanese subsidiary, which is guaranteed by the Company. The Company obtained subsequent waivers for certain financial covenants on or before September 30, 1997, and amendments to its revolving credit facility and synthetic real estate leases on October 7, 1997. ABSENCE OF PUBLIC MARKET There is no existing public market for the Notes and there can be no assurance as to the liquidity of any markets that may develop for the Notes, the ability of the holders to sell the Notes or the price at which holders of the Notes may be able to sell their Notes. Future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results, the price of the Common Stock and the market for similar securities. The Initial Purchasers have informed the Company 13 15 that the Initial Purchasers are making and currently intend to continue making a market in the Notes; however, the Initial Purchasers are not obligated to do so, and any such market making activity may be terminated at any time without notice to the holders of the Notes, in the sole discretion of the Initial Purchasers. Prior to the resale thereof pursuant to this Prospectus, each of the Notes was eligible for trading in the PORTAL Market. Notes sold pursuant to this Prospectus will no longer be eligible for trading in the PORTAL Market. The Company has applied for listing of the Notes on the Luxembourg Stock Exchange. SUBORDINATION AND ABSENCE OF FINANCIAL COVENANTS The Notes are unsecured and subordinated in right of payment to all existing and future Senior Indebtedness of the Company. The Notes are also structurally subordinated to the existing and future liabilities, including trade payables, of the Company's subsidiaries, and the Company conducts a significant portion of its operations through its subsidiaries. As of June 30, 1997, on a restated basis giving effect to the Merger, there was approximately $226 million of indebtedness of the Company outstanding that would have constituted Senior Indebtedness and approximately $51 million of indebtedness and other liabilities of subsidiaries of the Company outstanding (excluding intercompany liabilities and indebtedness included as Senior Indebtedness as a result of guarantees by the Company) to which the Notes would have been structurally subordinated. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness or the incurrence of other indebtedness and liabilities by the Company or its subsidiaries, and the incurrence of any such additional indebtedness or liabilities could adversely affect the Company's ability to pay its obligations on the Notes. The Company anticipates that from time to time it will incur additional indebtedness, including Senior Indebtedness, and that it and its subsidiaries will from time to time incur other additional indebtedness and liabilities. See "Description of Notes -- Subordination." The Indenture does not contain any financial covenants or restrictions on the payment of dividends, the incurrence of indebtedness, including Senior Indebtedness, by the Company or the issuance or repurchase of securities by the Company. The Indenture contains no covenants or other provisions to afford protection to holders of the Notes in the event of a highly leveraged transaction or a change in control of the Company except to the extent described under "Description of Notes -- Repurchase at Option of Holders Upon a Fundamental Change." The term "Fundamental Change" is limited to certain specified transactions and may not include other events that might adversely affect the financial condition of the Company, nor would the requirement that the Company offer to repurchase the Notes upon a Fundamental Change necessarily afford holders of the Notes protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving the Company. LIMITATIONS ON REPURCHASE OF NOTES Upon a Fundamental Change (as defined below, see "Description of the Notes -- Repurchase at Option of Holders Upon a Fundamental Change"), each holder of Notes will have certain rights, at the holder's option, to require the Company to repurchase all or a portion of such holder's Notes. If a Fundamental Change were to occur, there can be no assurance that the Company would have or be able to obtain sufficient funds to pay the repurchase price for all Notes tendered by the holders thereof. Certain of the agreements evidencing the Company's existing indebtedness contain, and future credit agreements relating to other indebtedness (including other Senior Indebtedness) to which the Company may become a party may also contain, restrictions and provisions which prohibit the Company from repurchasing or redeeming any Notes and certain agreements evidencing the Company's existing indebtedness provide and future agreements relating to other indebtedness may provide that certain transactions constituting a Fundamental Change would constitute an event of default thereunder. In the event a Fundamental Change occurs at a time when the Company is prohibited from repurchasing or redeeming Notes, the Company could seek the consent of its lenders to the repurchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from repurchasing or redeeming Notes. In such case, the Company's failure to repurchase tendered Notes may constitute an Event of Default (as defined below, "Description of the Notes -- Events of Default") under the Indenture, which may, in turn, constitute a further default under the terms of certain of 14 16 the Senior Indebtedness. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of the Notes. See "Description of Notes -- Repurchase at Option of Holders upon a Fundamental Change." DISCRETIONARY USE OF PROCEEDS OF OFFERING OF NOTES The principal purpose of the sale of the Notes by the Company was to increase the Company's capital base and financial flexibility. The Company plans to use the net proceeds principally for general corporate purposes, including working capital. As a consequence, the Company's management has the ability to allocate the net proceeds of the completed Notes offering at its discretion. There can be no assurance that the proceeds will be utilized to yield a significant return. See "Significant Leverage; Debt Service; Required Restructuring of Senior Indebtedness." USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Notes or Common Stock offered by the Selling Securityholders hereby. However, if and when shares of Common Stock are issued upon conversion of the Notes, certain of the Company's indebtedness will be canceled. See "Selling Securityholders." CAPITALIZATION The following table sets forth the consolidated capitalization of the Company at June 30, 1997 giving effect to the Merger, which has been accounted for as a pooling of interests, and as adjusted to give effect to the sale by the Company of the Notes on August 26, 1997 and the application of the estimated net proceeds therefrom (as if such sale and application of proceeds occurred on such date). The following table should be read in conjunction with the Supplemental Consolidated Financial Statements, related Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Registration Statement. See "Risk Factors -- Discretionary Use of Proceeds of Offering" and "-- Significant Leverage; Debt Service: Required Restructuring of Senior Indebtedness."
JUNE 30, 1997 (IN THOUSANDS) ----------------------- AS ADJUSTED (3) ---------- Line of credit borrowings (1).................................... $ 35,000 $ 35,000 Long-term debt and capital lease obligations including current portion....................................................... 67,719 67,719 5% Convertible Subordinated Notes due 2002....................... -- 310,000 Stockholders' Equity: Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding................................. -- -- Common stock, $0.001 par value, 90,000 shares authorized; 37,334 issued and outstanding (2)............................ 37 37 Additional paid-in capital.................................... 361,101 361,101 Retained earnings............................................. 286,344 286,344 -------- ---------- Total stockholders' equity.................................... 647,482 647,482 -------- ---------- Total capitalization.......................................... $750,201 $1,060,201 ======== ==========
- --------------- (1) Does not give effect to the repayment of the line of credit borrowings of $35 million during July 1997. (2) Does not include 4,935 shares of Common Stock issuable upon exercise of employee and director stock options outstanding at June 30, 1997. (3) The as adjusted capitalization table gives effect to the sale by the Company of the Notes and the application of the estimated net proceeds therefrom on June 30, 1997. 15 17 SELECTED CONSOLIDATED FINANCIAL INFORMATION The Selected Consolidated Financial Information has been derived from the Supplemental Consolidated Financial Statements of the Company and gives effect to the Merger which has been accounted for as a pooling of interests. Lam's and OnTrak's historical results of operations and financial position for the fiscal years ended June 30, 1997, 1996, 1995, 1994 and 1993 have been combined to reflect the companies' results of operations and financial position for the respective periods presented. The Selected Consolidated Financial Information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred had the Merger been effective during the periods presented, nor necessarily indicative of the future operating results or financial position of the combined company. This information should be read in connection with the Company's Supplemental Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
FOR THE YEARS ENDED JUNE 30, ---------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- -------- -------- -------- (IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales.................................................... $1,060,535 $1,309,899 $824,233 $496,389 $265,905 Royalty income............................................... 12,662 22,814 12,348 8,803 4,584 ---------- ---------- -------- -------- -------- Total revenue........................................ 1,073,197 1,332,713 836,581 505,192 270,489 Costs and expenses (1) Cost of goods sold......................................... 723,404 689,515 429,707 270,807 142,420 Research and development................................... 192,254 186,899 134,668 78,319 45,092 Selling, general and administrative........................ 209,294 237,444 151,011 93,463 54,352 Restructuring charge....................................... 9,021 -- -- -- -- Charge for past royalties.................................. -- -- 1,250 -- -- ---------- ---------- -------- -------- -------- 1,133,973 1,113,858 716,636 442,589 241,864 Operating income (loss) (1).................................. (60,776) 218,855 119,945 62,603 28,625 Other (income) expense, net.................................. 83 2,456 (9,025) 3,097 1,194 ---------- ---------- -------- -------- -------- Income (loss) before income taxes (1)........................ (60,859) 216,399 128,970 59,506 27,431 Income tax expense (benefit)................................. (30,183) 70,521 38,691 20,237 8,200 ---------- ---------- -------- -------- -------- Net income (loss) (1)........................................ $ (30,676) $ 145,878 $ 90,279 $ 39,269 $ 19,231 ========== ========== ======== ======== ======== Net income (loss) per share Primary.................................................... $ (0.83) $ 4.11 $ 2.79 $ 1.33 $ 0.67 ========== ========== ======== ======== ======== Fully diluted.............................................. $ (0.83) $ 3.95 $ 2.65 $ 1.31 $ 0.67 ========== ========== ======== ======== ======== Number of shares used in per share calculations Primary.................................................... 36,919 35,479 32,391 29,566 28,636 ========== ========== ======== ======== ======== Fully diluted.............................................. 36,919 37,719 35,391 32,266 29,236 ========== ========== ======== ======== ======== OTHER DATA: Ratio of earnings to fixed charges (2)....................... n/a 10.6x 11.2x 9.0x 7.9x ---------- ---------- -------- -------- --------
FOR THE YEARS ENDED JUNE 30, --------------------------------------------- 1997 1996 1995 1994 1993 ----- ----- ----- ----- ----- AS A PERCENTAGE OF TOTAL REVENUE Net sales....................................................................... 98.8% 98.3% 98.5% 98.3% 98.3% Royalty income.................................................................. 1.2 1.7 1.5 1.7 1.7 ------ ------ ------ ------ ------ Total revenue................................................................. 100.0 100.0 100.0 100.0 100.0 Costs and expenses Cost of goods sold............................................................ 67.4 51.7 51.4 53.6 52.6 Research and development...................................................... 17.9 14.1 16.1 15.5 16.7 Selling, general and administrative........................................... 19.5 17.8 18.1 18.5 20.1 Restructuring charge.......................................................... 0.9 -- -- -- -- Charge for past royalties..................................................... -- -- 0.1 -- -- ------ ------ ------ ------ ------ 105.7 83.6 85.7 87.6 89.4 Operating income (loss)......................................................... (5.7) 16.4 14.3 12.4 10.6 Other (income) expense, net..................................................... -- 0.2 (1.1) 0.6 0.5 ------ ------ ------ ------ ------ Income (loss) before income taxes............................................... (5.7) 16.2 15.4 11.8 10.1 Income tax expense (benefit).................................................... (2.8) 5.3 4.6 4.0 3.0 ------ ------ ------ ------ ------ Net income (loss)............................................................... (2.9)% 10.9% 10.8% 7.8% 7.1% ====== ====== ====== ====== ======
16 18
AS OF JUNE 30, ---------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- -------- -------- -------- BALANCE SHEET DATA: Working capital (1).......................................... $ 462,171 $ 516,162 $343,410 $173,913 $155,357 Total assets (1)............................................. 1,035,049 1,031,497 698,416 386,772 271,139 Long-term obligations, less current portion.................. 46,592 54,099 97,399 79,648 79,678 Mandatorily redeemable preferred stock....................... -- -- 6,522 -- -- Total stockholders' equity................................... 647,482 661,876 396,098 178,715 130,676
- --------------- (1) During fiscal 1997, Lam recorded one-time charges and other significant adjustments totaling approximately $78 million on a pre-tax basis for restructuring costs; inventory, product warranty and other adjustments; and bad debt reserves. (2) For purposes of calculating the ratio of earnings to fixed charges, (i) earnings consist of consolidated income (loss) before income taxes plus fixed charges and (ii) fixed charges consist of interest expense incurred, including capital leases, amortization of interest costs and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor. Earnings were not sufficient to cover fixed charges for fiscal 1997 by approximately $36 million. 17 19 RECENT DEVELOPMENTS Revenue for the Company for the quarter ended September 30, 1997 was $289.9 million compared to revenue of $299.2 million for the prior year period. The Company reported a net loss of $12.2 million ($0.32 per share) for the quarter compared to net income of $11.7 million ($0.31 per share, fully diluted) for the prior year's first quarter. The quarter ended September 30, 1997 results include a $17.7 million pre-tax charge ($0.41 per share, after tax) related to costs associated with the Merger, which was completed during the quarter. DESCRIPTION OF NOTES The Notes offered by the holders hereby were issued under an Indenture, dated as of August 15, 1997, between the Company and the LaSalle National Bank (the "Trustee"). The Notes offered pursuant to this Prospectus are limited to U.S. $310,000,000 aggregate principal amount (or its equivalent based on the applicable exchange rate at the time of sale). The statements herein relating to the Notes and the Indenture are summaries and are subject to the detailed provisions of the Indenture. A copy of the Indenture is filed as an exhibit to the Registration Statement of which this Prospectus is a part; also copies of the Indenture are available from the Trustee, the Company, or the Company's agent in Luxembourg upon request by holders of the Notes. The following summaries of certain provisions of the Notes 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 Notes and the Indenture, including the definitions therein of certain terms which are not otherwise defined in this Prospectus. Wherever particular provisions or defined terms of the Indenture (or the form of Note which is a part thereof) or the Registration Rights Agreement are referred to, such provisions or defined terms are incorporated herein by reference. References in this section to the "Company" are solely to Lam Research Corporation, a Delaware corporation, and not its subsidiaries. GENERAL The Notes are unsecured subordinated obligations of the Company, $310,000,000 in aggregate principal amount, will mature on September 1, 2002 and are payable at a price of 100% of the principal amount thereof. The Notes bear interest at the rate of 5% per annum commencing as of August 26, 1997, payable semiannually on March 1 and September 1 of each year, commencing on March 1, 1998. The Notes are convertible into Common Stock initially at the conversion price of $87.77 per share (equivalent to a conversion rate of approximately 11.39 shares per $1,000 principal amount of Notes), subject to adjustment upon the occurrence of certain events described under "-- Conversion," at any time prior to the close of business on the maturity date, unless previously redeemed or repurchased. The Notes are redeemable (a) at the option of the Company in the event of certain developments involving withholding taxes of the U.S. as described below under "-- Redemption -- Redemption for Taxation Reasons" at a redemption price of 100% of the principal amount of the Notes to be redeemed, plus accrued interest to, but excluding the Redemption Date (as defined) and (b) at the option of the Company under the circumstances and at the redemption prices set forth below under "Redemption -- Optional Redemption," plus accrued interest to, but excluding, the Redemption Date. The Indenture does not contain any financial covenants or restrictions on the payment of dividends by the Company, the incurrence of indebtedness, including Senior Indebtedness (as defined), by the Company or the issuance or repurchase of securities by the Company. The Indenture contains no covenants or other provisions to afford protection to holders of the Notes in the event of a highly leveraged transaction or a change in control of the Company except to the extent described below under "-- Repurchase at Option of Holders Upon a Fundamental Change." The Notes redemption price at the maturity date is 100% of the original principal amount. 18 20 BOOK ENTRY, DELIVERY AND FORM The Notes were issued in fully registered form, without coupons, in denominations of $1,000 principal amount and integral multiples thereof. Global Note, Book-Entry Form. The Notes currently held by QIBs, are evidenced by a global Note (the "144A Global Note"), which is deposited with, or on behalf of, The Depository Trust Company, New York, New York ("DTC"), and registered in the name of Cede & Co. ("Cede") as DTC's nominee. The Notes held by persons who acquired such Notes in compliance with Regulation S under the Securities Act (a "Non-U.S. Person") are evidenced by a global Note (the "Regulation S Global Note"), which is deposited with, or on behalf of, DTC and registered in the name of Cede as DTC's nominee, for the accounts of Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel"). Beneficial interests in the Regulation S Global Note may only be held through Euroclear or Cedel, and, prior to the effective date of this Prospectus and the sale of the Notes under the terms of this Prospectus, any resale or transfer of such interests to U.S. persons is restricted. Except as set forth below, the 144A Global Note and the Regulation S Global Note may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee. Upon the initial sale of the Notes offered hereby pursuant to this Prospectus, each Selling Securityholder will be required to deliver a notice ("Notice") of such sale to the Trustee and the Company. The Notice will, among other things, identify the sale as a transfer pursuant to the Registration Statement of which this Prospectus forms a part, certify that the prospectus delivery requirements, if any, of the Securities Act have been satisfied, and certify that the Selling Securityholder and the aggregate principal amount of Notes owned by such holder are identified in the Prospectus in accordance with the applicable rules and regulations under the Securities Act. Copies may be requested from the Company. Upon the initial transfer pursuant to the Registration Statement of which this Prospectus forms a part, the Notes will be represented by one or more global notes (the "Global Notes," each a "Global Note") in definitive, fully registered form, without coupons. Each such Global Note will be deposited upon issuance with, or on behalf of, DTC and registered in the name of DTC or its nominee (the "Global Note Registered Owner") or will remain in the custody of the Trustee pursuant to an agreement between DTC and the Trustee. Except as set forth below, the Global Note may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee. DTC has advised the Company as follows. DTC is a limited purpose trust company organized under the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participant organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. Pursuant to procedures established by DTC, (i) upon deposit of the Global Note, DTC will credit the accounts of Participants with portions of the principal amount of the Global Note and (ii) ownership of such interests in the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Note). The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Notes will be limited to that extent. 19 21 Except as described below, owners of interests in the Global Note will not have Notes registered in their names, will not receive physical delivery of the Notes in definitive form and will not be considered the registered owners thereof under the Indenture for any purpose. The limited circumstances under the Indenture pursuant to which owners of beneficial interests in the Global Note are entitled to have certificates registered in their name would occur if at any time (i) the Company or an affiliate of the Company is such owner of a beneficial interest in the securities represented by such Global Note, or (ii) the depository (initially DTC) for the Global Note notifies the Company that it is unwilling or unable to continue as depository for the Global Note, and a successor depository is not appointed by the Company within ninety (90) days after the Company receives such notice. In this event, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate (as defined in the Indenture) for the authentication and delivery of such securities, will authenticate and deliver, the securities in certificated form, in aggregate principal amount equal to the principal amount of the Global Note, in exchange for the Global Note. Securities in certificated form shall be registered in such names and in such authorized denominations as the depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such securities in certificated form to the Persons in whose names such securities in certificated form are so registered. Payment of interest on and the redemption price of the Global Note are made to Cede, the nominee for DTC, as the registered owner of the Global Note, by wire transfer of immediately available funds on each interest payment date. Neither the Company, the Trustee nor any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company has been informed by DTC that, with respect to any payment of interest on, or the redemption price of, the Global Note, DTC's practice is to credit Participants' accounts on the payment date therefor with payments in amounts proportionate to their respective beneficial interests in the Notes represented by the Global Note, as shown on the records of DTC (adjusted as necessary so that such payments are made with respect to whole Notes only), unless DTC has reason to believe that it will not receive payment on such payment date. Payments by Participants to owners of beneficial interests in Notes represented by the Global Note held through such Participants are the responsibility of such Participants, as is now the case with securities held for the accounts of customers registered in "street name." Because DTC can only act on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in the principal amount represented by the Global Note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. Neither the Company nor the Trustee (or any Note Registrar, Paying Agent or Conversion Agent under the Indenture) will have any responsibility for the performance by DTC or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes (including, without limitation, the presentation of Notes for exchange as described below) only at the direction of one or more Participants to whose account with DTC interests in the Global Note are credited and only in respect of the principal amount of the Notes represented by the Global Note as to which such Participant or Participants has or have given such direction. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes to accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may 20 22 include certain other organizations such as the Initial Purchasers. Certain of such Participants (or their representatives), together with other entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a Participant, either directly or indirectly. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among Participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. If DTC is at any time unwilling or unable to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will cause the Notes to be issued in definitive form in exchange for the Global Note. CONVERSION The holder of any Note will have the right at the holder's option to convert any Note (in denominations of $1,000 or any multiple thereof) into shares of Common Stock at any time, at a conversion price of $87.77 per share (equivalent to a conversion rate of approximately 11.39 shares per $1,000 principal amount of Notes). The conversion price is subject to adjustment from time to time as described below. The right to convert a Note will end at the close of business on the maturity date, September 1, 2002, except that the right to convert a Note called for redemption or delivered for repurchase will terminate upon the earlier to occur of (i) the close of business on the Business Day prior to the Redemption Date or the Repurchase Date (as defined), as the case may be, or (ii) the close of business on the maturity date. The rights and privileges of the holders of Common Stock are described in "Description of Capital Stock." Beneficial owners of interests in a Global Note may exercise their right of conversion by delivering to any Conversion Agent the appropriate instruction form for conversion. Pursuant to the Indenture, the date on which all of the foregoing requirements have been satisfied is the date of surrender for conversion. Such notice of conversion can be obtained from the Trustee at the Corporate Trust Office or the office of any Conversion Agent. As promptly as practicable on or after the conversion date, the Company will issue and deliver to the Trustee a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share in an amount determined as set forth below. Such certificates are sent by the Trustee to the appropriate Conversion Agent for delivery to the holder. Such Common Stock issuable upon conversion of the Notes shall be fully paid and nonassessable. Any Note surrendered for conversion during the period from the close of business on any Regular Record Date, as defined herein, to the opening of business on the next succeeding Interest Payment Date (except Notes called for redemption on a Redemption Date or to be repurchased on a Repurchase Date during such period) must be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the principal amount of the Notes being surrendered for conversion. In the case of any Note which has been converted after any Regular Record Date, but on or before the next Interest Payment Date, the Stated Maturity of which is on such Interest Payment Date, interest shall be payable on such Interest Payment Date notwithstanding such conversion. Such interest shall be paid to the holder of such Note on such Regular Record Date. As a result, a holder that surrenders Notes for conversion on a date that is not an Interest Payment Date will not receive any interest for the period from the Interest Payment Date next preceding the date of conversion to the date of conversion or for any later period, even if the Notes are surrendered after a notice of redemption (except for the payment of interest on Notes called for redemption on a Redemption Date or to be repurchased on a Repurchase Date between a Regular Record Date and the Interest Payment Date to which it relates). No other payment or adjustment for interest, or for any dividends in respect of Common Stock, are made upon conversion. Holders of Common Stock issued upon conversion will not be entitled to receive any dividends payable to holders of Common Stock as of any record time before the close of business on the conversion date. No fractional shares are issued upon conversion but, in lieu thereof, an appropriate amount is paid in cash by the Company based on the market price of Common Stock on the day of conversion. A holder delivering a Note for conversion will not be required to pay any taxes or duties in respect of the issue or delivery of Common Stock on conversion but is required to pay any tax or duty which may be payable in respect of any transfer involved in the issue or delivery of the Common Stock in a name other than that of 21 23 the holder of the Note. Certificates representing Common Stock will not be issued or delivered unless all taxes and duties, if any, payable by the holder have been paid. The initial conversion price of $87.77 per share of Common Stock (equivalent to a conversion rate of approximately 11.39 shares per $1,000 principal amount of the Notes) 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; (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 (provided that the conversion price will be readjusted to the extent that such rights or warrants are not exercised prior to the expiration thereof); (iv) the distribution to all holders of Common Stock of shares of capital stock of the Company (other than Common Stock) or evidences of indebtedness of the Company 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 quarterly cash dividend on the Common Stock to the extent that the aggregate cash dividend per share of Common Stock in any quarterly period does not exceed the greater of (x) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require an adjustment of the conversion price pursuant to this clause (v), and (y) 3.75% of the average of the daily Closing Prices (as defined in Section 12.4 (8) of the Indenture) of the Common Stock for the ten consecutive Trading Days (as defined in Section 12.4 (8) of the Indenture) immediately prior to the date of declaration of such dividend, and excluding any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company; (vi) payment in respect of a tender or exchange offer by the Company 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 Section 12.4 (8) of 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; and (vii) payment in respect of a tender offer or exchange offer by a person other than the Company in which, as of the closing date of the offer, the Board of Directors is not recommending rejection of the offer. If an adjustment is required to be made as set forth in clause (v) above as a result of a distribution that is a quarterly dividend, such adjustment would be based upon the amount by which such distribution exceeds the amount of quarterly cash dividends permitted to be excluded pursuant to such clause (v). In the event of a distribution to substantially all holders of Common Stock of rights to subscribe for additional shares of the Company's capital stock as provided in clause (iii) above, the Company may, instead of making any adjustment in the conversion price, make proper provision so that each holder of a Note who converts such Note after the record date for such distribution and prior to the expiration or redemption of such rights shall be entitled to receive upon such conversion, in addition to shares of Common Stock, an appropriate number of such rights. If an adjustment is required to be made as set forth in clause (v) above as a result of a distribution that is not a quarterly dividend, such adjustment would be based upon the full amount of the distribution. The adjustment referred to in clause (vii) above will only be made if the tender offer or exchange offer is for an amount which increases that person's ownership of Common Stock to more than 25% of the total shares of Common Stock outstanding and if the cash and value of any other consideration included in such payment per share of Common Stock exceeds the Current Market Price per share of Common Stock on the business day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer. The adjustment referred to in clause (vii) above will not be made, however, if, as of the closing of the offer, the offering documents with respect to such offer disclose a plan or an intention to cause the Company to engage in a consolidation or merger of the Company or a sale of all or substantially all of the Company's assets. After and so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, notice of any adjustment of the conversion price are given to holders of the Notes by publication in a daily newspaper of general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, if publication in Luxembourg is not practical, in Western Europe. Under the provisions of Lam's Rights Plan (see "Description of Capital Stock -- Rights Plan"), upon conversion of the Notes into Common Stock to the extent that the Rights Plan is still in effect upon such conversion, the holders will receive, in addition to the Common Stock, the Rights described therein (whether 22 24 or not the rights have separated from the Common Stock at the time of conversion), subject to certain limited exceptions. In the case of (i) any reclassification of the Common Stock, or (ii) a consolidation, merger or combination involving the Company or a sale or conveyance to another person of the property and assets of the Company 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 Notes then outstanding will generally be entitled thereafter to convert such Notes for the kind and amount of shares of stock, other securities or other property or assets (including cash) which they would have owned or been entitled to receive upon such reclassification, consolidation, merger, combination, sale or conveyance had such Notes been converted into Common Stock immediately prior to such reclassification, consolidation, merger, combination, sale or conveyance assuming that a holder of Notes would not have exercised any rights of election as to the stock, other securities or other property or assets (including cash) receivable in connection therewith. The Company 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 days, in which case the Company shall give at least 15 days notice of such reduction, if the Board of Directors of the Company has made a determination that such reduction would be in the best interests of the Company which determination shall be conclusive. The Company may, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Board of Directors of the Company 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. No adjustment in the conversion price is 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. SUBORDINATION The indebtedness evidenced by the Notes is subordinated in right of payment to the extent provided in the Indenture to the prior payment in full of all Senior Indebtedness (as defined below). Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization (including any of the foregoing as a result of bankruptcy or moratorium of payment), the payment on account of the principal of, redemption of, liquidated damages, if any, or premium, if any, and interest on the Notes (including on account of a Fundamental Change) is to be subordinated to the extent provided in the Indenture in right of payment to the prior payment in full in cash of all Senior Indebtedness. In the event of any acceleration of the Notes because of an Event of Default, the holders of any Senior Indebtedness then outstanding would be entitled to payment in full in cash of all obligations in respect of such Senior Indebtedness before the holders of the Notes are entitled to receive any payment or other distribution in respect thereof. The Indenture will require that the Company promptly notify the Trustee if payment of the Notes is accelerated because of an Event of Default. The Company also may not make any payment upon, redemption of, or payment of liquidated damages, if any, on or purchase or otherwise acquire the Notes if (i) a default in the payment of the principal of, premium, if any, interest, rent or other obligations in respect of Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Indebtedness (as defined below) that permits the holders of the Designated Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or other person permitted to give such notice under the Indenture. Payments on the Notes may and shall be resumed (a) in case of a payment default, upon the date on which such default is cured or waived or ceases to exist and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or ceases to exist or 179 days after 23 25 the date on which the applicable Payment Blockage Notice is received. No new period of payment blockage may be commenced pursuant to a Payment Blockage Notice unless and until 365 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. By reason of the subordination provisions described above, in the event of the Company's bankruptcy, dissolution or reorganization, holders of Senior Indebtedness may receive more, ratably, and holders of the Notes may receive less, ratably, than the other creditors of the Company. Such subordination will not prevent the occurrence of any Event of Default under the Indenture. In the event that, notwithstanding the foregoing, the Trustee or any holders of the Notes receives any payment or distribution of assets of the Company of any kind in contravention of any of the subordination provisions of the Indenture, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of the Notes before all Senior Indebtedness is paid in full, then such payment or distribution will be held by the recipient in trust for the benefit of holders of Senior Indebtedness of the Company or their representative or representatives to the extent necessary to make payment in full of all Senior Indebtedness of the Company remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of Senior Indebtedness of the Company. The Notes are unsecured and subordinated in right of payment to all existing and future Senior Indebtedness of the Company. The Notes are also structurally subordinated to the existing and future liabilities, including trade payables, of the Company's subsidiaries, and the Company conducts a significant portion of its operations through subsidiaries. As of June 30, 1997, there was approximately $226 million of indebtedness of the Company outstanding that would have constituted Senior Indebtedness and there was approximately $51 million of indebtedness and other liabilities of subsidiaries of the Company outstanding (excluding intercompany liabilities and indebtedness included as Senior Indebtedness as a result of guarantees by the Company) to which the Notes would have been structurally subordinated. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness or the incurrence of other indebtedness and other liabilities by the Company or its subsidiaries, and the incurrence of any such additional indebtedness or liabilities could adversely affect the Company's ability to pay its obligations on the Notes. The Company anticipates that from time to time it will incur additional indebtedness, including Senior Indebtedness, and that it and its subsidiaries will from time to time incur other additional indebtedness and liabilities. See "Risk Factors -- Subordination and Absence of Financial Covenants." The Company is obligated to pay reasonable compensation to the Trustee and to indemnify the Trustee against any losses, liabilities or expenses incurred by it in connection with its duties relating to the Notes. The Trustee's claims for such payments are senior to those of holders of the Notes in respect of all funds collected or held by the Trustee. The term "Senior Indebtedness" means the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness (as defined below) of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is pari passu or "junior" to the Notes. Notwithstanding the foregoing, Senior Indebtedness shall include Indebtedness of the Company to any subsidiary of the Company. The term "Indebtedness" means, with respect to any Person, and without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of the Company for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not 24 26 evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof) other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services, (b) all reimbursement obligations and other liabilities (contingent or otherwise) of the Company with respect to letters of credit, bank guarantees or bankers' acceptances, (c) all obligations and liabilities (contingent or otherwise) in respect of leases of the Company required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of the Company and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property or improvements thereon which provides that the Company is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of the Company under such lease or related document to purchase or to cause a third party to purchase such leased property, (d) all obligations of the Company (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement, (e) all direct or indirect guaranties or similar agreements by the Company in respect of, and obligations or liabilities (contingent or otherwise) of the Company to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another person of the kind described in clauses (a) through (d), (f) any indebtedness or other obligations described in clauses (a) through (d) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by the Company, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by the Company, and (g) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). The term "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). REDEMPTION Optional Redemption At any time on or after September 6, 2000, the Notes are redeemable at the Company's option on at least 20 and not more than 60 days notice, in whole, or from time to time, in part, at the following prices (expressed as percentages of the principal amount), together with accrued interest to, but excluding, the Redemption Date, if the closing price of the Common Stock shall have exceeded 130% of the conversion price then in effect for 20 trading days within a period of 30 consecutive trading days ending within five trading days prior to the notice of redemption. If redeemed during the 12-month period beginning September 1 (beginning September 6, 2000 and ending August 31, 2001, in the case of the first such period):
YEAR REDEMPTION PRICE - ---- ---------------- 2000 102% 2001 101
and 100% at September 1, 2002; provided that any semi-annual payment of interest becoming due on the Redemption Date shall be payable to the holders of record on the Regular Record Date of the Notes being redeemed. If fewer than all the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by lot. If any Note is to be redeemed in part only, a new Note or new Notes in principal amount equal to the 25 27 unredeemed principal portion thereof will be issued at the office of the agency of the Trustee in the City of New York or the Corporate Trust Office of the Trustee in Chicago, Illinois or the Note Registrar in Luxembourg. If a portion of a holder's Notes is selected for partial redemption and such holder converts a portion of such Notes, such converted portion shall be deemed to be taken from the portion selected for redemption. There is no sinking fund provided for the Notes. Redemption for Taxation Reasons If, as a result of any change in, or amendment to, the laws or regulations prevailing in the United States or any political subdivision or taxing authority thereof or therein, which change or amendment becomes effective on or after the date of this Prospectus or as a result of any application or official interpretation of such laws or regulations not generally known before that date (a "Tax Law Change") the Company is or would be required on the next succeeding Interest Payment Date to pay Additional Amounts (as defined in Section 2.2 of the Indenture), and such requirement or obligation cannot be avoided by the Company taking reasonable measures available to it, the Company may redeem the affected Notes in whole, but not in part, at any time, on giving not less than 20 days notice, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to, but excluding, the Redemption Date and any Additional Amounts then payable, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obligated to withhold or pay additional amounts were a payment in respect of the Notes then made. Prior to the publication of any notice of redemption with respect to a Tax Law Change, the Company shall deliver to the Trustee (a) a certificate stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Company so to redeem have occurred and (b) an opinion of counsel selected by the Company and reasonably acceptable to the Trustee, to the effect that the Company has or will become obligated to pay such Additional Amounts as a result of a Tax Law Change. The Company's right to redeem the affected Notes shall continue as long as the Company is obligated to pay Additional Amounts, notwithstanding that the Company shall have theretofore made payments of Additional Amounts. PAYMENT AND CONVERSION The principal of the Notes are payable in United States dollars, against surrender thereof at the office of the agency of the Trustee in The City of New York or the Corporate Trust Office of the Trustee in Chicago, Illinois, or, subject to any applicable laws and regulations, at the office of any Paying Agent, by dollar check drawn on, or by transfer to a United States dollar denominated account (such transfer to be made only to holders of an aggregate principal amount of Notes in excess of $2,000,000) maintained by the holder with, a bank in The City of New York. Payment of any installment of interest on Notes shall be made to the Person in whose name such Notes or any predecessor Note is registered at the close of business on February 15 or August 15 (whether or not a Business Day) immediately preceding the relevant Interest Payment Date (a "Regular Record Date"). Payments of such interest are made by a dollar check drawn on a bank in The City of New York mailed to the holder at such holder's registered address or, upon application by the holder thereof to the Trustee not later than the applicable Regular Record Date, by transfer to a United States dollar denominated account (such transfer to be made only to holders of an aggregate principal amount of the Notes in excess of $2,000,000) maintained by the holder with a bank in The City of New York. No transfer to a United States dollar denominated account shall be made unless the Trustee has received written wire instructions not less than 15 days prior to the relevant payment date. Any payment on the Notes due on any day which is not a Business Day need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on such due date, and no interest shall accrue on such payment for the period from and after such date. "Business Day," when used with respect to any place of payment, place of conversion or any other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking 26 28 institutions in such place of payment, place of conversion or other place, as the case may be, are authorized or obligated by law or executive order to close; provided, however, that a day on which banking institutions in New York, New York or Luxembourg are authorized or obligated by law or executive order to close shall not be a Business Day for certain purposes. The Notes may be surrendered for conversion, subject to any applicable laws and regulations, at the office of any Conversion Agent outside the U.S. In addition, the Notes may be surrendered for conversion at the office of the agency of the Trustee in The City of New York or the Corporate Trust Office of the Trustee in Chicago, Illinois. Notes surrendered for conversion must be accompanied by appropriate notices and any payments in respect of interest or taxes, as applicable, as described above under "-- Conversion." The Company has initially appointed as Paying Agent and Conversion Agent the Trustee at its Corporate Trust Office in Chicago, Illinois or at the office of the agency of the Trustee in The City of New York and Banque de Luxembourg in Luxembourg as the Paying Agent and Conversion Agent in Luxembourg. The Company may at any time terminate the appointment of any Paying Agent or Conversion Agent and appoint additional or other Paying Agents and Conversion Agents, provided that until the Notes have been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of, premium, if any, and interest on the Notes have been made available for payment and either paid or returned to the Company as provided in the Indenture, it will maintain offices or agencies in The City of New York, and after and so long as the Notes are listed on the Luxembourg Stock Exchange, in Luxembourg for payments with respect to the Notes and for the surrender of the Notes for conversion. Notice of any such termination or appointment and of any change in the office through which any Paying Agent or Conversion Agent will act are given in accordance with "Notices" below. Interest payable on the Notes on any Redemption Date or Repurchase Date that is an Interest Payment Date are paid to the holders of record as of the immediately preceding Regular Record Date. All moneys deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of principal of, premium, if any, or interest on any Notes which remain unclaimed at the end of the earlier of the date on which such money escheats to the state or two years after such payment has become due and payable are repaid to the Company, and the holder of such Note will thereafter look only to the Company for payment thereof. PAYMENT OF ADDITIONAL AMOUNTS The Company will pay to a Non-U.S. Holder (as defined in "Certain Federal Income Tax Considerations" below) of any Note such additional amounts ("Additional Amounts") as may be necessary in order that every net payment of the principal of, premium, if any, and interest on such Note, after deduction or withholding for or on account of any present or future tax, assessment or governmental charge imposed upon or as a result of such payment by the United States or any political subdivision or taxing authority thereof or therein, will not be less than the amount provided for in such Note to be then due and payable; provided however, that the foregoing obligation to pay Additional Amounts will not apply to: (a) any tax, assessment or other governmental charge which would not have been so imposed but for (i) the existence of any present or former connection between such Non-U.S. Holder (or between a fiduciary, settlor, beneficiary, member, shareholder of or possessor of a power over such Non-U.S. Holder, if such Non-U.S. Holder is a trust, an estate, a partnership or a corporation) and the United States or any political subdivision or taxing authority thereof or therein, including, without limitation, such Non-U.S. Holder (or such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or having been a citizen, domiciliary or resident of the United States or treated as a resident thereof, or being or having been engaged in trade or business or present therein, or having or having had a permanent establishment therein; or (ii) such Non-U.S. Holder's present or former status as a personal holding company, a foreign personal holding company with respect to the United States, a controlled foreign corporation, a passive foreign investment company, or a foreign private foundation or foreign tax exempt entity for United States tax purposes, or a corporation which accumulates earnings to avoid United States federal income tax; 27 29 (b) any tax, assessment or other governmental charge which would not have been so imposed but for the presentation by the Non-U.S. Holder of such Notes for payment on a date more than 15 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; (c) any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or governmental charge; (d) any tax, assessment or other governmental charge which would not have been imposed but for the failure to comply with any certification, identification or other reporting requirement concerning the nationality, residence, identity or connection with the United States of such Non-U.S. Holder (or beneficial owner of such Note), if compliance is required or imposed by a statute, treaty, regulation or administrative practice of the United States as a precondition to exemption from all or part of such tax, assessment or other governmental charge; (e) any tax, assessment or other governmental charge which is payable otherwise than by deduction or withholding from payments of principal of, premium, if any, or interest on such Note; (f) any tax, assessment or other governmental charge imposed on interest received by a Non-U.S. Holder actually or constructively holding 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote; (g) any tax, assessment or other governmental charge imposed on a Non-U.S. Holder that is a partnership or a fiduciary or other than the sole beneficial owner of such payment, but only to the extent that any beneficial owner or member of the partnership or beneficiary or settlor with respect to the fiduciary would not have been entitled to the payment of Additional Amounts had the beneficial owner, member, beneficiary or settlor directly been the holder of the Note; or (h) any combination of items (a), (b), (c), (d), (e), (f) and (g). Notwithstanding the foregoing, the Company shall not be obligated to pay Additional Amounts in respect of payments becoming due on the Notes more than 15 days after the Redemption Date with respect to any redemption of the Notes described in the first paragraph under "Redemption -- Redemption for Taxation Reasons" to the extent that the Company's obligation to pay such Additional Amounts arises from the Tax Law Change that resulted in such redemption. REPURCHASE AT OPTION OF HOLDERS UPON A FUNDAMENTAL CHANGE If a Fundamental Change (as defined below) occurs, each holder of Notes shall have the right, at the holder's option, to require the Company to repurchase all of such holder's Notes, or any portion of a Note that is $1,000 or an integral multiple of $1,000 in excess thereof, on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined below), at a price (the "Repurchase Price") (expressed as a percentage of the principal amount) equal to (i) 105% if the Repurchase Date is during the 12-month period beginning September 1, 1997, (ii) 104% if the Repurchase Date is during the 12-month period beginning September 1, 1998, (iii) 103% if the Repurchase Date is during the 12-month period beginning September 1, 1999 and (iv) thereafter at the redemption price set forth under " -- Redemption -- Optional Redemption" which would be applicable to a redemption at the option of the Company on the Repurchase Date; provided that, if the Applicable Price (as defined below) is less than the Reference Market Price (as defined below), the Company shall repurchase such Notes at a price equal to the foregoing redemption price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay accrued interest on the redeemed Notes to, but excluding, the Repurchase Date. Any Notes repurchased by the Company shall be canceled. Within 30 days after the occurrence of a Fundamental Change, the Company is obligated to give to all holders of the Notes notice, as provided in the Indenture (the "Company Notice"), of the occurrence of such Fundamental Change and of the repurchase right arising as a result thereof. The Company must also deliver a copy of the Company Notice to the Trustee. To exercise the repurchase right, a holder of Notes must deliver 28 30 on or before the 30th day after the date of the Company Notice irrevocable written notice to the Trustee or any Paying Agent of the holder's exercise of such right, together with the Notes with respect to which the right is being exercised. Beneficial owners of an interest in a Global Note may exercise the repurchase right by delivering the appropriate instruction form for repurchases at the election of holders pursuant to the DTC book-entry repurchase program. The term "Fundamental Change" means the occurrence of any transaction or event in connection with which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive, consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which is not all or substantially all common stock or shares which are (or, upon consummation of or immediately following such transaction or event, are) listed on a United States national securities exchange or approved for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices. The term "Applicable Price" means (i) in the event of a Fundamental Change in which the holders of Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the average of the last reported sale price for the Common Stock during the ten Trading Days prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if no such record date exists, the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets in connection with the Fundamental Change. The term "Reference Market Price" shall initially mean $37.75 (which is equal to 66 2/3% of the last bid price of the Common Stock on August 18, 1997) and in the event of any adjustment to the conversion price described above pursuant to the provisions of the Indenture, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the conversion price after giving effect to any such adjustment shall always be the same as the ratio of $37.75 to the conversion price specified on the cover page of this Prospectus (without regard to any adjustment thereto). Rule 13e-4 under the Exchange Act requires the dissemination of certain information to security holders in the event of an issuer tender offer and may apply in the event that the repurchase option becomes available to holders of the Notes. The Company will comply with this rule and any other securities laws to the extent applicable at that time. Upon a Fundamental Change, each holder of Notes will have certain rights, at the holder's option, to require the Company to repurchase all or a portion of such holder's Notes. If a Fundamental Change were to occur, there can be no assurance that the Company would have or be able to obtain sufficient funds to pay the repurchase price for all Notes tendered by the holders thereof. Certain of the Company's agreements evidencing existing Indebtedness contain and future credit agreements or other agreements relating to other indebtedness (including other Senior Indebtedness) to which the Company may become a party may also contain restrictions and provisions which prohibit the Company from repurchasing or redeeming any Notes and certain agreements evidencing existing Indebtedness provide and future agreements relating to Indebtedness may also provide that certain transactions constituting a Fundamental Change would constitute an event of default thereunder. In the event a Fundamental Change occurs at a time when the Company is prohibited from repurchasing or redeeming the Notes, the Company could seek the consent of its lenders to the repurchase of the Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from repurchasing or redeeming the Notes. In such case, the Company's failure to repurchase tendered Notes would constitute an Event of Default under the Indenture, which could, in turn, constitute a further default under the other Indebtedness that the Company may enter into from time to time. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the holders of Notes. The repurchase option upon a Fundamental Change feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and, thus, the removal of incumbent management. The Fundamental Change repurchase feature, however, is not the result of management's knowledge of any specific effort to accumulate the Company's stock or to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of 29 31 anti-takeover provisions. Instead, the Fundamental Change repurchase feature is a result of negotiations between the Company and the Initial Purchasers. Management has no present intention to engage in a transaction involving a Fundamental Change, although it is possible that the Company could decide to do so in the future. Subject to the limitations on mergers, consolidations and sale of assets described herein, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Fundamental Change under the Indenture, but that could increase the amount of indebtedness (including Senior Indebtedness) outstanding at such time or otherwise affect the Company's capital structure or credit ratings. The payment of the repurchase price in the event of a Fundamental Change is subordinated to the prior payment of Senior Indebtedness as described under "-- Subordination" above. The term "Fundamental Change" is limited to certain specified transactions and may not include other events that might adversely affect the financial condition of the Company nor would the requirement that the Company offer to repurchase the Notes upon a Fundamental Change necessarily afford holders of the Notes protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving the Company. MERGERS AND SALES OF ASSETS BY THE COMPANY The Company may not consolidate with or merge into any other person (in a transaction in which the Company is not the surviving entity) or transfer or lease its properties and assets substantially as an entirety to any Person unless (i) the person formed by such merger or into which the Company is merged or the person to which the properties and assets of the Company are so transferred or leased shall expressly assume the payment of the principal of, premium, if any, and interest on the Notes, (ii) no default and no Event of Default shall have occurred and be continuing as a result of such consolidation, merger, transfer or lease, and (iii) the performance of the other covenants of the Company under the Indenture and certain other conditions are met. EVENTS OF DEFAULT The following are Events of Default under the Indenture: (a) failure to pay principal of or premium, if any, on any Note when due; (b) failure to pay any interest on, or Additional Amounts with respect to, any Note when due, continuing for 30 days; (c) failure to perform any other covenant of the Company in the Indenture, continuing for 60 days after written notice as provided in the Indenture; and (d) certain events of bankruptcy, insolvency or reorganization. Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default shall occur and be continuing, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders, unless such holders shall have offered to the Trustee reasonable indemnity. Subject to such provisions providing for the indemnification of the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. If an Event of Default (other than as specified in clause (d) above) shall occur and be continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. If an Event of Default as specified in clause (d) above occurs and is continuing, then the principal of, and accrued interest on, all the Notes shall ipso facto become immediately due and payable without any declaration or other act on the part of the holders of the Notes or the Trustee. For information as to waiver of defaults, see "-- Meetings, Modification and Waiver." No holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder unless such holder shall have previously given to the Trustee written notice of a 30 32 continuing Event of Default and the holders of at least 25% in aggregate principal amount of the outstanding Notes shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee, and the Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted by a holder of a Note for the enforcement of payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note or of the right to convert such Note in accordance with the Indenture. The Company is required to furnish to the Trustee annually a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. MEETINGS, MODIFICATION AND WAIVER The Indenture contains provisions for convening meetings of the holders of Notes to consider matters affecting their interests. Modifications and amendments of the Indenture may be made, and certain past defaults by the Company may be waived, either (i) with the written consent of the holders of not less than a majority in aggregate principal amount of the outstanding Notes or (ii) by the adoption of a resolution, at a meeting of holders of the Notes at which a quorum is present, by the holders of at least the lesser of a majority in aggregate principal amount of the outstanding Notes and 66 2/3% of the aggregate principal amount of the Notes represented and entitled to vote at such meeting. However, no such modification or amendment may, without the consent of the holder of each outstanding Note, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (b) reduce the principal amount of, or the premium, if any, or interest on, any Note, (c) reduce the amount payable upon a redemption or repurchase, (d) modify the provisions with respect to the repurchase right of the holders in a manner adverse to the holders, (e) change the obligation of the Company to pay Additional Amounts described above in a manner adverse to the holders, (f) change the place or currency of payment of principal of, or premium, if any, or interest on, any Note, (g) impair the right to institute suit for the enforcement of any payment on or with respect to any Note, (h) modify the obligation of the Company to maintain an office or agency in The City of New York and in a Western European city, (i) adversely affect the right to convert the Notes, (j) modify the subordination provisions in a manner adverse to the holders of the Notes, (k) reduce the above-stated percentage of outstanding Notes necessary to modify or amend the Indenture, (l) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (m) reduce the percentage in aggregate principal amount of Outstanding Notes required for the adoption of a resolution or the quorum required at any meeting of holders of Notes at which a resolution is adopted, or (n) modify the obligation of the Company to deliver information required under Rule 144A to permit resales of Notes and Common Stock issuable upon conversion thereof in the event the Company ceases to be subject to certain reporting requirements under the United States securities laws. The quorum at any meeting called to adopt a resolution shall be persons holding or representing a majority in aggregate principal amount of the Outstanding Notes and, at any reconvened meeting adjourned for lack of a quorum, 25% of such aggregate principal amount. The Indenture may also be modified or amended without the consent of the holders: (i) to evidence the succession of another person to the Company as otherwise permitted by the Indenture; (ii) to add to the covenants of the Company for the benefit of the holders of the Notes or to surrender any power conferred upon the Company; (iii) to add any Events of Default; (iv) to permit or facilitate the issuance of securities in uncertificated form; (v) to secure the Notes; (vi) to provide for successor or additional trustees; or (vii) to cure any ambiguity, to correct or supplement any provision which may be inconsistent with any other provision or to make any other provisions with respect to matters or questions arising under the Indenture, provided such action shall not adversely affect the interest of holders of Notes in any material respect. The holders of a majority in aggregate principal amount of the outstanding Notes may waive compliance by the Company with certain restrictive provisions of the Indenture by written consent. The holders of a 31 33 majority in aggregate principal amount of the Outstanding Notes also may waive any past default under the Indenture, except a default in the payment of principal, premium, if any, or interest, by written consent. REGISTRATION RIGHTS The Company is filing the Registration Statement pursuant to and in accordance with the Registration Rights Agreement, which requires that the Company, at the Company's expense for the benefit of the holders of the Notes and the Common Stock issuable upon conversion thereof (together, the "Registrable Securities"), (i) file with the Commission within 90 days after the date of original issuance of the Notes, a registration statement (the "Shelf Registration Statement") covering resales of the Registrable Securities, (ii) use its reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within 180 days after the date of original issuance of the Notes and (iii) use its reasonable efforts to keep effective the Shelf Registration Statement until the second anniversary of the last date of original issuance of Notes or such earlier date as all Registrable Securities shall have been disposed of or on which all Registrable Securities held by Persons that are not affiliates of the Company may be resold without registration pursuant to Rule 144(k) under the Securities Act (the "Effectiveness Period"). Pursuant to the terms of the Registration Rights Agreement, the Company will be permitted to suspend the use of this Prospectus in connection with the sales of the Registrable Securities during certain periods of time under certain circumstances relating to pending corporate developments, public filings with the Commission and other events. Pursuant to the terms of the Registration Rights Agreement, the Company will provide to each holder of Registrable Securities copies of this Prospectus, notify each holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit public resales of the Registrable Securities. A holder of Registrable Securities that sells such Registrable Securities pursuant to the Shelf Registration Statement will be required to be named as a selling security holder in this Prospectus and to deliver a Prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement, including certain indemnification obligations. The Notes sold pursuant to the Shelf Registration Statement will be represented by a new Global Note, and will not be subject to any restrictions on transfer. The Notes sold pursuant to the Shelf Registration Statement will not be listed on any United States exchange or automated quotation system, but will trade in the over-the-counter market in the United States. This summary of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of the form of which will be made available to prospective investors in the Notes upon request to the Company. TRANSFER AND EXCHANGE At the option of the holder upon request confirmed in writing, Notes are exchangeable at any time into an equal aggregate principal amount of Notes of different authorized denominations. See "-- Book Entry, Delivery and Form." The Notes may be presented for registration of transfer (with the form of transfer endorsed thereon duly executed) or exchange, at the office of the Note Registrar, without service charge but, in the case of a transfer, upon payment of any taxes and other governmental charges as described in the Indenture. Any registration of transfer or exchange is effected upon the Note Registrar being satisfied with the documents of title and identity of the Person making the request, and subject to such reasonable regulations as the Company may from time to time agree upon with the Note Registrar, all as described in the Indenture. Notes may be transferred in whole or in part in authorized denominations at the office of the agency of the Trustee in The City of New York or the Corporate Trust Office of the Trustee in Chicago, Illinois or the Note Registrar in Luxembourg. The Company has initially appointed the Trustee as Note Registrar and has appointed Banque de Luxembourg as Note Registrar in Luxembourg. The Company reserves the right to vary or terminate the 32 34 appointment of the Note Registrar or to appoint additional or other Note Registrars or to approve any change in the office through which any Note Registrar acts, provided that there will at all times be a Note Registrar, after and so long as, the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall require, in Luxembourg. In the event of a redemption of less than all of the Notes for any of the reasons set forth above under "-- Redemption," the Company will not be required (a) to register the transfer or exchange of Notes for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Notes called for such redemption or (b) to register the transfer of or exchange any Note, or portion thereof, called for redemption. TITLE The Company, the Trustee, any Paying Agent, any Conversion Agent and any Note Registrar may treat the registered owner (as reflected in the Note Register) of any Note as the absolute owner thereof (whether or not such Note shall be overdue) for the purpose of making payment and for all other purposes. NOTICES Notice to holders of Notes will be given by mail to the addresses of such holders as they appear on the Note Register. Such notices will be deemed to have been given on the date of such mailing or on the date of the first such publication, as the case may be. In addition, after and so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall require, notices to holders of the Notes will be given by publication in a daily newspaper of general circulation in Luxembourg or, if publication in Luxembourg is not practical, in Western Europe. Such publication is expected to be made in the Luxemburger Wort. Such notices are deemed to have been given on the date of such publication or, if published in such newspapers on different dates, on the date of the first such publication. Notice of a redemption of the Notes will be given at least once not less than 20 nor more than 60 days prior to the Redemption Date (which notice shall be published in accordance with the procedures described in the preceding paragraphs) and shall be irrevocable and will specify the Redemption Date. REPLACEMENT OF NOTES Notes that become mutilated, destroyed, stolen or lost will be replaced by the Company at the expense of the holder upon delivery to the Trustee or to a Note Registrar outside the United States of the mutilated Notes or evidence of the loss, theft or destruction thereof satisfactory to the Company and the Trustee. In the case of a lost, stolen or destroyed Note, indemnity satisfactory to the Trustee and the Company may be required at the expense of the holder of such Note before a replacement Note will be issued. PAYMENT OF STAMP AND OTHER TAXES The Company will pay all stamp and other duties, if any, which may be imposed by the United States or any political subdivision thereof or taxing authority thereof or therein with respect to the issuance of the Notes or the issuance of Common Stock upon any conversion of the Notes. Except as described under "-- Payment of Additional Amounts," the Company will not be required to make any payment with respect to any other tax, assessment or governmental charge imposed by any government or any political subdivision thereof or taxing authority thereof or therein. GOVERNING LAW The Indenture, the Notes and the Registration Rights Agreement are governed by and construed in accordance with the laws of the State of New York, United States of America. 33 35 INFORMATION CONCERNING THE TRUSTEE LaSalle National Bank is the Trustee under the Indenture. An affiliate of the Trustee, ABN AMRO Bank N.V., is a lender to the Company, ABN AMRO Rothschild was an Initial Purchaser, and the Company may maintain deposit accounts and conduct other banking transactions with the Trustee and its affiliates in the normal course of business. In case an Event of Default shall occur (and shall not be cured or waived in a timely manner), the Trustee is required to use the degree of care of a prudent person in the conduct of his or her own affairs in the exercise of its powers. Subject to such provisions, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of Notes, unless they shall have offered to the Trustee reasonable security or indemnity. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of certain U.S. federal income tax considerations relevant to holders of the Notes and Common Stock into which the Notes may be converted. 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. There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein, and the Company has not obtained, nor does it intend to obtain, a ruling from the IRS with respect to the U.S. federal income tax consequences of acquiring or holding Notes or Common Stock. This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of the holder's circumstances (for example, persons subject to the alternative minimum tax provisions of the Code). Also, 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 persons holding Notes or Common Stock as part of a hedging or conversion transaction or straddle or persons deemed to sell Notes or Common Stock under the constructive sale provisions of the Code) may be subject to special rules. The discussion also does not discuss any aspect of state, local or foreign law. In addition, this discussion assumes that the holders will hold the Notes, or the shares of Common Stock received upon conversion of the Notes, as "capital assets" within the meaning of Section 1221 of the Code, and assumes the Notes are not contingent payment debt instruments. ALL PROSPECTIVE PURCHASERS OF THE NOTES 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 NOTES AND THE COMMON STOCK. U.S. HOLDERS As used herein, the term "U.S. Holder" means the beneficial holder of a Note or Common Stock that for United States federal income tax purposes is (i) a citizen or resident (as defined in Section 7701(b) of the Code) of the United States, (ii) a corporation, partnership or other entity formed under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, (iv) in general, a trust subject to the primary supervision of a court within the United States and the control of a United States fiduciary as described in Section 7701(a)(30) of the Code and (v) any other person whose income or gain with respect to a Note or Common Stock is effectively connected with the conduct of a United States trade or business. A "Non-U.S. Holder" is any holder other than a U.S. Holder. Interest on Notes Stated interest on the Notes will generally be includable in a U.S. Holder's gross income and taxable as ordinary income for U.S. federal income tax purposes at the time it is paid or accrued in accordance with the U.S. Holder's regular method of accounting. 34 36 Conversion of Notes Into Common Stock In general, no gain or loss will be recognized for U.S. federal income tax purposes on a conversion of Notes into Common Stock. However, cash paid in lieu of a fractional share of Common Stock will 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 Note allocable to such fractional share. The adjusted basis of shares of Common Stock received on conversion will equal the adjusted basis of the Note converted, reduced by the portion of adjusted basis allocated to any fractional share of Common Stock exchanged for cash. The holding period of the Common Stock received on conversion will generally include the period during which the converted Notes were held. The conversion price of the Notes is subject to adjustment under certain circumstances. Section 305 of the Code and the Treasury Regulations issued thereunder may treat the holders of the Notes 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 Notes in the fully diluted Common Stock, whether or not such holder ever exercises its conversion privilege. Moreover, if there is not a full adjustment to the conversion ratio of the Notes 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 the Company, then such increase in the proportionate interest of the holders of the Common Stock generally will be treated as a constructive distribution to such holders. Any deemed constructive distribution will be taxable as ordinary income (subject to a possible dividends received deduction in the case of corporate holders) to the extent of the Company's current and/or accumulated earnings and profits. See "Dividends on Shares of Common Stock" below. Sale, Exchange or Retirement of the Notes Each U.S. Holder generally will recognize gain or loss upon the sale, exchange, redemption, retirement or other disposition of Notes 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) such holder's adjusted tax basis in the Notes. Any such gain or loss recognized on the sale, exchange, redemption, retirement or other disposition of a Note should be capital gain or loss and will generally be long-term capital gain or loss if the Note has been held or deemed held for more than one year at the time of the sale or exchange. On August 5, 1997, legislation was enacted which, among other things, reduces to 20% the maximum rate of tax on long-term capital gains on most capital assets held by an individual for more than 18 months. Gain on most capital assets held by an individual more than one year and up to 18 months is subject to tax at a maximum rate of 28%. A holder's initial basis in a Note will be the amount paid therefor. Market Discount If a Note is acquired by a subsequent purchaser at a "market discount," some or all of the gain realized by such purchaser upon a disposition or payment upon the Note's maturity may be treated as ordinary income. Subject to a de minimis exception, "market discount" with respect to a Note will be equal to the excess of (i) the stated redemption price at maturity of the Note over (ii) the holder's tax basis in the Note immediately after acquisition. The amount of market discount treated as having accrued will be determined either on a ratable basis, or, if the holder so elects, on a constant interest method. Upon any subsequent disposition of the Note (other than in connection with certain nonrecognition transactions, e.g., the conversion to Common Stock), the lesser of (i) gain on the disposition or (ii) the market discount that accrued while the Note was held by the subsequent holder will be treated as ordinary income at the time of the disposition. A holder may elect to include market discount in income currently in lieu of including accrued market discount in income at the time of disposition. A holder of a Note acquired at a market discount may be required to defer the deduction of a portion of the interest expense on any indebtedness incurred or maintained to purchase or carry the Note until the Note is disposed of in a taxable transaction, unless the holder elects to 35 37 include accrued market discount in income currently. If a holder acquires a Note at a market discount and receives Common Stock upon conversion of the Note, the amount of accrued market discount with respect to the converted Note through the date of conversion will be treated as ordinary income upon the disposition of the Common Stock. Amortizable Bond Premium If a subsequent purchaser of a Note purchases it at a cost that is in excess of the amount payable at maturity, the excess cost may be treated as "amortizable bond premium" that is allocated among the interest payments on the Note using a constant interest rate method over the Note's remaining term. The amount allocated to each interest payment would be applied against and offset a portion of the income from such interest payment, with a corresponding reduction in the holder's basis. The interest offset would be available only if an election under Section 171 of the Code is made or is in effect and if the acquired Note is held as a capital asset. The election would apply to all debt instruments held or subsequently acquired by the electing holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. The amount of the premium attributable to the conversion feature of the Note must be eliminated in determining the amount of any amortizable bond premium. Dividends on Shares of Common Stock Distributions, if any, paid on Common Stock after a conversion, to the extent made from current or accumulated earnings and profits of the Company, as determined for U.S. federal income tax purposes, will constitute dividends and be included in a U.S. Holder's income as ordinary income (subject to a possible dividends received deduction in the case of corporate holders) as they are paid. To the extent that a holder receives a distribution on Common Stock that would otherwise constitute a dividend but exceeds current and accumulated earnings and profits of the Company, such distribution will be treated first as a non-taxable return of capital reducing the holder's adjusted tax basis in Common Stock. Any distribution in excess of the holder's adjusted tax basis in Common Stock will be treated as capital gain. Sale or Exchange of Common Stock Gain or loss realized on the sale or exchange of Common Stock will equal the difference between the amount realized on such sale or exchange and the U.S. Holder's adjusted tax basis in such Common Stock. Such gain or loss will generally be long-term capital gain or loss if the holder has held or is deemed to have held the Common Stock for more than one year. On August 5, 1997, legislation was enacted which reduces to 20% the maximum rate of tax on long-term capital gains on most capital assets held by an individual for more than 18 months. Gain on most capital assets held by an individual more than one year and up to 18 months is subject to tax at a maximum rate of 28%. Information Reporting and Backup Withholding A holder of Notes or Common Stock may be subject to "backup withholding" at a rate of 31% with respect to certain "reportable payments," including interest payments, dividend payments and, under certain circumstances, principal payments on the Notes. These backup withholding rules apply if the holder, among other things, (i) fails to furnish a social security number or other taxpayer identification number ("TIN") certified under penalties of perjury within a reasonable time after the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to backup withholding. A holder who does not provide the Company 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 backup withholding rules is creditable against the holder's federal income tax liability, provided that the required information is furnished to the IRS. Backup withholding will not apply, however, with respect to payments made to certain holders, including corporations, tax-exempt organizations and certain foreign persons, provided their exemptions from backup withholding are properly established. 36 38 The Company will report to the U.S. Holders of Notes 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. NON-U.S. HOLDERS The following discussion is limited to the U.S. federal income tax consequences relevant to a Non-U.S. Holder. For purposes of the following discussion, interest, dividends and gain on the sale, exchange or other disposition of a Note or Common Stock will be considered to be "U.S. trade or business income" if such income or gain is (i) effectively connected with the conduct of a U.S. trade or business or (ii) in the case of a treaty resident, attributable to a permanent establishment (or, in the case of an individual, a fixed base) in the United States. Stated Interest Generally any interest paid to a Non-U.S. Holder of a Note that is not U.S. trade or business income will not be subject to U.S. tax if the interest qualifies as "portfolio interest." Generally interest on the Notes will qualify as portfolio interest if (i) the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of all voting stock of the Company and is not a "controlled foreign corporation" with respect to which the Company is a "related person" within the meaning of the Code, (ii) the beneficial owner, under penalties of perjury, certifies that the beneficial owner is not a U.S. person and such certificate provides the beneficial owner's name and address, (iii) the Non-U.S. Holder is not a bank receiving interest on an extension of credit made pursuant to a loan agreement made in the ordinary course of its trade or business, and (iv) the Notes are in registered form. The gross amount of payments to a Non-U.S. Holder of interest that do not qualify for the portfolio interest exemption and that are not U.S. trade or business income will be subject to U.S. federal income tax at the rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate withholding. Non-U.S. Holders should consult applicable income tax treaties, which may provide different rules. U.S. trade or business income will be taxed at regular U.S. rates rather than the 30% gross rate. In the case of a Non-U.S. Holder that is a corporation, such U.S. trade or business income may also be subject to the branch profits tax (which is generally imposed on a foreign corporation on the actual or deemed repatriation from the United States of earnings and profits attributable to U.S. trade or business income) at a 30% rate. The branch profits tax may not apply (or may apply at a reduced rate) if a recipient is a qualified resident of certain countries with which the United States has an income tax treaty. To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly executed Form 1001 or 4224 (or such successor forms as the IRS designates), as applicable, prior to the payment of interest. These forms must be periodically updated. Under U.S. Treasury regulations recently finalized but not effective until January 1, 1999, the Forms 1001 and 4224 will be replaced by Form W-8. Also, under the recently finalized U.S. Treasury regulations, a Non-U.S. Holder who is claiming the benefits of a treaty generally will be required to obtain a U.S. taxpayer identification number and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country. Certain special procedures are provided in the recently finalized regulations for payments through qualified intermediaries as well. Dividends In general, dividends paid to a Non-U.S. Holder of Common Stock will be subject to withholding of U.S. federal income tax at a 30% rate unless such is reduced by an applicable income tax treaty. Dividends that are connected with such holder's conduct of a trade or business in the United States (U.S. trade or business income) are generally subject to U.S. federal income tax at regular rates, but are not generally subject to the 30% withholding tax if the Non-U.S. Holder files the appropriate form with the payor, as discussed above. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation may 37 39 also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be applicable under an income tax treaty. Non-U.S. Holders should consult any applicable income tax treaties, which may provide for a lower withholding or other rules different from those described above. Currently, dividends paid to an address in a foreign country generally are presumed (absent actual knowledge to the contrary) to be paid to a resident of such country for purposes of the withholding discussed above and for purposes of determining the applicability of a tax treaty rate. Under the recently finalized U.S. Treasury regulations, however, effective January 1, 1999, a Non-U.S. Holder of Common Stock claiming the benefits of a treaty generally will be required to obtain a U.S. taxpayer identification number and to provide certain documentary evidence as described above. A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of U.S. withholding tax pursuant to an income treaty may obtain a refund of any amounts currently withheld by filing an appropriate claim for a refund with the IRS. Conversion A Non-U.S. Holder generally will not be subject to U.S. federal income tax on the conversion of Notes into Common Stock, except with respect to cash (if any) received in lieu of a fractional share or interest not previously included in income. Cash received in lieu of a fractional share may give rise to gain that would be subject to the rules described below for the sale of Notes. Cash or Common Stock treated as issued for accrued interest would be treated as interest under the rules described above. Sale, Exchange or Redemption of Notes or Common Stock Except as described below and subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a Note or Common Stock generally will not be subject to U.S. federal income tax, unless (i) such gain is U.S. trade or business income, (ii) subject to certain exceptions, the Non-U.S. Holder is an individual who holds the Note or Common Stock as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition, (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates (including certain former citizens or residents of the United States), or (iv) in the case of the disposition of Common Stock, the Company is a U.S. real property holding corporation. The Company does not believe that it is currently a "United States real property holding corporation," or that it will become one in the future. Information Reporting and Backup Withholding The Company must report annually to the IRS and to each Non-U.S. Holder any interest or dividend that is subject to withholding, or that is exempt from U.S. withholding tax pursuant to a tax treaty, or interest that is exempt from U.S. tax under the portfolio interest exception. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Backup withholding and additional information reporting will not apply to payments of principal, interest and premium (if any) on the Notes by the Company to a Non-U.S. Holder if the holder certifies as to its Non-U.S. Holder status under penalties of perjury or otherwise establishes an exemption (provided that neither the Company nor its Paying Agent has actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied). The payment of the proceeds from the disposition of Notes or Common Stock to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its Non-U.S. Holder status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of a Note or Common Stock to or through a non-U.S. office of a non-U.S. broker that is not a U.S. related person will not be subject to information reporting or backup withholding. For this purpose, a 38 40 "U.S. related person" is (i) a "controlled foreign corporation" for U.S. federal income tax purposes or (ii) a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment (or for such part of the period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a U.S. trade or business. In the case of the payment of proceeds from the disposition of Notes or Common Stock to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related person, information reporting is required on the payment unless the broker has documentary evidence in the files that the owner is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is not a U.S. person or a U.S. related person (absent actual knowledge that the payee is a U.S. person). Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures are followed. THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT HIS OR HER OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND THE COMMON STOCK OF THE COMPANY, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS. 39 41 DESCRIPTION OF CAPITAL STOCK Set forth below is a summary of certain information concerning the Company's capital stock, and a brief description of certain provisions contained in the Certificate of Incorporation, Bylaws and the Rights Plan (as defined). The summaries and descriptions below do not purport to be complete statements of these provisions and are qualified in their entirety by reference to such documents. The authorized capital stock of the Company consists of 90,000,000 shares of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value. LAM COMMON STOCK As of September 30, 1997, there were approximately 37,756,139 shares of Common Stock issued and outstanding. The Common Stock is listed on the Nasdaq National Market under the symbol "LRCX." As of June 30, 1997, the outstanding Lam Common Stock was held of record by approximately 1,012 stockholders. In the Merger with OnTrak, which was consummated on August 5, 1997, the Company issued approximately 6,500,000 shares of Lam Common Stock and options and rights to acquire approximately 2,260,000 shares of Lam Common Stock. In addition, as of September 30, 1997, stock options to purchase an aggregate of approximately 4,053,305 shares of Common Stock were outstanding. The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders. The stockholders are entitled to cumulate votes in connection with the election of directors. Subject to the preferences that may be applicable to outstanding Preferred Stock, if any, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Lam Board of Directors (the "Lam Board") out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the preferences that may be applicable to outstanding Preferred Stock, if any. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to Common Stock. All outstanding shares of Common Stock are fully paid and nonassessable. PREFERRED STOCK The Company has 5,000,000 shares of Preferred Stock authorized, of which no shares are outstanding. Under the Lam Rights Plan described below, the Board of the Company has reserved 100,000 shares of the Preferred Stock for issuance in one or more series and the Board has the authority to fix the rights, preferences, privileges and restrictions granted to or imposed upon any unissued and undesignated shares of Preferred Stock and to fix the number of shares constituting any series and the designations of such series, without any further vote or action by the stockholders. Although it presently has no intention to do so, the Lam Board, without stockholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power or other rights of the holders of Common Stock. The issuance of Preferred Stock may also have the effect of delaying, deferring or preventing a change in control of Lam. See "-- Rights Plan." RIGHTS PLAN The Lam Board adopted a Rights Plan (the "Rights Plan") on January 23, 1997 that is designed to deter hostile takeover attempts, including the accumulation of shares in the open market or through private transactions, and to prevent an acquirer from gaining control of Lam without offering a fair price to all of Lam's stockholders. Under the Rights Plan, rights were distributed as a dividend at the rate of one right (a "Lam Right") for each share of Common Stock, held by stockholders of record as of the close of business on January 31, 1997 and thereafter. Each holder of shares of Common Stock is entitled to a Lam Right in respect of each share held by such stockholder. The Lam Rights will expire on January 31, 2007. Under the Rights Plan, each Lam Right initially entitles stockholders to buy one unit of a share of Preferred Stock for $250. The Lam Rights will be exercisable only if a person or group (other than stockholders currently owning 15% of the Common Stock) acquires beneficial ownership of 15% (17% in the case of the asset management firm FMR 40 42 Corp. or its affiliates, collectively "FMR") or more of Common Stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of Common Stock (17% in the case of FMR). If any person becomes the beneficial owner of 15% (17% in the case of FMR) or more of Common Stock, other than pursuant to a tender or exchange offer for all outstanding shares of Lam approved by a majority of the independent directors not affiliated with such person, then each Lam Right not owned by such person or related parties will entitle its holder to purchase, at the Lam Right's then current exercise price, shares of Common Stock (or, in certain circumstances as determined by the Lam Board, cash, other property or other securities) having a value of twice the Lam Right's then current exercise price. In addition, if after any person has become a 15% (17% in the case of FMR) stockholder, Lam is involved in a merger or other business combination transaction with another person in which Lam does not survive or in which Common Stock is changed or exchanged, or if Lam sells 50% or more of its assets or earning power to another person, each Lam Right will entitle its holder to purchase, at the Lam Right's then current exercise price, shares of common stock of such other person having a value of twice the Lam Right's then current exercise price. Lam is generally entitled to redeem the Lam Rights at $0.001 per Lam Right at any time until ten business days (subject to extension) following a public announcement that a 15% (17% in the case of FMR) position has been acquired. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is ChaseMellon Shareholder Services L.L.C., Securities Transfer Services, P.O. Box 3312, South Hackensack, New Jersey 07606. Its phone number is (800) 356-2017. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS The following section contains the Supplemental Consolidated Financial Statements of Lam. As described further in the notes to the Supplemental Consolidated Financial Statements, these financial statements have been prepared to give retroactive effect to the Merger which has been accounted for as a pooling of interests. The historical financial statements of Lam and OnTrak for the years ended June 30, 1997, 1996 and 1995 have been combined to reflect the companies' results of operations and financial position for the respective periods presented. The Supplemental Consolidated Financial Statements are not necessarily indicative of the operating results or financial position that would have occurred had the Merger been effective during the periods presented. 41 43 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Lam Research Corporation Fremont, California We have audited the supplemental consolidated balance sheets of Lam Research Corporation (formed as a result of the consolidation of Lam Research Corporation and OnTrak Systems, Inc.) as of June 30, 1997 and 1996 and the related supplemental consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. Our audits also included the financial statement schedule listed in the Index at Item 16 of this Registration Statement. The supplemental consolidated financial statements and schedule give retroactive effect to the merger of Lam Research Corporation and OnTrak Systems, Inc. on August 5, 1997, which has been accounted for using the pooling of interests method as described in the notes to the supplemental consolidated financial statements. These supplemental financial statements and schedule are the responsibility of the management of Lam Research Corporation. Our responsibility is to express an opinion on these supplemental financial statements and schedule based on our audits. We did not audit the financial statements of OnTrak Systems, Inc., which statements reflect total assets constituting 6.7% for 1997 and 6.0% for 1996 of the related supplemental consolidated financial statement totals, and which reflect net income constituting approximately 4.3% of the related supplemental consolidated financial statement totals for the three-year period ended June 30, 1997. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it related to data included for OnTrak Systems, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the supplemental financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lam Research Corporation at June 30, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1997, after giving retroactive effect to the merger of OnTrak Systems, Inc., as described in the notes to the supplemental consolidated financial statements, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic supplemental financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young, LLP San Jose, California August 26, 1997 42 44 REPORT OF INDEPENDENT ACCOUNTANTS FOR ONTRAK SYSTEMS, INC. To the Board of Directors and Stockholders of OnTrak Systems, Inc. In our opinion, the consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of OnTrak Systems, Inc. and its subsidiaries (not presented separately herein) at June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. These consolidated financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Jose, California July 24, 1997, except for Note 2, which is as of August 5, 1997 43 45 SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30 ------------------------- 1997 1996 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Cash and cash equivalents........................................... $ 140,872 $ 87,096 Short-term investments.............................................. 54,821 79,977 Accounts receivable, less allowance for doubtful accounts of $2,377 in 1997 and $2,063 in 1996........................................ 232,073 265,685 Inventories......................................................... 261,738 329,258 Prepaid expenses and other assets................................... 37,707 18,772 Deferred income taxes............................................... 75,935 50,896 ---------- ---------- Total current assets...................................... 803,146 831,684 Equipment and leasehold improvements, net........................... 196,992 178,132 Other assets........................................................ 34,911 21,681 ---------- ---------- $1,035,049 $1,031,497 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Trade accounts payable.............................................. $ 117,163 $ 116,007 Accrued expenses and other liabilities.............................. 167,685 161,336 Line of credit borrowings........................................... 35,000 25,000 Current portion of long-term debt and capital lease obligations..... 21,127 13,179 ---------- ---------- Total current liabilities................................. 340,975 315,522 Long-term debt and capital lease obligations, less current portion........................................................... 46,592 54,099 Commitments and contingencies Preferred stock: 5,000 shares authorized, none outstanding.......... -- -- Common stock at par value of $.001 per share Authorized -- 90,000 shares, issued and outstanding -- 37,334 shares at June 30, 1997 and 36,506 shares at June 30, 1996..... 37 36 Additional paid-in capital.......................................... 361,101 344,820 Retained earnings................................................... 286,344 317,020 ---------- ---------- Total stockholders' equity.......................................... 647,482 661,876 ---------- ---------- $1,035,049 $1,031,497 ========== ==========
See notes to supplemental consolidated financial statements. 44 46 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, -------------------------------------- 1997 1996 1995 ---------- ---------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............................................... $1,060,535 $1,309,899 $824,233 Royalty income.......................................... 12,662 22,814 12,348 ---------- ---------- -------- Total revenue................................. 1,073,197 1,332,713 836,581 Costs and expenses: Cost of goods sold.................................... 723,404 689,515 429,707 Research and development.............................. 192,254 186,899 134,668 Selling, general and administrative................... 209,294 237,444 151,011 Restructuring charge.................................. 9,021 -- -- Charge for past royalties............................. -- -- 1,250 ---------- ---------- -------- 1,133,973 1,113,858 716,636 ---------- ---------- -------- Operating income (loss)................................. (60,776) 218,855 119,945 ---------- ---------- -------- Other (income) expense: Interest income....................................... (5,775) (7,048) (5,245) Interest expense...................................... 5,222 8,051 6,866 Other, net............................................ 636 1,453 (10,646) ---------- ---------- -------- 83 2,456 (9,025) ---------- ---------- -------- Income (loss) before income taxes....................... (60,859) 216,399 128,970 Income tax expense (benefit)............................ (30,183) 70,521 38,691 ---------- ---------- -------- Net income (loss)....................................... $ (30,676) $ 145,878 $ 90,279 ---------- ---------- -------- Net income (loss) per share Primary............................................... $ (0.83) $ 4.11 $ 2.79 ---------- ---------- -------- Fully diluted......................................... $ (0.83) $ 3.95 $ 2.65 ---------- ---------- -------- Number of shares used in per share calculations Primary............................................... 36,919 35,479 32,391 ---------- ---------- -------- Fully diluted......................................... 36,919 37,719 35,391 ========== ========== ========
See notes to supplemental consolidated financial statements. 45 47 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, ------------------------------ 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net income (loss)............................................ $(30,676) $145,878 $ 90,279 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 55,694 35,320 24,018 Deferred income taxes..................................... (25,032) (22,547) (12,617) Changes in certain working capital accounts: Accounts receivable, net of allowance................... 33,547 (64,723) (79,105) Inventories............................................. 59,707 (153,309) (58,968) Prepaid expenses and other assets....................... (19,767) (3,548) (19,870) Trade accounts payable.................................. 1,156 30,889 18,416 Accrued expenses and other liabilities.................. 6,349 59,881 54,965 --------- --------- --------- Total adjustments.................................... 111,654 (118,037) (73,161) --------- --------- --------- Net cash provided by operating activities............ 80,978 27,841 17,118 Cash flows from investing activities: Net capital expenditures..................................... (47,332) (72,647) (65,105) Purchases of available-for-sale securities................... (602,474) (423,255) (348,204) Sales of available-for-sale securities....................... 627,630 425,636 289,968 Proceeds from the sale of securities......................... -- 12,038 -- Other........................................................ (11,002) (6,726) (3,026) --------- --------- --------- Net cash used in investing activities................ (33,178) (64,954) (126,367) Cash flows from financing activities: Proceeds from borrowings under line of credit................ 95,000 40,000 -- Repayment of borrowings under line of credit................. (85,000) (15,000) -- Proceeds from issuance of long-term debt..................... 2,956 23,043 9,468 Principal payments on long-term debt and capital lease obligations............................................... (21,848) (15,451) (6,611) Proceeds from redemption of mandatorily redeemable preferred stock..................................................... -- (3,450) 6,522 Net proceeds from Initial Public Offering of OnTrak Systems, Inc....................................................... -- 41,404 -- Proceeds from issuance of common stock, net of repurchases... 14,868 8,221 119,976 --------- --------- --------- Net cash provided by financing activities............ 5,976 78,767 129,355 --------- --------- --------- Net increase in cash and cash equivalents...................... 53,776 41,654 20,106 Cash and cash equivalents at beginning of year................. 87,096 45,442 25,336 --------- --------- --------- Cash and cash equivalents at end of year....................... $140,872 $ 87,096 $ 45,442 --------- --------- --------- Cash payments for interest..................................... $ 5,310 $ 8,738 $ 6,748 --------- --------- --------- Cash payments for income taxes................................. $ 32,377 $ 77,385 $ 32,064 ========= ========= =========
See notes to supplemental consolidated financial statements. 46 48 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON COMMON ADDITIONAL STOCK STOCK PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ -------- -------- -------- (IN THOUSANDS) Balance at June 30, 1994............. 26,126 $ 26 $ 95,648 $ 83,041 $178,715 Sale of Common Stock, net of repurchases........................ 3,357 3 122,151 (2,178) 119,976 Income tax benefit from stock option transactions....................... -- -- 7,128 -- 7,128 Net income........................... -- -- -- 90,279 90,279 ------ --- -------- -------- -------- Balance at June 30, 1995............. 29,483 29 224,927 171,142 396,098 Sale of Common Stock, net of repurchases........................ 664 1 8,220 -- 8,221 Income tax benefit from stock option transactions....................... -- -- 2,940 -- 2,940 Conversion of Preferred Stock........ 1,486 1 3,071 -- 3,072 Conversion of subordinated debentures......................... 2,640 3 64,260 -- 64,263 Net Proceeds from Initial Public Offering of OnTrak Systems, Inc.... 2,233 2 41,402 -- 41,404 Net income........................... -- -- -- 145,878 145,878 ------ --- -------- -------- -------- Balance at June 30, 1996............. 36,506 36 344,820 317,020 661,876 Sale of Common Stock, net of repurchases........................ 828 1 14,549 -- 14,550 Income tax benefit from stock option transactions....................... -- -- 1,732 -- 1,732 Net loss............................. -- -- (30,676) (30,676) ------ --- -------- -------- -------- Balance at June 30, 1997............. 37,334 $ 37 $361,101 $286,344 $647,482 ====== === ======== ======== ========
See notes to supplemental consolidated financial statements. 47 49 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 NOTE A: MERGER WITH ONTRAK On August 5, 1997, the stockholders of each of Lam Research Corporation (the "Company" or "Lam") and OnTrak Systems, Inc. ("OnTrak") approved the merger between the companies (the "Merger") and the issuance of Lam Common Stock under the Agreement and Plan of Merger with OnTrak. The Company issued approximately eight million shares of Lam Common Stock, par value $0.001 per share, for all the outstanding common stock and options and rights to purchase OnTrak Common Stock, par value $0.0001 per share, on the basis of 0.83 of a share of Lam Common Stock for one share of OnTrak Common Stock. The transaction has been accounted for as a pooling of interests and is structured to qualify as a tax-free reorganization. The anticipated financial impact of the conforming accounting methods is not expected to be material to the financial position of the Company. Lam estimates that costs associated with the Merger were approximately $17.7 million. Such expenses include investment advisory fees, legal and accounting fees, financial printing costs and other Merger related costs. Such costs associated with the Merger will negatively impact results of operations of the Company in the fiscal quarter ended September 30, 1997. The supplemental consolidated financial statements have been prepared to give retroactive effect to the Merger. Generally accepted accounting principles prohibit giving effect to a consummated business combination accounted for by the pooling of interests method in financial statements that do not include the date of consummation. The accompanying supplemental consolidated financial statements do not extend through the date of consummation; however, they will become the historical consolidated financial statements of the Company after financial statements covering the date of consummation of the business combination are issued. The following table shows revenues and net income of the separate companies through the periods preceding the Merger:
YEAR ENDED JUNE 30, -------------------------------------- 1997 1996 1995 ---------- ---------- -------- (IN THOUSANDS) Total revenue: Lam................................ $1,002,404 $1,276,884 $810,557 OnTrak............................. 70,793 55,829 26,024 ---------- ---------- -------- Combined........................... $1,073,197 $1,332,713 $836,581 ========== ========== ======== Net income (loss): Lam................................ $ (33,634) $ 141,091 $ 89,211 OnTrak............................. 2,958 4,787 1,068 ---------- ---------- -------- Combined........................... $ (30,676) $ 145,878 $ 90,279 ========== ========== ========
NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation: The supplemental consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Cash equivalents: All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. The Company evaluates the need to record adjustments for impairment of inventory on a quarterly basis. The Company's policy is to evaluate all inventory including manufacturing raw materials, work-in-process, finished goods, and spare parts. Inventory in excess of the Company's estimated usage requirements is written down to its estimated net realizable value. Inherent in the estimates of net realizable value are management estimates 48 50 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 related to the Company's future manufacturing schedules, customer demand, possible alternative uses and ultimate realization of potentially excess inventory. Equipment and leasehold improvements: Equipment and leasehold improvements are stated at cost. Equipment is depreciated by the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are amortized by the straight-line method over the shorter of the life of the related asset or the term of the underlying lease. Amortization of equipment under capital leases is included with depreciation. Revenue recognition: Sales of the Company's products are generally recorded upon shipment. Estimated costs to be incurred by the Company related to product installation and warranty fulfillment are accrued at the date of shipment. Foreign currency: The Company has foreign sales, service and manufacturing operations. With respect to all foreign subsidiaries excluding Japan, the functional currency is the U.S. dollar and transaction and translation gains and losses are included in net income and have not been material in any year presented. The functional currency of the Company's Japanese subsidiary is the Japanese yen. Translation gains and losses related to the Japanese subsidiary are included as a component of stockholders' equity, but have not been material through June 30, 1997. Income (loss) per share: For fiscal 1997, net loss per share is calculated using the weighted average number of shares of common stock outstanding during the period. For fiscal 1996 and 1995, primary net income per share is calculated using the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The common stock equivalents include shares issuable upon the assumed exercise of stock options reflected under the treasury stock method. The convertible subordinated debentures are not deemed to be common stock equivalents and, accordingly, are excluded from the calculation of primary net income per share. Fully diluted net income per share for fiscal 1996 and 1995 reflects the assumed conversion of the Company's convertible subordinated debentures at the beginning of that period, and also adjusts net income to reflect the exclusion of net interest expense and net amortization expense of the debt issuance cost related to the debentures. The convertible subordinated debentures were called by the Company during the quarter ended June 30, 1996. Primary income per share, for fiscal 1996, calculated to reflect the conversion of the convertible subordinated debentures as if they were converted on July 1, 1995 is $3.95. In March 1997, the Financial Accounting Standards Board ("FASB") released Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary net income per share (basic earnings per share), the dilutive effect of stock options will be excluded. The Company's basic and diluted earnings (loss) per share as calculated according to FAS 128 would be as follows:
1997 1996 1995 ------ ----- ----- Basic.............................................. $(0.83) $4.32 $3.07 Diluted............................................ $(0.83) $3.95 $2.65
Employee stock plans: The Company accounts for its stock option plans and its employee stock purchase plan in accordance with the provisions of the Accounting Principles Board's Opinion No. 25 "Accounting For Stock Issued to Employees" ("APB 25"). In October 1995, the FASB released Statement of Financial Accounting Standard No. 123, "Accounting For Stock-Based Compensation"("FAS 123") which provides an alternative to APB 25. As allowed under FAS 123, the Company continues to account for its employee stock plans in accordance with the provisions of APB 25. (See note K.) 49 51 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Transfer of financial assets: During fiscal 1997, the Company adopted Statement of Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("FAS 125"), which requires the Company to recognize the financial and servicing assets it controls and the liabilities it has incurred and to exclude financial assets when control has been surrendered in accordance with criteria provided. FAS 125 is required to be applied to sales of receivables by the Company occurring after January 1, 1997. The effect of adopting FAS 125 for the six months ended June 30, 1997 was not material. Capital structure: In February 1997, the FASB released Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" ("FAS 129"). FAS 129 consolidates the existing guidance regarding disclosure relating to a company's capital structure and is effective for fiscal years beginning after December 15, 1997. Adoption of FAS 129 is not expected to have a material impact on the Company's financial statements. Comprehensive Income: In June 1997, the FASB released Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements and is effective for fiscal years beginning after December 15, 1997. The Company believes that adoption of FAS 130 will not have a material impact on the Company's financial statements. Segment information: In June 1997, the FASB released Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 will change the way companies report selected segment information in interim financial reports to stockholders. FAS 131 is effective for fiscal years beginning after December 15, 1997. Based on the current circumstances, the Company believes that the application of the new rules will not have a material impact on the Company's consolidated financial statements. NOTE C: COMPANY AND INDUSTRY INFORMATION Lam is a leading supplier of technically complex thin film processing equipment used in the primary stages of semiconductor manufacturing. The Company's product offerings include single wafer plasma etch systems with a wide range of applications and chemical mechanical planarization ("CMP"), chemical vapor deposition ("CVD") and flat panel display ("FPD") systems. The Company sells its products primarily to large companies involved in the production of semiconductors in the United States, Europe, Japan and Asia Pacific. Credit evaluations are performed on all customers, and the Company usually does not require collateral on sales. The semiconductor industry has historically been cyclical and has experienced periodic downturns, which have had a material adverse effect on the semiconductor industry's demand for semiconductor processing equipment, including equipment manufactured and marketed by the Company. Certain of the components and subassemblies included in the Company's products are obtained from a single supplier or a limited group of suppliers. The Company believes that alternative sources could be obtained and qualified to supply these products. Nevertheless, a prolonged inability to obtain certain components could have a severe near term effect on the Company's operating results and could result in damage to customer relationships. The Company entered into agreements totaling 9 billion yen and 6 billion yen, respectively, in fiscal 1997 and 1996 to sell specific Japanese yen-denominated receivables subject to recourse provisions. At June 30, 1997 and 1996, $59,986,000 and $82,104,000 of these receivables respectively, had been sold to a bank, of 50 52 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 which $39,924,000 and $49,467,000 at June 30, 1997 and 1996, respectively, remained uncollected by the bank and subject to recourse provisions. During fiscal 1997 and 1996, no individual customer accounted for greater than 10% of total sales. One customer accounted for 11% of total sales for fiscal 1995. The Company operates in four geographic regions, the United States, Europe, Japan and Asia Pacific. The following is a summary of local operations by geographic region at June 30:
1997 1996 1995 ---------- ---------- -------- (IN THOUSANDS) Revenue: United States......................... $ 903,222 $1,101,400 $741,039 Europe................................ 42,942 40,365 26,925 Japan................................. 69,427 138,713 45,856 Asia Pacific.......................... 57,606 52,235 22,761 ---------- ---------- -------- Total................................... $1,073,197 $1,332,713 $836,581 ========== ========== ======== Operating income/(loss): United States......................... $ (58,078) $ 132,620 $ 91,698 Europe................................ (8,730) 9,696 4,657 Japan................................. 2,342 56,903 18,174 Asia Pacific.......................... 3,690 19,636 5,416 ---------- ---------- -------- Total................................... $ (60,776) $ 218,855 $119,945 ========== ========== ======== Identifiable assets: United States......................... $ 872,657 $ 891,974 $606,058 Europe................................ 31,538 28,688 20,974 Japan................................. 71,847 65,344 43,791 Asia Pacific.......................... 59,007 45,491 27,593 ---------- ---------- -------- Total................................... $1,035,049 $1,031,497 $698,416 ========== ========== ========
Sales between geographic areas are accounted for at prices that provides a profit and are in accordance with the rules and regulations of the respective governing authorities. Total export revenue consisting of sales from the Company's U.S. operating subsidiary to non-affiliated customers by geographic region for the three years ended June 30 are as follows:
1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Asia Pacific............................... $293,488 $336,769 $175,815 Europe..................................... 131,342 182,688 109,229 Japan...................................... 23,019 28,255 30,418 -------- -------- -------- $447,849 $547,712 $315,462 ======== ======== ========
NOTE D: FINANCIAL INSTRUMENTS In November 1995, the FASB staff issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities". In accordance with provisions in that Special Report, the Company elected, in December 1995, to reclassify all of its held-to-maturity securities to available-for-sale. At the time of transfer, the amortized cost of those securities was $24,099,000, which approximated their fair value. 51 53 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 Investments at June 30, are comprised of the following:
1997 1996 ----------------------- ----------------------- ESTIMATED ESTIMATED COST FAIR VALUE COST FAIR VALUE -------- ---------- -------- ---------- (IN THOUSANDS) Municipal Bonds and Notes................... $ 89,546 $ 89,546 $ 12,372 $ 12,372 U.S. Treasury Bonds and Notes............... 5,539 5,539 21,380 21,380 Institutional Money Market Funds............ 28,329 28,329 5,642 5,642 -------- -------- -------- -------- Amounts included in cash and cash equivalents............................... 123,414 123,414 39,394 39,394 Municipal Bonds and Notes................... 16,301 16,301 -- -- Floating Rate Municipal Bonds............... 19,549 19,549 44,600 44,600 U.S. Treasury Bonds and Notes............... 18,971 18,971 23,005 23,005 -------- -------- -------- -------- Amounts included in short-term investments............................... 54,821 54,821 67,605 67,605 -------- -------- -------- -------- Total Available-for-Sale.................... $178,235 $ 178,235 $106,999 $ 106,999 ======== ======== ======== ========
The difference between cost and fair value of available-for-sale securities was not significant at June 30, 1997 and 1996. The amortized cost and estimated fair value of investments in debt securities at June 30 by contractual maturities are as follows:
1997 1996 ----------------------- ----------------------- ESTIMATED ESTIMATED COST FAIR VALUE COST FAIR VALUE -------- ---------- -------- ---------- (IN THOUSANDS) Due in less than one year................... $155,864 $ 155,864 $ 83,994 $ 83,994 Due after one year through five years....... 22,371 22,371 23,005 23,005 -------- -------- -------- -------- Total investments in debt securities........ $178,235 $ 178,235 $106,999 $ 106,999 ======== ======== ======== ========
The carrying and fair values of the Company's financial instruments at June 30, are as follows:
1997 1996 ----------------------- ----------------------- CARRYING ESTIMATED CARRYING ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE -------- ---------- -------- ---------- (IN THOUSANDS) Cash and cash equivalents................... $140,872 $ 140,872 $ 87,096 $ 87,096 Foreign currency forward contracts.......... $ -- $ 31,604 $ -- $ 43,632 Other long-term debt........................ $ 67,719 $ 67,745 $ 67,278 $ 67,047
The fair value of the Company's short-term investments is based on quoted market prices at June 30, 1997 and 1996. The fair value of the Company's foreign currency contracts is estimated based upon the yen exchange rate at June 30, 1997 and 1996. The fair value of the Company's other long-term debt is estimated based on the current rates offered to the Company for similar debt instruments of the same remaining maturities. NOTE E: DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign-currency forward contracts to minimize the impact of exchange rate fluctuations on the value of yen-denominated assets and liabilities. A substantial portion of the forward contracts entered into have a maturity of 90 days or less. The realized and unrealized gains and losses on these contracts are deferred and offset against realized and unrealized gains and losses from the settlement of the related yen receivables. The realized losses on yen-forward contracts during fiscal 1997 were offset by the gains on underlying receivables. 52 54 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 At June 30, 1997 and 1996, the notional amount of outstanding foreign currency forward contracts were $30,651,000 and $44,580,000, respectively. Of the total outstanding contracts at June 30, 1997 and 1996, $13,828,000 and $38,794,000, respectively, were to hedge yen intercompany receivables and $17,776,000 and $4,838,000, respectively, were to hedge firm commitments from customers in Japan. The unrealized loss on these contracts at June 30, 1997 was $953,000. The unrealized gain on these contracts at June 30, 1996 was $948,000. NOTE F: INVENTORIES Inventories consist of the following at June 30:
1997 1996 -------- -------- (IN THOUSANDS) Raw materials.......................................... $136,698 $170,851 Work-in-process........................................ 93,057 126,309 Finished goods......................................... 31,983 32,098 -------- -------- $261,738 $329,258 ======== ========
NOTE G: PREPAID EXPENSES AND OTHER ASSETS
1997 1996 ------- ------- (IN THOUSANDS) Prepaid expenses......................................... $13,092 $10,408 Net realizable value of collateral....................... 5,320 -- Taxes receivable......................................... 5,400 -- Other.................................................... 13,895 8,364 ------- ------- $37,707 $18,772 ======= =======
During fiscal 1997, the Company recorded bad debt expense of $6,550,000 relating to the former at-risk receivables from SubMicron Technology PLC ("SubMicron"). The estimated net realizable value of the collateral which the Company holds related to these receivables has been included in prepaid expenses and other assets. NOTE H: EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements consist of the following at June 30:
1997 1996 -------- -------- (IN THOUSANDS) Equipment.............................................. $158,475 $127,039 Furniture and fixtures................................. 58,642 47,077 Leasehold improvements................................. 100,222 89,891 -------- -------- 317,339 264,007 Less allowance for depreciation and amortization....... (120,347) (85,875) -------- -------- $196,992 $178,132 ======== ========
53 55 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 NOTE I: ACCRUED EXPENSES AND OTHER LIABILITIES The significant components of accrued expenses and other liabilities consist of the following at June 30:
1997 1996 -------- -------- (IN THOUSANDS) Warranty and installation reserves..................... $ 75,321 $ 64,002 Accrued compensation................................... 30,987 29,612 Income and other taxes payable......................... 21,381 45,471 Other.................................................. 39,996 22,251 -------- -------- $167,685 $161,336 ======== ========
NOTE J: LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations at June 30 consist of the following:
1997 1996 -------- -------- (IN THOUSANDS) Capitalized lease obligations with varying interest rates from 4.6% to 9.6%.............................. $ 35,666 $ 30,043 Japanese yen-denominated bank loans with fixed interest rates from 3.0% to 4.9%, principal payable in quarterly and semi-annual installments from July 1997 to April 2003........................................ 28,562 32,724 Other.................................................. 3,491 4,511 -------- -------- 67,719 67,278 Less current portion................................... (21,127) (13,179) -------- -------- $ 46,592 $ 54,099 ======== ========
During the second quarter of fiscal 1996, the Company entered into a syndicated bank line of credit totaling $210,000,000, under which borrowings bear interest at the bank's prime rate or 0.7% to 0.9% over LIBOR. This syndicated bank line of credit expires in December 1998. During the third quarter of fiscal 1997, the Company received amendments or waivers for certain of its financial covenants which would have otherwise been breached by the net loss reported by the Company. At June 30, 1997, and 1996, respectively, the Company had outstanding borrowings of $35,000,000 and $25,000,000 against the syndicated bank line of credit. The Company also has a $10,000,000 line of credit agreement with a bank which expires in November 1997; borrowings under the bank line credit bear interest at the bank's prime rate. No borrowings were outstanding under the bank line of credit at June 30, 1997 and June 30, 1996. The syndicated bank line of credit and the bank line of credit agreements include terms requiring satisfaction of certain financial ratios, interest coverage, maximum leverage, senior indebtedness, tangible net worth, minimum profitability and also restrict the Company from paying dividends. At June 30, 1997, the Company was in compliance with all of its covenants as amended. 54 56 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 At June 30, 1997, future maturities of long-term debt and minimum payments for capital lease obligations are as follows:
YEAR ENDING JUNE 30, LONG TERM CAPITAL LEASE (IN THOUSANDS) DEBT OBLIGATIONS TOTAL ------------------------------------------- --------- ------------- ------- 1998.................................. $ 8,458 $14,776 $23,234 1999.................................. 8,338 12,921 21,259 2000.................................. 7,922 9,351 17,273 2001.................................. 5,959 2,304 8,263 2002.................................. 803 472 1,275 Thereafter............................ 573 -- 573 Less amounts representing interest......... -- (4,158) (4,158) ------- ------- ------- $32,053 $35,666 $67,719 ======= ======= =======
Long-term debt and capital lease obligations are collateralized by equipment included in equipment and leasehold improvements with a cost and accumulated depreciation and amortization of $56,671,000 and $(22,698,000), respectively, at June 30, 1997 and $45,484,000 and $(15,309,000), respectively, at June 30, 1996. NOTE K: INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN The Company has adopted incentive stock option plans that provide for the granting to qualified employees of incentive stock options to purchase shares of Common Stock. In addition, the plans permit the granting of nonstatutory stock options to paid consultants and employees and provide for the automatic grant of nonstatutory stock options to outside directors. The option price is determined by the Board of Directors, but in no event will it be less than the fair market value on the date of grant (no less than 85% of the fair market value at the date of grant in case of nonstatutory options). Options granted under the plans vest over a period determined by the Board of Directors. Under the automatic grant program, each outside director receives an option exercisable for 6,000 shares of Common Stock during January of each year with the exercise price equal to the fair market value on date of grant. Prior to the Merger, OnTrak had incentive and nonstatutory stock option plans (the "Employee Plans"). Incentive stock option and nonstatutory stock option grants under the Employee Plans must be at prices of at least 100% of the fair market value of the stock on the date of grant. The options generally vest 25% per year. OnTrak also had a director stock option plan (the "Director Plan") and reserved 103,750 shares of Common Stock for issuance thereunder. The Director Plan provided for the grant of nonstatutory stock options to nonemployee directors of OnTrak pursuant to an automatic, nondiscretionary grant mechanism. During fiscal year 1996, OnTrak issued an option to purchase 664,000 shares of Common Stock to its Chief Executive Officer at an exercise price of $20.78 per share. In November 1996, following the approval of the 1996 Equity Incentive Plan by the OnTrak stockholders, this option was canceled and reissued with identical terms. 55 57 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 A summary of incentive stock option plan transactions follows:
WTD. AUTHORIZED OUTSTANDING OPTION PRICE AVERAGE ---------- ---------- ------------- ------- June 30, 1994.............................. 558,376 2,510,720 $0.18-35.88 $ 12.00 Additional amount authorized............... 2,114,990 -- -- Granted.................................... (1,516,140) 1,516,140 2.41-63.88 22.03 Exercised.................................. -- (801,345) 0.28-35.88 6.04 Canceled................................... 49,654 (49,654) 1.70-50.63 25.90 Expired.................................... (5,481) -- -- ---------- ---------- ------------ ------ June 30, 1995.............................. 1,201,399 3,175,861 $0.18-63.88 $ 18.10 Additional amount authorized............... 1,000,000 -- -- Granted.................................... (2,396,838) 2,396,838 16.87-68.00 39.71 Exercised.................................. -- (457,842) 0.18-45.13 7.39 Canceled................................... 1,323,292 (1,323,292) 2.04-68.00 46.81 Expired.................................... (8,174) -- -- ---------- ---------- ------------ ------ June 30, 1996.............................. 1,119,679 3,791,565 $0.28-62.88 $ 23.71 Additional amount authorized............... 1,660,000 -- -- Granted.................................... (1,860,555) 1,860,555 16.57-40.31 23.57 Exercised.................................. -- (351,387) 0.28-35.75 16.53 Canceled................................... 365,662 (365,662) 2.26-44.88 26.72 Expired.................................... (1,319) -- -- ---------- ---------- ------------ ------ June 30, 1997.............................. 1,283,467 4,935,071 $0.28-62.88 $ 23.82 ========== ========== ============ ======
At June 30, 1997, 6,218,538 shares of Common Stock were reserved for future issuance under the stock option plans and options to purchase 2,348,749 shares were exercisable at a range of $0.28-$62.88 Outstanding and excercisable options presented by price range at June 30, 1997 are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------------------------------------------- ------------------------------------------------------ NUMBER OF OPTIONS WTD. AVERAGE WTD. AVERAGE NUMBER OF OPTIONS WTD. RANGE OF OUTSTANDING AT REMAINING LIFE EXERCISE OUTSTANDING AT AVERAGE EXERCISE PRICES JUNE 30, 1997 (YEARS) PRICE JUNE 30, 1997 EXERCISE PRICE - ---------------- ----------------- -------------- ------------- ----------------- -------------- $ 0.28-3.01 241,530 4.50 $ 1.25 186,750 $ 0.81 5.25-16.42 631,689 4.12 8.22 493,079 7.92 16.57-19.73 189,692 4.95 18.01 90,092 17.98 19.88-26.36 1,415,970 6.76 21.44 498,731 21.43 26.63-32.60 1,323,027 7.66 28.97 665,725 29.41 33.63-33.63 761,556 8.54 33.63 267,815 33.63 33.81-62.88 371,607 8.43 38.58 146,557 39.26 ------------ ---- ---- - ---- ------ ------- $0.28-$62.88 4,935,071 6.88 $ 23.82 2,348,749 $21.58 ============ ========= ==== ====== =======
During fiscal 1996, the Company adopted a Performance-Based Restricted Stock Plan designed to reward executives based upon the achievement of certain predetermined goals. The grant is based on the fair market value of the Company's Common Stock at the end of the quarter, provided the predetermined goals are met. The Company authorized 150,000 shares to be reserved for issuance under the Performance-Based Stock Plan. At June 30, 1997, 120,879 shares remain available under this plan. Common Stock is sold to employees under the 1984 Employee Stock Purchase Plan ("ESPP"). During fiscal 1996, the Company authorized an additional 150,000 shares to be reserved for issuance under the ESPP. Another 166,000 shares were reserved upon consummation of the Merger. The purchase price per share is the 56 58 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 lower of 85% of the fair market value of the Common Stock on the first or last day of a six-month offering period. A total of 1,397,627 shares of the Company's Common Stock were issued under the ESPP through June 30, 1997 at prices ranging from $2.65 to $43.03 per share. At June 30, 1997, 455,627 shares remain available for sale under the ESPP. As permitted under FAS 123 the Company has elected to follow APB 25, and related Interpretations, in accounting for stock-based awards to employees. Under APB 25, the Company generally recognized no compensation expense with respect to such awards. Pro forma information regarding net income (loss) and net income (loss) per share is required by FAS 123 for awards granted after June 30, 1995 as if the Company had accounted for its stock-based awards to employees under the fair value method of FAS 123. The fair value of the Company's stock-based awards to employees was estimated using a Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock-based awards to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees. The fair value of the Company's stock-based awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:
OPTIONS ESPP ---------------- ---------------- 1997 1996 1997 1996 ------ ------ ------ ------ Expected life............................. 3.3% 3.5% 0.5% 0.5% Expected stock price volatility........... 59.8% 54.3% 57.9% 57.8% Risk-free interest rate................... 6.1% 5.5% 5.3% 5.4%
The weighted average fair value of options granted during 1997 and 1996 was $10.55 and $13.45 per share, respectively. The weighted average fair value of shares granted under the ESPP during fiscal 1997 and 1996 were $7.62 and $9.71 per share, respectively. For pro forma purposes, the estimated fair value of the Company's stock-based awards to employees is amortized over the options' vesting period (for options) and the six-month purchase period (for stock purchases under the ESPP). The Company's pro forma information follows:
1997 1996 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) -- as reported..................... $(30,676) $145,878 Net income (loss) -- pro forma....................... (41,194) 134,737 Primary net income (loss) per share -- as reported... (0.83) 4.11 Primary net income (loss) per share -- pro forma..... (1.12) 3.80 Fully diluted net income (loss) per share -- as reported........................................... (0.83) 3.95 Fully diluted net income (loss) per share -- pro forma.............................................. (1.12) 3.57
FAS 123 is applicable only to awards granted subsequent to June 30, 1995. As a result, its pro forma effect will not be fully reflected until fiscal 1999. NOTE L: PROFIT SHARING PLAN AND BENEFIT PLAN Distributions to employees by the Company are made quarterly based upon a percentage of base salary provided that a threshold level of the Company's financial and performance is met. Upon achievement of the threshold, profit sharing is awarded based upon performance against certain corporate financial and operating 57 59 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 goals. Prior to fiscal 1995, distributions to the domestic employees under the profit sharing plan were made semi-annually based on 5% of pretax income provided certain minimum net income goals were met. Prior to the Merger, OnTrak maintained a profit sharing plan, whereby an aggregate amount of 5% of OnTrak's operating profits as defined was paid semi-annually. Subsequent to the Merger, the Company will have one profit sharing plan. Profit sharing plan expense for fiscal 1997, 1996 and 1995 was $176,000, $14,783,000, and $9,693,000, respectively. The Company maintains a 401(k) retirement savings plan for its full-time domestic employees. Each participant in the plan may elect to contribute 2% to 15% of his or her annual salary to the plan, subject to statutory limitations. Prior to October 1, 1995, each participant could elect to contribute 2% to 20% of his or her annual salary to the plan, subject to statutory limitations. The Company matches employee contributions to the plan at the rate of 50% of the first 6% of salary contributed. Prior to the Merger, OnTrak also maintained an employee savings and retirement plan qualified under Section 401(k) of the Internal Revenue Code. The OnTrak plan allowed participants to contribute up to 14% of the total compensation that would otherwise be paid to them by OnTrak, not to exceed the maximum allowed by the applicable Internal Revenue Service guidelines. OnTrak matched 100% of the salary deferral contributions made by each participating employee, up to a maximum of 6% of total employee compensation. OnTrak's contributions were 25%, 50% and 100% vested after an employee's second year, third year and fourth year of service, respectively. Total Company match expense for fiscal 1997, 1996 and 1995 was $5,205,000, $4,213,000, and $2,606,000, respectively. NOTE M: LICENSING/ROYALTY AGREEMENTS The Company receives royalty income from Tokyo Electron Limited ("TEL") under a licensing agreement signed in fiscal 1987 and extended in fiscal 1992 and 1996. For the years ended June 30, 1997, 1996 and 1995, the Company earned approximately $11,700,000, $20,700,000, and $10,500,000, respectively, of royalty income from TEL. The current royalty agreement, which was due to expire December 31, 1996, was renegotiated at a reduced royalty rate (5% to 1%) which went into effect January 1, 1997. The Company also receives royalty income from Sumitomo Metal Industries, Ltd. ("Sumitomo"). Royalty income earned from Sumitomo for fiscal 1997, 1996 and 1995 amounted to approximately $1,000,000, $2,100,000, and $1,700,000, respectively. During fiscal 1995, the Company earned approximately $100,000 of royalty income from other sources. NOTE N: COMMITMENTS The Company leases its administrative, research and development ("R&D"), and manufacturing facilities, regional sales/service offices and certain equipment under noncancelable operating leases, which expire at various dates through 2020. Certain of the Company's labs and other equipment are also supplied under operating leases. All of the Company's facility leases for buildings located at its Fremont, California headquarters and certain operating leases provide the Company an option to extend the leases for additional periods. Certain of the Company's other facility leases provide for periodic rent increases based on the general rate of inflation. 58 60 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 Future minimum lease payments for the years ended June 30 and in the aggregate under operating leases consist of the following:
(IN THOUSANDS) -------------- 1998....................................... $ 50,256 1999....................................... 43,218 2000....................................... 34,692 2001....................................... 24,694 2002....................................... 18,986 Thereafter................................. 111,614 -------- $283,460 ========
During fiscal 1996, the Company entered into a ten year operating lease agreement for two buildings, an R&D building and an additional engineering building, which requires the Company to set aside $47,900,000 as lease collateral five years after lease inception. Total rental expense for all leases amounted to approximately $46,728,000, $36,079,000, and $9,847,000, for the years ended June 30, 1997, 1996 and 1995, respectively. The Company has subleased some of its buildings and will receive income of approximately $1,914,000, $2,442,000, $2,448,000, $2,293,000, $1,978,000, and $471,000 for the fiscal years 1998, 1999, 2000, 2001, 2002 and thereafter, respectively, which will offset minimum lease payments. For the fiscal year ended June 30, 1997, the Company received income totaling $405,000 on its subleased facilities. NOTE O: INCOME TAXES Income tax expense (benefit) consists of the following:
1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Federal: Current.................................. $(20,064) $ 65,107 $ 36,559 Deferred................................. (15,521) (19,280) (10,313) -------- -------- -------- (35,585) 45,827 26,246 State: Current.................................. 2,474 7,192 6,211 Deferred................................. (9,511) (1,717) (2,304) -------- -------- -------- (7,037) 5,475 3,907 Foreign: Current 12,439 20,769 8,538 Deferred................................. -- (1,550) -- -------- -------- -------- 12,439 19,219 8,538 -------- -------- -------- $(30,183) $ 70,521 $ 38,691 ======== ======== ========
Actual current tax liabilities are lower than reflected above for fiscal years 1997, 1996 and 1995 by $1,732,000, $2,940,000, and $7,128,000, respectively, for the stock option deduction benefits recorded as a credit to stockholders' equity. 59 61 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 Under FAS No. 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred tax assets as of June 30, are as follows:
1997 1996 ------- ------- (IN THOUSANDS) Deferred tax assets: Accounting reserves and accruals deductible in different periods................................................ $43,871 $26,172 Inventory valuation differences.......................... 24,635 21,696 Net undistributed profits of foreign subsidiaries........ 3,805 6,753 Tax credit carryforward.................................. 15,189 -- Other.................................................... 466 673 ------- ------- Total deferred tax assets................................ 87,966 55,294 Deferred tax liabilities: Temporary differences for capital assets................. (8,534) (75) Other.................................................... (1,236) (2,055) ------- ------- Total deferred tax liabilities........................... (9,770) (2,130) ------- ------- Net deferred tax assets........................ $78,196 $53,164 ======= =======
A reconciliation of income tax expense provided at the federal statutory rate (35% in 1997, 1996 and 1995) to income tax expense follows:
1997 1996 1995 -------- ------- ------- (IN THOUSANDS) Income tax expense (benefit) computed at federal statutory rate..................... $(21,345) $75,665 $45,124 Tax credits.................................. (5,316) (203) (2,953) State income taxes, net of federal tax benefits (provision)....................... (4,422) 3,777 2,626 Other........................................ 900 (8,718) (6,106) ------- ------ ------ $(30,183) $70,521 $38,691 ======= ====== ======
Income before income taxes from foreign operations for fiscal years 1997, 1996 and 1995 was $31,621,000, $42,216,000, and $17,830,000, respectively. In addition, the Company received royalty and other income from foreign sources of $12,662,000, $22,814,000 and $12,227,000, in fiscal years 1997, 1996 and 1995, respectively, which was subject to foreign tax withholding. NOTE P: RESTRUCTURING During the first quarter of fiscal 1997, the Company restructured its operations by consolidating its previous business unit structure into a more centralized functional organization. As a result of the restructuring, and in response to industry and market conditions, the Company reduced its work force by approximately 11%. The Company recorded a restructuring charge of $9.0 million for costs related primarily to severance compensation and consolidation of facilities. At June 30, 1997, $1.7 million remains in accrued liabilities relating primarily to executive severance and remaining lease payments on unused facilities. As of June 30, 1997, the Company has made $6.3 million of cash payments relating to the restructuring. NOTE Q: RIGHTS PLAN On January 23, 1997, the Company adopted a Shareholder Rights Plan (the "Rights Plan"). Pursuant to the Rights Plan, rights were distributed as a dividend at the rate of one right for each share of Lam Common 60 62 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 Stock, par value $0.001 per share ("Right"), of the Company held by stockholders of record as of the close of business on January 31, 1997. The Rights will expire on January 31, 2007, unless redeemed or exchanged. Under the Rights Plan, each Right initially will entitle the registered holder to buy one unit of a share of preferred stock for $250.00. The Rights will become exercisable only if a person or group (other than stockholders currently owning 15 percent of the Lam's Common Stock) acquires beneficial ownership of 15 percent or more of the Lam's Common Stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15 percent or more of the Lam's Common Stock. NOTE R: RELATED PARTY TRANSACTIONS During fiscal 1997, the Company invested $4.0 million for a 32% interest in a limited partnership (the "Partnership"). The Partnership was organized for the purpose of investing in emerging technology companies to seek income and gains for the Partnership. Three of the Company's directors are principals in the limited liability company that is the general partner of the Partnership. The Company is accounting for its investment in the Partnership under the equity method. Accordingly, the Company will adjust the recorded value of its investment for its share (32%) of the Partnership's net income or loss. The Company's portion of the Partnership's net income was not material for the year ended June 30, 1997. The Company received financial advisory services under an agreement with a consulting firm, a principal of which became a director in April 1995. The agreement, which was terminated in February 1996, provided for a consulting fee of $10,000 per month. A total of $80,000 and $125,000 was paid to the consulting firm under this agreement during the years ended June 30, 1996 and 1995, respectively. In November 1994, the Company paid $288,000 to the consulting firm as a finder's fee and issued warrants to purchase 81,340 shares of Common Stock at an exercise price of $4.267 per share in consideration of services related to a preferred stock financing. These warrants were exercised using a net exercise provision in March 1997, resulting in the issuance of 70,933 shares of Common Stock with no net proceeds. NOTE S: LITIGATION In October 1993, Varian Associates, Inc. ("Varian") brought suit against the Company in the United States District Court, Northern District of California, seeking monetary damages and injunctive relief based on the Company's alleged infringement of certain patents held by Varian. The lawsuit is in the late stages of discovery and has recently been reassigned to a new judge. The trial date has been set for March 1998. The Company has asserted defenses of invalidity and unenforceability of the patents that are the subject of the lawsuit, as well as noninfringement of such patents by the Company's products. While litigation is subject to inherent uncertainties and no assurance can be given that the Company will prevail in such litigation or will obtain a license under such patents on commercially reasonable terms or at all if such patents are held valid and infringed by the Company's products, the Company believes that the Varian lawsuit will not have a material adverse effect on the Company's consolidated financial statements. In addition, the Company is from time to time notified by various parties that it may be in violation of certain patents. In such cases, it is the Company's intention to seek negotiated licenses where it is considered appropriate. The outcome of these matters will not, in management's opinion, have a material impact on the Company's consolidated financial position, operating results or cash flow statements. NOTE T: SUBSEQUENT EVENT -- APPROVAL OF LAM RESEARCH CORPORATION 1997 INCENTIVE STOCK PLAN On August 5, 1997 the stockholders of the Company approved the Lam Research Corporation 1997 Stock Incentive Plan, which will provide for the grant of stock options, restricted stock, deferred stock and performance share awards to participating officers, directors, employees, consultants and advisors of the Company and its subsidiaries. Initially, 3,000,000 shares were reserved for issuance. The number of shares to 61 63 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 be issued will automatically be increased each calendar quarter subject to certain provisions and restrictions, but in no event exceed 5,000,000 shares. NOTE U: SUBSEQUENT EVENT -- CONVERTIBLE SUBORDINATED NOTES During August 1997, Lam completed the offering of $310.0 million of the Notes. The Notes bear interest at five percent, mature on September 1, 2002 and are convertible into shares of Lam's Common Stock at $87.77 per share. Expenses associated with the offering of approximately $9.0 million will be deferred and will be included in other assets. Such expenses will be amortized over the term of the Notes. 62 64 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS With the exception of historical facts, the statements contained in this discussion are forward-looking statements within the meaning of Section 21E of the Exchange Act, and are subject to the safe harbor provisions created by that statute. Such forward-looking statements include, but are not limited to, statements that relate to the Company's future revenue, royalty income, gross margins, levels of R&D and operating expenses, management's plans and objectives for future operations of the Company, the effects of the Company's merger with OnTrak, and the sufficiency of financial resources to support future operations and capital expenditures. Such statements are based on current expectations that involve risks and uncertainties, including those discussed below and under the heading "Risk Factors," that could cause actual results to differ materially from those expressed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. This discussion should be read in conjunction with the Supplemental Consolidated Financial Statements and Notes presented thereto on pages 44 to 62 of this Prospectus for a full understanding of the Company's financial position and results of operations. RESULTS OF OPERATIONS Merger On August 5, 1997, each of stockholders of Lam and OnTrak approved the issuance of Lam Common Stock to OnTrak stockholders under the Merger Agreement between Lam and OnTrak. Each share of OnTrak Common Stock was exchanged for 0.83 of a share of Lam Common Stock and each option and right to acquire one share of OnTrak Common Stock was exchanged for options and rights to purchase 0.83 of a share of Lam Common Stock. The transaction was accounted for as a pooling of interests and is structured to qualify as a tax-free reorganization. All financial data of the Company included herein reflects the combination of the historical financial information of both Lam and OnTrak. The following table sets forth, for the fiscal years indicated, certain income and expense items as a percentage of total revenue:
YEAR ENDED JUNE 30, ------------------------- 1997 1996 1995 ----- ----- ----- Net sales........................................... 98.8% 98.3% 98.5% Royalty income...................................... 1.2 1.7 1.5 ----- ----- ----- Total revenue..................................... 100.0 100.0 100.0 Cost of goods sold.................................. 67.4 51.7 51.4 Research and development............................ 17.9 14.1 16.1 Selling, general and administrative............... 19.5 17.8 18.1 Restructuring charge................................ 0.9 -- -- Charge for past royalties........................... -- -- 0.1 ----- ----- ----- Operating income (loss)........................ (5.7) 16.4 14.3 Other expense (income), net......................... -- 0.2 (1.1) ----- ----- ----- Income (loss) before income taxes.............. (5.7) 16.2 15.4 ----- ----- ----- Income tax expense (benefit)........................ (2.8) 5.3 4.6 ----- ----- ----- Net income (loss).............................. (2.9)% 10.9% 10.8% ===== ===== =====
Fiscal 1997 vs. 1996 The Company's revenue for fiscal year 1997 totaled $1,073.2 million, a 19% decrease from the prior fiscal year total revenue of $1,332.7 million. Overall, revenue was lower in fiscal 1997 due to the reduced demand for the Company's equipment based upon its customers' reduced production capacity requirements in response to 63 65 a slowdown in the semiconductor market. Also, during fiscal 1997, the Company's product mix began to shift with a higher percentage of revenues contributed by the multi-chamber Alliance and CVD products and a lower percentage of revenues derived from the more mature single-chamber Rainbow and TCP etch systems. Sales of the Company's cleaning products increased 25% in fiscal 1997 compared with fiscal 1996. Regionally, revenue reflected a higher percentage attributable to domestic sales, with revenue from foreign regions decreasing to 57% of revenue in fiscal 1997 from 63% in fiscal 1996. The Japan region experienced the largest decline in revenue, a 50% decrease from the prior year representing approximately 30% of the total decline in revenue. Total spares and service revenue dollars remained virtually flat in fiscal 1997 compared to fiscal 1996. Service revenue represented less than 4% of total revenue in fiscal 1997 and 1996. During fiscal 1997, Lam's revenue declined sequentially for three quarters, then increased for the fourth quarter. The Company anticipates that quarterly revenues for the first half of fiscal 1998 are likely to be relatively flat with revenue for the fourth quarter of fiscal 1997. The Company believes that as the industry returns to historical growth rates revenues may increase during the second half of fiscal 1998. Royalty income for fiscal 1997 decreased 44% to $12.7 million from $22.8 million in fiscal 1996. The reduction in royalty income was due primarily to the lower royalty rate effective January 1, 1997 under the extended royalty agreement with TEL. The agreement, originally set to expire on December 31, 1996, was renegotiated to a reduced royalty rate of 1% from 5%. The Company expects that royalty income for fiscal 1998 will be significantly lower than fiscal 1997 as 1998 will be the first full fiscal year with royalty income from TEL computed at the reduced rate. The Company's gross margin percentage for fiscal 1997 was 32.6% compared to 48.3% for fiscal 1996. As noted above, during fiscal 1997, the Company's product mix shifted from the higher-margin Rainbow products to the newer lower-margin Alliance cluster etch and CVD products. Furthermore, as a result of this faster than expected customer transition to the multi-chamber from the single-chamber tools, and continuing revisions to the design and features of such multi-chamber products, during the third quarter of fiscal 1997, the Company established additional reserves for excess and obsolete manufacturing and spare parts inventories and inventory-related commitments of approximately $42.0 million. The Company also re-evaluated its warranty and installation reserves and determined that additional provisions of approximately $15.0 million were required, primarily because the Alliance cluster and CVD tools are more costly to install and fulfill warranty obligations. Additionally, the slowdown in the semiconductor industry brought about reduced manufacturing volumes which in turn caused the Company to experience an increase in fixed manufacturing costs as a percentage of revenue. Also contributing to the decline in gross margin percent was an overall decline in the spare parts and service margin caused by a shift whereby a lower percentage of revenue was derived from higher-margin spares and a higher percentage of revenue from lower-margin service. While the Company expects that gross margin percentages in the first half of fiscal 1998 will continue to be affected by the slowdown in the semiconductor industry and the Company's related excess manufacturing capacity, the Company anticipates that the gross margin percentages may start to increase in the second half of fiscal 1998. R&D expenses increased to $192.3 million in fiscal 1997 from $186.9 million in fiscal 1996. As a percentage of revenue, R&D expenses increased to 17.9% of revenue in fiscal 1997 compared with 14.1% in fiscal 1996. Contributing to the increase in R&D expenses during fiscal 1997 was the Company's continued investment in development of the CMP polishing system. During the first quarter of fiscal 1997, the Company implemented a restructuring of its operations which eliminated the previously existing business unit structure. As a result of the restructuring, R&D activities were centralized and certain duplicate R&D functions were eliminated. Partially offsetting the overall decrease in R&D spending during fiscal 1997 was an approximate $3.0 million write-off of R&D-related fixed assets during the third quarter of fiscal 1997. The Company believes that in order to remain competitive in the semiconductor equipment industry it must continue to significantly invest in R&D. Over the next five to ten years, the Company intends to invest a significant percentage of R&D resources to create production ready systems that allow the Company's customers to process 300 mm wafers efficiently and effectively. The Company continues to invest in advanced etch 64 66 applications, and FPD technology, to develop its CVD technology, to develop its CMP polishing system and to make enhancements to its Alliance and TCP products. Sales, general and administrative ("S,G&A") expenses decreased $28.2 million in fiscal 1997 from $237.4 million in fiscal 1996. During fiscal 1996, the Company added employees in all administrative areas to accommodate the increase in sales volume. During fiscal 1997, in response to the slowdown in the semiconductor market and the decrease in sales volume, the Company implemented a restructuring of its operations which resulted in a reduction in workforce and initiated programs which reduced expenses and capital spending. Partially offsetting the overall reduction in S,G&A expenses were $6.6 million of bad debt expense for at-risk receivables relating to SubMicron and an adjustment of approximately $3.0 million for the write-off of certain obsolete customer evaluation systems. During fiscal 1997, Lam restructured its operations by consolidating its previous business unit structure into a more centralized functional organization. As a result of the restructuring, and in response to market conditions Lam reduced its workforce by approximately 11% and recorded a charge of $9.0 million related primarily to severance compensation for and consolidation of facilities. At June 30, 1997, $1.7 million remains in accrued liabilities relating primarily to executive severance and lease payments on remaining unused facilities. As of June 30, 1997, Lam has made $6.3 million of cash payments relating to the restructuring. The Company anticipates that operating expenses for the first half of fiscal 1998 will remain relatively flat when compared with the second half of fiscal 1997. Interest expense for the Company decreased by 35% in fiscal 1997 over fiscal 1996, due primarily to the retirement of the subordinated convertible debentures in the fourth quarter of fiscal 1996. The Company expects that interest expense will increase in future periods due to the additional interest expense which the Company will incur on the Notes, which the Company offered in August 1997 (see note U of the Notes to the Supplemental Consolidated Financial Statements). The Company also expects that interest income will increase as a result of the additional cash acquired from the sale of the Notes. The Company recorded a tax benefit of 49.6% of its pre-tax loss related primarily due to the benefit from its carryback operating loss and R&D tax credits for fiscal 1997. Lam experienced its first net loss in fiscal 1997 since fiscal 1990. In summary, items that contributed to the net loss included lower revenues due to the slowdown in the semiconductor industry, and lower gross margins due to the transition from the higher-margin, mature Rainbow and TCP products to the lower-margin Alliance products. Additionally, adjustments relating to excess and obsolete manufacturing and spares parts inventory, increased reserves for installation and warranty, a charge for the restructuring of operations during the first quarter of fiscal 1997, and bad debt expenses during the year contributed to the net loss. Fiscal 1996 vs. 1995 The Company's revenue for fiscal year 1996 increased to $1,332.7 million, a 59% increase from the $836.6 million of revenue in fiscal 1995. Lam's TCP products experienced increased sales in all regions and accounted for approximately one half of the overall increase in revenue. Also contributing to the overall increase in revenue for fiscal 1996 were sales of Lam's Rainbow and Alliance products, which when combined accounted for approximately one-third of the increase in revenue. Alliance revenue was particularly strong in the latter half of fiscal 1996, as customers took delivery of the Alliance product in larger quantities. Most of the remainder of the increase in revenue resulted from increased spares and service revenue, which occurred as a result of Lam's increased installed machine base. The Company experienced increased revenue in all geographic regions, with foreign sales increasing to 63% of overall revenue from 53% in fiscal 1995. The Asia Pacific region, excluding Japan, accounted for slightly more than one half of the increase in revenue obtained from foreign sources. Also, the United States, Japan and European regions continued to show increases in revenue, accounting for, in approximately equal amounts, the remainder of the increase. Royalty income was $22.8 million in fiscal 1996, an 85% increase over fiscal 1995, due to the increased sales of systems incorporating Lam technology by TEL and Sumitomo. 65 67 Gross margins were 48.3% for fiscal 1996 compared with 48.6% for fiscal 1995. The slight decrease in gross margins can be attributed to the product mix as Lam sold a relatively higher percentage of the lower margin TCP and Alliance machines and a relatively lower percentage of the higher margin Rainbow machines. R&D dollar spending increased 38.8% in fiscal 1996 over fiscal 1995 and as a percentage of revenues decreased by 2.0% to 14.1% in fiscal 1996. R&D spending increased as Lam continued to invest in the development of advanced etch applications, CVD technologies, including the DSM 9800 and DSM 9900, development of the CMP polishing system, continued enhancements to the TCP and Alliance products, and continued development of Lam's FPD technology. Although the R&D expenditures increased as the Company had added engineering and scientific headcount, R&D expenditures increased at a rate slightly slower than revenue increased. During the quarter ended June 30, 1996, Lam began occupancy in an additional engineering facility at Lam's Fremont campus, which Lam is utilizing under an operating lease. S,G&A expenses increased by 57.2% in fiscal 1996 over fiscal 1995 and decreased slightly as a percentage of sales. During fiscal 1996, the Company added employees in all customer support, sales and administration areas to accommodate the increased sales volume. During fiscal 1996, the Company significantly expanded its foreign facilities: Lam opened a manufacturing facility in Korea, expanded its facilities in Japan and relocated and began the expansion of its Taiwan facility. In June 1995, OnTrak entered into a worldwide, non-exclusive license agreement under which OnTrak agreed to pay $1.5 million upon closing of its initial public offering in July 1995. The portion of the payment which related to the use of the technology prior to March 31, 1995 was reflected as a non-recurring, $1.3 million charge to operations in fiscal 1995. For sales after March 31, 1995, royalty expense relating to the license has been included in cost of sales. Interest expense for the Company increased by 17% in fiscal 1996 over fiscal 1995, due to additional yen bank borrowings by Lam's Japanese subsidiary, additional interest expense related to an interest rate swap and the increased interest expense associated with the additional capital leases for equipment and leasehold improvements. Other income decreased due to a $10.4 million one-time gain recorded in the fourth quarter of fiscal 1995 from the sale of all of the stock held by Lam in Brooks Automation, Inc., a vendor to Lam. The combined effective tax rate was 32.6% for fiscal 1996, an increase over the prior year's 30%, due primarily to the expiration of federal R&D tax credits. Liquidity and Capital Resources Despite a net loss of $30.7 million for fiscal 1997, operating activities provided approximately $81.0 million in cash flows. Non-cash depreciation and amortization accounted for $55.7 million of the net operating cash flow; partially offsetting the cash flow from depreciation and amortization was $25.0 million related to additional deferred tax assets recorded as a result of non-deductible reserves recorded in third quarter of fiscal 1997. Working capital accounts provided $81.0 million from decreases in inventory and accounts receivable, increases in accrued liabilities, partially offset by increases in prepaid expenses and other assets. During fiscal 1997, inventories decreased due to the impact of Lam's company-wide inventory reduction program, and additional reserves recorded in the third quarter, which was offset by increases in inventory needed to increase worldwide spares capabilities. The Company's asset management efforts and the decrease in revenues contributed to the overall decrease in the accounts receivable balance. Prepaid expenses and other assets increased $19.8 million due to the reclassification of some other receivables and increases in prepaid corporate and consumption taxes at Lam's foreign subsidiaries. During fiscal 1997, an additional $60.0 million of cash was provided from the sale of yen-denominated Japanese receivables to a bank (under an amended agreement whereby Lam increased the amount of yen-denominated Japanese receivables it may sell to the bank from 6 billion yen to 9 billion yen). At June 30, 1997, $39.9 million of the total receivables sold under this agreement remained uncollected by the bank and subject to recourse provisions. The Company enters into foreign-currency forward contracts to minimize the impact of exchange rate fluctuations on the value of yen-denominated assets and liabilities. The realized gains and losses on these contracts are deferred and offset 66 68 against realized and unrealized gains and losses from the settlement of the related yen receivables. The realized losses on yen-forward contracts at June 30, 1997 were offset by gains on the underlying receivables. Net cash used for investing activities during fiscal 1997 was $33.2 million. Net capital expenditures were $47.3 million, primarily for the completion of leasehold improvements. Offsetting cash used for investing were net sales of short-term investments of $25.1 million. Cash totaling $11.0 million was also used to purchase certain technology rights and other investments classified as other assets on the Company's balance sheet. Net cash flows provided by financing activities were $6.0 million. Contributing to the cash from financing activities was $14.9 million relating to common stock issuances, primarily for the employee stock purchase and option plans and net cash borrowings of $10.0 million against the syndicated line of credit. Offsetting the cash contributions were payments of lease obligations of $18.9 million. As of June 30, 1997, the Company had $195.7 million in cash, cash equivalents and short-term investments compared with $167.1 million at June 30, 1996. The Company has a total of $210.0 million available under a syndicated bank line of credit, which is due to expire in December 1998. Borrowings under the syndicated bank line of credit bear interest at the bank's prime rate or 0.7% to 0.9% over London Interbank Offered Rate (LIBOR) and are subject to the Company's compliance with financial and other covenants. The Company also has a line of credit of $10.0 million with a bank which expires in November 1997; borrowings under this bank line of credit bear interest at the bank's prime rate. The Company amended or received waivers for certain of its financial covenants in anticipation of the net loss reported for the three and nine month periods ended March 31, 1997. The Company was in compliance with the all the covenants at June 30,1997. At June 30, 1997, the Company had borrowings against the syndicated bank line of credit of $35.0 million. Borrowings under the line of credit are unsecured. During August 1997, the Company completed an offering of $310.0 million of the Notes. Expenses associated with the offering of approximately $9.0 million will be deferred and will be included in other assets. Such expenses will be amortized to interest expense over the term of the Notes. In connection with the issuance of the Notes, the Company received consents and waivers with respect to certain financial and other covenants contained in agreements related to certain existing financial arrangements. In addition, as a consequence of the Merger with OnTrak as well as issuance of the Notes, the Company, prior to the end of the fiscal quarter ending September 30, 1997, would have been out of compliance with certain other financial covenants unless appropriate waivers were completed prior to that time. The Company received appropriate waivers prior to the fiscal quarter end and on October 7, 1997 amended its syndicated revolving credit agreement and synthetic real estate leases. The Company's commitments consist primarily of debt obligations and operating and capital lease commitments for its facilities and equipment. Based upon current forecasts, the Company's cash, cash equivalents, short-term investments and available lines of credit at June 30, 1997 as well as the proceeds from the Notes are expected to be sufficient to support anticipated levels of operations and capital expenditures through at least June 30, 1998. 67 69 SELLING SECURITYHOLDERS The Notes were originally issued by the Company and sold by the Initial Purchasers in a transaction exempt from the registration requirements of the Securities Act to persons reasonably believed by such Initial Purchasers to be QIBs or in transactions complying with the provisions of Regulation S under the Securities Act. The Selling Securityholders (which term includes their transferees, pledgees, donees or successors) may from time to time offer and sell pursuant to this Prospectus any or all of the Notes and Common Stock. Set forth below are the names of each Selling Securityholder, the nature of any position, office, or other material relationship that the Selling Securityholder has had within the past three years with the Company or any of its predecessors or affiliates, the principal amount of Notes that may be offered and sold by such Selling Securityholder pursuant to this Prospectus and (if one percent or more) the percentage of such Notes owned as of October 23, 1997, the number of Shares that may be offered and sold by such Selling Securityholder pursuant to this Prospectus and (if one percent or more) the percentage of Common Stock represented by the Common Stock owned by each Selling Securityholder after conversion of the Notes. Any or all of the Notes or Common Stock listed below may be offered for sale pursuant to this Prospectus by the Selling Securityholders from time to time. Accordingly, no estimate can be given as to the amount of the Notes or Shares that will be held by the Selling Securityholders upon consummation of any such sales. In addition, the Selling Securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their Notes since the date on which the information regarding their Notes was provided, in transactions exempt from the registration requirements of the Securities Act.
PRINCIPAL AMOUNT OF SHARES THAT MAY PERCENTAGE OF NOTES THAT PERCENTAGE BE SOLD PURSUANT COMMON STOCK MAY BE OF NOTES TO THIS AFTER CONVERSION NAME SOLD($) OUTSTANDING PROSPECTUS(1) OF THE NOTES(2) - ------------------------------------------- ----------- ----------- ------------------ ---------------- BancAmerica Robertson Stephens............. 2,085,000 * 23,755 * The Bank of New York....................... 6,000,000 1.94% 68,360 * Bankers Trust Company...................... 18,915,000 6.10% 215,506 * Bear, Stearns Securities Corp.............. 15,750,000 5.08% 179,446 * Boston Safe Deposit and Trust Company...... 15,275,000 4.93% 174,034 * Brown Brothers Harriman & Co............... 15,860,000 5.12% 180,699 * Bank of Tokyo-Mitsubishi Trust Company..... 3,535,000 1.14% 40,275 * BT/Corp. Clearance BTI..................... 5,000,000 1.61% 56,967 * Chase Manhattan Bank....................... 1,925,000 * 21,932 * Chase Manhattan Bank/Chemical.............. 23,430,000 7.56% 266,947 * Citibank, N.A.............................. 1,535,000 * 17,488 * Deutsche Bank A.G., New York Branch........ 85,450,000 27.56% 973,567 2.59% Donaldson, Lufkin and Jenrette Securities Corporation.............................. 8,000,000 2.58% 91,147 * Everen Clearing Corp....................... 265,000 * 3,019 * Goldman, Sachs & Co........................ 5,750,000 1.85% 65,512 * Jefferies & Company, Inc................... 1,000,000 * 11,393 * Lehman Brothers, Inc....................... 250,000 * 2,848 * Lehman Brothers International[Europe]-Equity Division.... 50,000 * 569 * Lehman Brothers International(Europe)-Prime Broker (LBI)............................. 903,000 * 10,288 * Merrill Lynch Professional Clearing Corp..................................... 275,000 * 3,133 * Merrill Lynch, Pierce Fenner & Smith Safekeeping.............................. 3,465,000 1.12% 39,478 * J.P. Morgan Securities, Inc................ 1,050,000 * 11,963 * Morgan Stanley & Co. Inc................... 1,800,000 * 20,508 *
68 70
PRINCIPAL AMOUNT OF SHARES THAT MAY PERCENTAGE OF NOTES THAT PERCENTAGE BE SOLD PURSUANT COMMON STOCK MAY BE OF NOTES TO THIS AFTER CONVERSION NAME SOLD($) OUTSTANDING PROSPECTUS(1) OF THE NOTES(2) - ------------------------------------------- ----------- ----------- ------------------ ---------------- NationsBanc Montgomery Securities, Inc./San Francisco................................ 2,000,000 * 22,786 * NatWest Securities Corporation............. 28,672,000 9.25% 326,671 * NationsBank of Texas, N.A.................. 135,000 * 1,538 * Northern Trust Company..................... 600,000 * 6,836 * Nesbitt Burns Inc.......................... 200,000 * 2,278 * Oppenheimer & Co., Inc..................... 1,000,000 * 11,393 * Prudential Securities Incorporated Custodial Account........................ 715,000 * 8,146 * Republic New York Securities Corporation... 475,000 * 5,411 * Smith Barney Inc........................... 17,900,000 5.77% 203,942 * Societe Generale Securities Corp........... 3,400,000 1.10% 38,737 * SSB -- Custodian........................... 13,350,000 4.31% 152,102 * Suntrust Bank, Atlanta..................... 6,000,000 1.94% 68,360 * Texas Commerce Bank, National Association.............................. 60,000 * 683 * UBS Securities Inc......................... 17,150,000 5.53% 195,397 * Wachovia Bank of North Carolina, N.A....... 775,000 * 8,829 * Total...................................... 310,000,000 100% 3,531,943
- --------------- * Less than one percent. (1) Assumes conversion of the full amount of Notes held by such Selling Securityholder at the initial conversion price of $87.77 per share; such conversion price is subject to adjustment as described under "Description of Notes -- Conversion Rights." Accordingly, the number of Shares issuable upon conversion of the Notes may increase or decrease from time to time. Fractional shares will not be issued upon conversion of the Notes; cash will be paid in lieu of fractional shares, if any. The difference in the total from that set forth on the Prospectus cover page is due to rounding of fractional shares. (2) The percentage of Common Stock after conversion of the Notes represents the percentage of the Common Stock each Selling Securityholder will have after treating as outstanding the number of Shares of Common Stock shown as being issuable upon the assumed conversion by the named Selling Securityholder of the full amount of such holder's Notes but not assuming the conversion of the Notes of any other Selling Securityholder. These percentages are based on 37,635,223 shares of Common Stock that were issued and outstanding as of October 23, 1997 before taking into account any of the assumed conversions. 69 71 PLAN OF DISTRIBUTION The Company is registering the Notes and the Common Stock issuable upon conversion (collectively, the "Registered Securities") for resale by the holders thereof pursuant to contractual registration rights contained in the Registration Rights Agreement as discussed above. The Registered Securities offered hereunder may be sold from time to time by the holders thereof, or by pledgees, donees, transferees or other successors in interest. Such sales may be made on the Nasdaq National Market System (only in the case of the Common Stock), on the over-the-counter market or otherwise at prices and on terms then prevailing or related to the then current market price, or in negotiated transactions. The Registered Securities may be sold to or through one or more broker-dealers, acting as agent or principal in underwriting offerings, block trades, agency placements, exchange distributions, brokerage transactions or otherwise, or in any combination of transactions. In connection with any transaction involving the Registered Securities, broker-dealers or others may receive from holders thereof, and may in turn pay to other broker-dealers or others, compensation in the form of commissions, discounts or concessions in amounts to be negotiated at the time. Broker-dealers and any other persons participating in a distribution of the Registered Securities may be deemed to be "underwriters' within the meaning of the Act in connection with such distribution, and any such commissions, discounts or concessions may be deemed to be underwriting discounts or commissions under the Securities Act. Any or all of the sales or other transactions involving the Registered Securities described above, whether effected by the Selling Securityholders, any broker dealer or others, may be made pursuant to this Prospectus. In addition, any shares of Common Stock that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this Prospectus. In order to comply with the securities laws of certain states, if applicable, the Registered Securities may be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, the Registered Securities may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with under applicable state securities laws. The Company and the holders or the Registered Securities have agreed, and hereafter may further agree, to indemnify certain persons, including broker-dealers or others, against certain liabilities in connection with any offering of the Common Stock, including liabilities arising under the Securities Act. LEGAL MATTERS Certain legal matters with respect to the validity of the Common Stock offered hereby will be passed upon for the Company by Jackson Tufts Cole & Black, LLP, 60 South Market Street, San Jose, CA 95113. Certain legal matters with respect to the legality and enforceability of the Notes will be passed upon by Winthrop, Stimson, Putnam & Roberts, 1 Battery Park Plaza, New York, NY 10004-1490. 70 72 EXPERTS The consolidated financial statements and schedule of Lam Research Corporation appearing in the Company's Annual Report (Form 10-K) for the year ended June 30, 1997 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements and schedule are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of OnTrak Systems, Inc., not separately presented in this Prospectus, have been audited by Price Waterhouse LLP, independent accountants, whose report thereon appears herein. Such financial statements, to the extent they have been included in the financial statements of Lam Research Corporation, have been so included in reliance on their report given on the authority of said firm as experts in auditing and accounting. The supplemental consolidated financial statements of Lam Research Corporation at June 30, 1997 and 1996 and for each of the three years in the period ended June 30, 1997, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon and appearing elsewhere herein, which is based in part on the report of Price Waterhouse LLP, independent accountants. The supplemental consolidated financial statements referred to above are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. TABLE OF CONTENTS Available Information................................................................... 2 Incorporation of Certain Documents by Reference......................................... 2 The Company............................................................................. 5 Risk Factors............................................................................ 6 Use of Proceeds......................................................................... 15 Capitalization.......................................................................... 15 Selected Consolidated Financial Information............................................. 16 Recent Developments..................................................................... 18 Description of Notes.................................................................... 18 Certain Federal Income Tax Considerations............................................... 34 Description of Capital Stock............................................................ 40 Supplemental Consolidated Financial Statements.......................................... 41 Management's Discussion and Analysis of Financial Condition and Results of Operations... 63 Selling Securityholders................................................................. 68 Plan of Distribution.................................................................... 70 Legal Matters........................................................................... 70 Experts................................................................................. 71
71 73 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Notes and Common Stock being registered. All the amounts shown are estimates except for the registration fee. Registration fee................................................ $ 93,939.39 Blue sky qualification fees and expenses........................ 10,000.00 Legal fees and expenses......................................... 60,000.00 Printing and engraving expenses................................. 100,000.00 Miscellaneous................................................... 5,000.00 Accounting fees and expenses.................................... 130,000.00 ---------- Total................................................. $398,939.39 ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law (the "DGCL") permits a Delaware corporation to indemnify officers, directors, employees and agents for actions taken in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation, and with respect to any criminal action, which they had no reasonable cause to believe was unlawful. The DGCL provides that a corporation may pay expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action (upon receipt of a written undertaking to reimburse the corporation if indemnification is not appropriate), and must reimburse a successful defendant for expenses, including attorney's fees, actually and reasonably incurred, and permits a corporation to purchase and maintain liability insurance for its directors and officers. The DGCL provides that indemnification may be made for any claim, issue or matter as to which a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation, unless and only to the extent a court determines that the person is entitled to indemnity for such expenses as the court deems proper. The Lam Certificate of Incorporation (the "Lam Certificate") and the Company Bylaws provide, among other things, that, to the fullest extent authorized by the DGCL, the Company shall indemnify each person who is or has served as a director or officer of the Company or any predecessor of the Company, or any other enterprise at the request of the Company or of any predecessor of the Company, against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Company. The Company may also indemnify each of its employees and other agents against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that such person is or was an agent of the Company. The DGCL permits a Delaware corporation to include a provision in its certificate of incorporation eliminating or limiting the personal liability of any director to the corporation or its stockholders for monetary damages for a breach of the director's 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 DGCL, which concerns unlawful payments of dividends, stock purchases or redemptions or (iv) for any transaction from which the director derived an improper personal benefit. The Lam Certificate contains provisions limiting the liability of its directors, to the fullest extent currently permitted by the DGCL for monetary damages for breach of their fiduciary duty as directors. II-1 74 While these provisions provide directors with protection from awards for monetary damages for breaches of their duty of care, they do not eliminate such duty. Accordingly, these provisions will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his or her duty of care. The Company has purchased insurance which purports to insure the Company against certain costs of indemnification which may be incurred by it pursuant to the Lam Certificate and the Company Bylaws and to insure the officers and directors of the Company, and its subsidiary companies, against certain liabilities incurred by them in the discharge of their functions as such officers and directors except for liabilities resulting from their own malfeasance. ITEM 16. EXHIBITS AND SCHEDULES
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ---------------------------------------------------------------------- 4.1 Indenture by and between the Company and LaSalle National Bank dated as of August 15, 1997. 4.2 Registration Rights Agreement dated as of August 15, 1997 by and between the Company and Deutsche Morgan Grenfeld Inc., ABN AMRO Rothschild, and Lombard Odier International Underwriters Limited. 4.3 Form of Notes (included in Exhibit 4.1) 5.1 Opinion of Jackson Tufts Cole & Black LLP 5.2 Opinion of Winthrop Stimson Putnam & Roberts 11.1 Computation of Supplemental Earnings per Share 12.1 Ratios of Earnings to Fixed Charges 23.1 Consent of Ernst & Young LLP, independent auditors 23.2 Consent of Price Waterhouse LLP, independent accountants 23.3 Consent of Jackson Tufts Cole & Black, LLP (contained in Exhibit 5.1 hereto) 23.4 Consent of Winthrop, Stimson Putnam & Roberts (contained in Exhibit 5.2 hereto) 24.1 Power of Attorney (See page II-4) 25.1 Form T-1 Statement of Eligibility and Qualification of Trustee 27 Financial Data Schedule
SCHEDULES Schedule II Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS. (a) Rule 415 offering. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made of the securities registered hereby, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; II-2 75 (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however, that the undertakings set forth in paragraphs (i) and (ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Filings incorporating subsequent Exchange Act documents by reference. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in 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. (c) Acceleration of Effectiveness. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 76 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Lam Research Corporation certifies that it has reasonable grounds to believe that it meets all of the applicable 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 Fremont, State of California, on this 31st day of October, 1997. LAM RESEARCH CORPORATION By: /s/ RICHARD H. LOVGREN ------------------------------------ Richard H. Lovgren Vice President, General Counsel and Secretary POWER OF ATTORNEY KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Roger D. Emerick and Richard H. Lovgren as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution for him or her and in his or her name, place and stead in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with exhibits thereto and other 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 or she might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact and agent or his 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 by the following persons in the capacities indicated on the 31st day of October, 1997.
SIGNATURE TITLE - ------------------------------------- ------------------------------------- /s/ ROGER D. EMERICK Chairman of the Board - ------------------------------------- Roger D. Emerick /s/ JAMES W. BAGLEY Chief Executive Officer, Director - ------------------------------------- James W. Bagley /s/ HSIU-SHENG (WAY) TU President - ------------------------------------- Hsiu-Sheng (Way) Tu /s/ MERCEDES JOHNSON Vice President, Finance and Chief - ------------------------------------- Finance Officer (Principal Financial Mercedes Johnson and Accounting Officer) /s/ DAVID G. ARSCOTT Director - ------------------------------------- David G. Arscott /s/ RICHARD J. ELKUS, JR. Director - ------------------------------------- Richard J. Elkus, Jr. /s/ JACK R. HARRIS Director - ------------------------------------- Jack R. Harris /s/ GRANT M. INMAN Director - ------------------------------------- Grant M. Inman /s/ OSAMU (SAM) KANO Director - ------------------------------------- Osamu (Sam) Kano
II-4 77 LAM RESEARCH CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS -------------------------------------------------------------------------- CHARGED TO BALANCE AT CHARGED TO OTHER BEGINNING COSTS AND ACCOUNTS DEDUCTIONS BALANCE AT END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD - --------------------------------- ---------- ---------- ---------- ---------- -------------- COL. A COL. B COL. C COL. D COL. E Year Ended June 30, 1997 Deducted from asset accounts: Other allowance(1)............. $ 0 $6,550,000(2) $1,530,000(3) $ 0 $8,080,000 Allowance for doubtful accounts.................... $2,063,000 $ 738,000 $ 0 $424,000(4) $2,377,000 Year Ended June 30, 1996 Deducted from asset accounts: Allowance for doubtful accounts.................... $1,245,000 $ 844,000 $ 0 $ 26,000(4) $2,063,000 Year Ended June 30, 1995 Deducted from asset accounts: Allowance for doubtful accounts.................... $1,212,000 $ 217,000 $ 0 $184,000(4) $1,245,000
- --------------- (1) Included in the Balance Sheet under the caption "Other assets." Represents allowance relating to the write-off of certain at-risk receivables. (2) Represents write-off of bad debt relating to certain at-risk receivables. (3) Represents related installation and warranty. (4) Represents specific customer accounts written-off. Note: Amounts presented above applicable to prior periods have been restated to reflect the Company's merger with OnTrak Systems, Inc. as a pooling of interests. S-1 78 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ------------------------------------------------------------------------ 4.1 Indenture by and between the Company and LaSalle National Bank dated as of August 15, 1997 4.2 Registration Rights Agreement dated as of August 15, 1997 by and between the Company and Deutsche Morgan Grenfeld Inc., ABN AMRO Rothschild, and Lombard Odier International Underwriters Limited 4.3 Form of Notes (included in Exhibit 4.1) 5.1 Opinion of Jackson Tufts Cole & Black LLP 5.2 Opinion of Winthrop Stimson Putnam & Roberts 11.1 Computation of Supplemental Earnings per Share 12.1 Ratios of Earnings to Fixed Charges 23.1 Consent of Ernst & Young LLP, independent auditors 23.2 Consent of Price Waterhouse LLP, independent accountants 23.3 Consent of Jackson Tufts Cole & Black, LLP (contained in Exhibit 5.1 hereto) 23.4 Consent of Winthrop, Stimson Putnam & Roberts (contained in Exhibit 5.2 hereto) 24.1 Power of Attorney (See page II-4) 25.1 Form T-1 Statement of Eligibility and Qualification of Trustee 27 Financial Data Schedule
EX-4.1 2 INDENTURE DATED AS OF AUGUST 15, 1997 1 EXHIBIT 4.1 FINAL - -------------------------------------------------------------------------------- LAM RESEARCH CORPORATION, COMPANY LASALLE NATIONAL BANK, TRUSTEE ---------------------- INDENTURE DATED AS OF AUGUST 15, 1997 ---------------------- 5% CONVERTIBLE SUBORDINATED NOTES DUE 2002 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- RECITALS.....................................................................................6 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..........................7 SECTION 1.1. Definitions..................................................................7 Act......................................................................................7 Additional Amounts.......................................................................7 Affiliate................................................................................7 Applicable Price.........................................................................8 Authenticating Agent.....................................................................8 Authorized Newspaper.....................................................................8 Board of Directors.......................................................................8 Board Resolution.........................................................................8 Business Day.............................................................................8 Cedel....................................................................................8 Closing Price............................................................................8 Code.....................................................................................8 Commission...............................................................................9 Common Stock.............................................................................9 Company..................................................................................9 Company Order..............................................................................9 Company Notice...........................................................................9 Constituent Person.......................................................................9 Conversion Agent.........................................................................9 Conversion Price.........................................................................9 Corporate Trust Office...................................................................9 corporation.............................................................................10 Custodian...............................................................................10 Defaulted Interest......................................................................10 Depositary..............................................................................10 Designated Senior Indebtedness..........................................................10 Dollar..................................................................................10 DTC.....................................................................................10 Euroclear...............................................................................10 Event of Default........................................................................10 Exchange Act............................................................................10 Fundamental Change......................................................................10 Global Security.........................................................................11 Holder..................................................................................11 Indebtedness............................................................................11 Indenture...............................................................................12 Initial Purchasers......................................................................12 Interest Payment Date...................................................................12 Liquidated Damages......................................................................12 Maturity................................................................................12 Non-electing Share......................................................................12 Non-U.S. Holder.........................................................................12 Note Register...........................................................................12 Note Registrar..........................................................................12 Officer.................................................................................12
3 Officers' Certificate...................................................................12 Opinion of Counsel......................................................................13 Outstanding.............................................................................13 Paying Agent............................................................................13 Payment Blockage Notice.................................................................14 Person..................................................................................14 Place of Conversion.....................................................................14 Place of Payment........................................................................14 Predecessor Security....................................................................14 Purchase Agreement......................................................................14 Purchased Shares........................................................................14 Record Date.............................................................................14 Redemption Date.........................................................................14 Redemption Price........................................................................14 Reference Market Price..................................................................14 Registration Rights Agreement...........................................................14 Regular Record Date.....................................................................15 Regulation S............................................................................15 Regulation S Global Security............................................................15 Representative..........................................................................15 Repurchase Date.........................................................................15 Repurchase Price........................................................................15 Responsible Officer.....................................................................15 Rule 144A...............................................................................15 Rule 144A Global Security...............................................................15 Rule 144A Information...................................................................15 Securities..............................................................................15 Securities Act..........................................................................15 Senior Indebtedness.....................................................................16 Special Record Date.....................................................................16 Stated Maturity.........................................................................16 Subsidiary..............................................................................16 Successor Security......................................................................16 Tax Affected Security...................................................................16 Taxing Jurisdiction.....................................................................16 Tax Law Change..........................................................................16 Trading Day.............................................................................17 Trust Indenture Act.....................................................................17 Trustee.................................................................................17 United States...........................................................................17 U.S. Holder.............................................................................17 Western Europe..........................................................................17 SECTION 1.2. Compliance Certificates and Opinions........................................17 SECTION 1.3. Form of Documents Delivered to the Trustee..................................18 SECTION 1.4. Acts of Holders of Securities...............................................19 SECTION 1.5. Notices, Etc., to Trustee and Company.......................................21 SECTION 1.6. Notice to Holders of Securities; Waiver.....................................22 SECTION 1.7. Effect of Headings and Table of Contents....................................22 SECTION 1.8. Successors and Assigns......................................................22 SECTION 1.9. Separability Clause.........................................................22 SECTION 1.10. Benefits of Indenture.......................................................23 SECTION 1.11. Governing Law...............................................................23
4 SECTION 1.12. Legal Holidays..............................................................23 SECTION 1.13. Conflict with Trust Indenture Act...........................................23 SECTION 1.14. Jurisdiction................................................................24 SECTION 1.15. Indenture and Securities Solely Corporate Obligations.......................24 SECTION 1.16. Luxembourg Obligations......................................................25 ARTICLE TWO SECURITY FORMS..................................................................25 SECTION 2.1. Forms Generally.............................................................25 SECTION 2.2. Form of Security............................................................26 SECTION 2.3. Assignment Form and Certificate of Transfer.................................40 SECTION 2.4. Form of Election of Holder to Require Repurchase............................42 SECTION 2.5. Form of Conversion Notice...................................................43 SECTION 2.6. Form of Certificate of Authentication.......................................44 ARTICLE THREE THE SECURITIES................................................................45 SECTION 3.1. Title and Terms.............................................................45 SECTION 3.2. Denominations...............................................................46 SECTION 3.3. Execution, Authentication, Delivery and Dating..............................46 SECTION 3.4. Registration, Registration of Transfer and Exchange; Restrictions on Transfer .................................................49 SECTION 3.5. Temporary Securities........................................................56 SECTION 3.6. Mutilated, Destroyed, Lost or Stolen Securities.............................57 SECTION 3.7. Payment of Interest; Interest Rights Preserved..............................58 SECTION 3.8. Persons Deemed Owners.......................................................59 SECTION 3.9. Cancellation................................................................60 SECTION 3.10. Computation of Interest.....................................................60 SECTION 3.11. CUSIP Numbers...............................................................60 ARTICLE FOUR SATISFACTION AND DISCHARGE.....................................................60 SECTION 4.1. Satisfaction and Discharge of Indenture.....................................60 SECTION 4.2. Application of Trust Money..................................................62 ARTICLE FIVE REMEDIES.......................................................................62 SECTION 5.1. Events of Default...........................................................62 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment..........................63 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.............64 SECTION 5.4. Trustee May File Proofs of Claim............................................65 SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities.................66 SECTION 5.6. Application of Money Collected..............................................66 SECTION 5.7. Limitation on Suits.........................................................67 SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert...................................................67 SECTION 5.9. Restoration of Rights and Remedies..........................................68 SECTION 5.10. Rights and Remedies Cumulative..............................................68 SECTION 5.11. Delay or Omission Not Waiver................................................68 SECTION 5.12. Control by Holders of Securities............................................68 SECTION 5.13. Waiver of Past Defaults.....................................................69 SECTION 5.14. Undertaking for Costs.......................................................69 SECTION 5.15. Waiver of Stay, Extension and Usury Laws....................................69 ARTICLE SIX THE TRUSTEE.....................................................................70 SECTION 6.1. Certain Duties and Responsibilities.........................................70 SECTION 6.2. Notice of Defaults..........................................................71 SECTION 6.3. Certain Rights of Trustee...................................................71 SECTION 6.4. Not Responsible for Recitals or Issuance of Securities......................72 SECTION 6.5. May Hold Securities, Act as Trustee Under Other Indentures..................73 SECTION 6.6. Money Held in Trust.........................................................73 SECTION 6.7. Compensation and Reimbursement..............................................73 SECTION 6.8. Corporate Trustee Required; Eligibility.....................................74
5 SECTION 6.9. Resignation and Removal; Appointment of Successor..........................75 SECTION 6.10. Acceptance of Appointment by Successor.....................................76 SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business................76 SECTION 6.12. Authenticating Agents......................................................77 SECTION 6.13. Disqualification; Conflicting Interests....................................78 SECTION 6.14. Preferential Collection of Claims Against Company..........................78 ARTICLE SEVEN CONSOLIDATION, MERGER, TRANSFER OR LEASE......................................78 SECTION 7.1. Company May Consolidate, Etc., Only on Certain Terms.......................78 SECTION 7.2. Successor Substituted......................................................79 ARTICLE EIGHT SUPPLEMENTAL INDENTURES.......................................................79 SECTION 8.1. Supplemental Indentures Without Consent of Holders of Securities...........79 SECTION 8.2. Supplemental Indentures with Consent of Holders of Securities..............80 SECTION 8.3. Execution of Supplemental Indentures.......................................82 SECTION 8.4. Effect of Supplemental Indentures..........................................82 SECTION 8.5. Reference in Securities to Supplemental Indentures.........................82 SECTION 8.6. Notice of Supplemental Indentures..........................................82 ARTICLE NINE MEETINGS OF HOLDERS OF SECURITIES..............................................83 SECTION 9.1. Purposes for Which Meetings May Be Called..................................83 SECTION 9.2. Call, Notice and Place of Meetings.........................................83 SECTION 9.3. Persons Entitled to Vote at Meetings.......................................83 SECTION 9.4. Quorum; Action.............................................................84 SECTION 9.5. Determination of Voting Rights; Conduct and Adjournment of Meetings........85 SECTION 9.6. Counting Votes and Recording Action of Meetings............................85 ARTICLE TEN COVENANTS.......................................................................86 SECTION 10.1. Payment of Principal, Premium and Interest.................................86 SECTION 10.2. Maintenance of Offices or Agencies.........................................86 SECTION 10.3. Money for Security Payments To Be Held in Trust............................87 SECTION 10.4. Additional Amounts.........................................................88 SECTION 10.5. Corporate Existence........................................................89 SECTION 10.6. Statement by Officers as to Default........................................89 SECTION 10.7. Delivery of Certain Information............................................90 ARTICLE ELEVEN REDEMPTION OF SECURITIES.....................................................90 SECTION 11.1. Right of Redemption........................................................90 SECTION 11.2. Applicability of Article...................................................90 SECTION 11.3. Election to Redeem; Notice to Trustee......................................90 SECTION 11.4. Selection by Trustee of Securities to Be Redeemed..........................91 SECTION 11.5. Notice of Redemption.......................................................91 SECTION 11.6. Deposit of Redemption Price................................................92 SECTION 11.7. Securities Payable on Redemption Date......................................93 SECTION 11.8. Securities Redeemed in Part................................................93 SECTION 11.9. Conversion Arrangement on Call for Redemption..............................93 ARTICLE TWELVE CONVERSION OF SECURITIES.....................................................94 SECTION 12.1. Conversion Privilege and Conversion Price..................................94 SECTION 12.2. Exercise of Conversion Privilege...........................................95 SECTION 12.3. Fractions of Shares........................................................97 SECTION 12.4. Adjustment of Conversion Price.............................................97 SECTION 12.5. Notice of Adjustments of Conversion Price.................................106 SECTION 12.6. Notice of Certain Corporate Action........................................106 SECTION 12.7. Company to Provide Common Stock...........................................108 SECTION 12.8. Taxes on Conversions......................................................109 SECTION 12.9. Company Covenant as to Common Stock.......................................109 SECTION 12.10. Cancellation of Converted Securities......................................109
6 SECTION 12.11. Provision in Case of Consolidation, Merger, or Sale of Assets of the Company..................................................109 SECTION 12.12. Responsibility of Trustee for Conversion Provisions.......................110 ARTICLE THIRTEEN SUBORDINATION OF SECURITIES...............................................111 SECTION 13.1. Agreement of Subordination................................................111 SECTION 13.2. Payments to Holders.......................................................111 SECTION 13.3. Subrogation of Securities.................................................114 SECTION 13.4. Authorization to Effect Subordination.....................................115 SECTION 13.5. Notice to Trustee.........................................................116 SECTION 13.6. Trustee's Relation to Senior Indebtedness of the Company..................117 SECTION 13.7. No Impairment of Subordination............................................117 SECTION 13.8. Article Applicable to Paying Agents.......................................117 SECTION 13.9. Senior Indebtedness of the Company Entitled to Rely.......................117 SECTION 13.10. Certain Conversions Deemed Payment........................................118 ARTICLE FOURTEEN REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE.......................................................................118 SECTION 14.1. Right to Require Repurchase...............................................118 SECTION 14.2. Notices; Method of Exercising Repurchase Right, Etc.......................119 SECTION 14.3. Merger, Consolidation, etc................................................121 ARTICLE FIFTEEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY...........................122 SECTION 15.1. Company to Furnish Trustee Names and Addresses of Holders.................122 SECTION 15.2. Trustee to Furnish Company Names and Addresses of Holders.................122 SECTION 15.3. Preservation of Information...............................................123 SECTION 15.4. Reports by Trustee........................................................123 SECTION 15.5. Reports by Company........................................................123 SECTION 15.6. Reports with Respect to Registration of Securities........................124
EXHIBIT A INDENTURE, dated as of August 15, 1997, between Lam Research Corporation, a Delaware corporation (herein called the "Company"), and LaSalle National Bank, as Trustee hereunder (herein called the "Trustee"). RECITALS The Company has duly authorized the creation of an issue of its 5% Convertible Subordinated Notes due 2002 (herein called the "Securities") in an aggregate principal amount not to exceed $355,000,000, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when the Securities are executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: 7 For and in consideration of the premises and the purchase of the Securities by the Holders thereof, the Company and the Trustee mutually covenant and agree, for the equal and proportionate benefit of all Holders of the Securities as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation, other than for the purpose of the definition of Indebtedness and Senior Indebtedness set forth herein; and (3) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder of a Security, has the meaning specified in Section 1.4. "Additional Amounts" has the meaning specified in Section 2.2. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct 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" have meanings correlative to the foregoing. -7- 8 "Applicable Price" means (i) in the event of a Fundamental Change in which the holders of Company's Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the arithmetic average of the Closing Price for the Company's Common Stock during the ten Trading Days prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets in connection with the Fundamental Change. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.12 to act on behalf of the Trustee to authenticate Securities. "Authorized Newspaper" means a newspaper, in an official language of the country of publication or in the English language, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in the place in connection with which the term is used or in the financial community of such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "Board of Directors" or "Board" means either the board of directors of the Company or any committee of that board empowered to act for it with respect to this Indenture. "Board Resolution" means a resolution duly adopted by the Board, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board and to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, Place of Conversion or any other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in such Place of Payment, Place of Conversion or other place, as the case may be, are authorized or obligated by law or executive order to close; provided, however, that a day on which banking institutions in either New York, New York or Luxembourg are authorized or obligated by law or executive order to close shall not be a Business Day for purposes of Section 10.1, 10.3, 11.6 or 13.5. "Cedel" means Cedel Bank, societe anonyme. "Closing Price" has the meaning specified in Section 12.4(8)(a). "Code" means the United States Internal Revenue Code of 1986, as amended. -8- 9 "Commission" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" includes any stock or shares of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company; provided, however, subject to the provisions of Section 12.11, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided, further, however, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Order" or "Company Request" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or a Senior Vice President or a Vice President, and by its principal financial officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Company Notice" has the meaning specified in Section 14.2. "Constituent Person" has the meaning specified in Section 12.11. "Conversion Agent" means any Person authorized by the Company to convert Securities in accordance with Article Twelve. The Company has initially appointed (i) the Trustee as its Conversion Agent, which shall maintain an office or agency in the Borough of Manhattan, The City of New York, New York and (ii) Banque de Luxembourg, as its Conversion Agent in Luxembourg. "Conversion Price" has the meaning specified in Section 12.1. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered (which at the date of this Indenture -9- 10 is located at 135 South LaSalle Street, Chicago, Illinois 60603), except that with respect to presentation of securities for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which at any particular time, its corporate agency business shall be conducted. "corporation" means a corporation, company, including, without limitation, a limited liability company, association, joint-stock company or business trust. "Custodian" shall mean LaSalle National Bank, as custodian with respect to a Global Security, or any successor entity thereto. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" means, with respect to any Securities issued in whole or in part in the form of one or more Global Securities, the clearing agency that is registered under the Exchange Act and designated to act as Depositary for such Securities, as contemplated by Section 3.4, or any successor clearing agency registered under the Exchange Act as contemplated by Section 3.4. "Designated Senior Indebtedness" means the Company's obligations under any particular Senior Indebtedness of the Company in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of the Designated Senior Indebtedness). "Dollar" or "U.S.$" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts. "DTC" means The Depository Trust Company, a New York corporation. "Euroclear" means Euroclear System. "Event of Default" has the meaning specified in Section 5.1. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended from time to time. "Fundamental Change" means the occurrence of any transaction or event in connection with which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive, consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which is not all or substantially all common stock or shares which -10- 11 are (or, upon consummation of or immediately following such transaction or event, will be) listed on a United States national securities exchange or approved for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices. "Global Security" means any Security issued in the form set forth in Section 2.2 and registered in the Note Register in the name of a Depositary or a nominee thereof. "Holder", when used with respect to any Security, means the Person in whose name the Security is registered in the Note Register. "Indebtedness" means, with respect to any Person, and without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of the Person for borrowed money (including obligations of the Person in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of the Person or to only a portion thereof) (other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services), (b) all reimbursement obligations and other liabilities (contingent or otherwise) of the Person with respect to letters of credit, bank guarantees or bankers' acceptances, (c) all obligations and liabilities (contingent or otherwise) in respect of leases of the Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of the Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that the Person is contractually obligated to purchase or cause a third party to purchase the leased property or pay an agreed upon residual value of the leased property to the lessor and the obligations of the Person under such lease or related document to purchase or to cause a third party to purchase such leased property, (d) all obligations of the Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement, (e) all direct or indirect guaranties or similar agreements by the Person in respect of, and obligations or liabilities (contingent or otherwise) of the Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d), (f) any indebtedness or other obligations described in clauses (a) through (d) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by the Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by the Person and (g) any and all deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). -11- 12 "Indenture" means this Indenture as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this Indenture and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Indenture and any such supplemental indenture, respectively. "Initial Purchasers" means Deutsche Morgan Grenfell Inc., ABN AMRO Rothschild and Lombard Odier International Underwriters Limited. "Institutional Accredited Investor" means an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Liquidated Damages" has the meaning specified in the Registration Rights Agreement. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of the repurchase right set forth in Article Fourteen or otherwise. "Non-electing Share" has the meaning specified in Section 12.11. "Non-U.S. Holder" means any Holder other than a U.S. Holder. "Note Register" shall have the meaning specified in Section 3.4. "Note Registrar" has the meaning specified in Section 2.2. The Company has initially appointed (i) the Trustee as its Note Registrar in New York and (ii) after and so long as the Securities are listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange shall require, Banque de Luxembourg, as its Note Registrar in Luxembourg for the purpose of registering Securities and transfers and exchange of Securities as provided for herein. "Officer" means the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President or a Senior Vice President or a Vice President, the principal financial officer, the Treasurer, or Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the principal financial officer, Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company and delivered to the Trustee. -12- 13 "Opinion of Counsel" means a written opinion of independent counsel of recognized standing who may be counsel for the Company and who shall be reasonably acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for the payment or redemption of which money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided that if such Securities 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; (iii) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities converted into Common Stock pursuant to Article Twelve; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders of Securities for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities 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 making such calculation or in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company and, except as otherwise specifically set forth herein, such term shall include the Company if it shall act as its own Paying Agent. The Company has initially appointed (i) the Trustee as its Paying Agent, which shall maintain an -13- 14 office or agency in The City of New York, New York, and (ii) Banque de Luxembourg, as its Paying Agent in Luxembourg. "Payment Blockage Notice" has the meaning specified in Section 13.2. "Person" means any individual, corporation, partnership, joint venture, association, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Place of Conversion" has the meaning specified in Section 3.1. "Place of Payment" has the meaning specified in Section 3.1. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Purchase Agreement" means the Purchase Agreement, dated August 19, 1997, between the Company and the Initial Purchasers, as such agreement may be amended from time to time. "Purchased Shares" has the meaning specified in Section 12.4(6). "QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A. "Record Date" means any Regular Record Date or Special Record Date. "Redemption Date", when used with respect to any Security to be redeemed in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Reference Market Price" means $37.75 and in the event of any adjustment to the Conversion Price pursuant to Section 12.4, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of $37.75 to the initial Conversion Price specified in Section 12.1 (without regard to any adjustment thereto). "Registration Rights Agreement" means the Registration Rights Agreement, dated as of August 15, 1997, between the Company and the Initial Purchasers, as such agreement may be amended from time to time. -14- 15 "Regular Record Date" for interest payable in respect of any Security on any Interest Payment Date means the February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act (or any successor provision), as it may be amended from time to time. "Regulation S Global Security" has the meaning specified in Section 3.4. "Representative" means the (a) indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. "Repurchase Date" has the meaning specified in Section 14.1. "Repurchase Price" has the meaning specified in Section 14.1. "Responsible Officer", when used with respect to the Trustee, means any officer of the Trustee including without limitation any vice president, assistant vice president, assistant treasurer, assistant secretary, corporate trust officer, assistant corporate trust officer or other employee of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge and familiarity with the particular subject. "Rule 144A" means Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "Rule 144A Global Security" has the meaning specified in Section 3.4. "Rule 144A Information" has the meaning specified in Section 10.7. "Securities" has the meaning ascribed to it in the first paragraph under the caption "Recitals". "Securities Act" means the United States Securities Act of 1933, as amended from time to time. -15- 16 "Senior Indebtedness" means the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness of the Company, whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Securities or expressly provides that such Indebtedness is "pari passu" or "junior" to the Securities. Notwithstanding the foregoing, 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. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means, with respect to any Person, a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries, or by such Person and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock or other similar interests in the corporation which ordinarily has or have voting power for the election of directors, or persons performing similar functions, whether at all times or only so long as no senior class of stock or other interests has or have such voting power by reason of any contingency. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Tax Affected Security" means any Security that, if as a result of any Tax Law Change, the Company has or will become obligated to pay Additional Amounts in respect of such Security. "Taxing Jurisdiction" has the meaning specified in Section 2.2. "Tax Law Change" means any change in, or amendment to, the laws, regulations, treaties or rulings prevailing in the United States or any political subdivision or taxing authority thereof -16- 17 or therein, which change or amendment becomes effective on or after the date hereof or any application or judicial, legislative or administrative interpretation of such laws, regulations, treaties or rulings. "Trading Day" has the meaning specified in Section 12.4(8)(e). "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "United States" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands). "U.S. Holder" means the beneficial holder of a Security or Common Stock that for United States federal income tax purposes is (i) a citizen or resident (as defined in Section 7701(b) of the Code) of the United States, (ii) a corporation, partnership or other entity formed under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, (iv) in general, a trust subject to the primary supervision of a court within the United States and the control of a United States fiduciary as described in Section 7701(a)(30) of the Code or (v) any other person whose income or gain with respect to a Security or Common Stock is effectively connected with the conduct of a United States trade or business. "Western Europe" means Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The definitions of certain other terms are specified in Article Twelve and elsewhere in this Indenture. SECTION 1.2. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee or any Paying Agent to take any action under any provision of this Indenture, the Company shall furnish to the Trustee or the Paying Agent, as the case may be, an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been -17- 18 complied with and if required hereunder, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (excluding certificates provided for in Section 10.6) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he or she has made such examination or investigation as is necessary to enable him or her, as the case may be, to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3. Form of Documents Delivered to the Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers stating that the information with respect to such factual matters is in the possession of the Company unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. -18- 19 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4. Acts of Holders of Securities. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Securities may be embodied in and evidenced by (1) one or more instruments of substantially similar tenor signed by such Holders in person or by agents or proxies duly appointed in writing by such Holders, (2) the record of Holders of Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities duly called and held in accordance with the provisions of Article Nine or (3) a combination of such instruments and any such record. Such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. The Trustee shall promptly deliver to the Company copies of all such instruments and records delivered to the Trustee with a courtesy copy to Company's counsel at the address listed in Section 1.5 and if pertaining to any conversion notice, with a courtesy copy to Company's common stock transfer agent at the address listed in Section 1.5. Such instrument or instruments and record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 9.6. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (c) The principal amount and serial number of any Security held by any Person, and the date of his holding the same, shall be proved by the Note Register. (d) The fact and date of execution of any such instrument or writing and the authority of the Person executing the same may also be proved in any other manner which the Trustee or the Paying Agent deems sufficient; and the Trustee or any Paying Agent may in any instance require further proof with respect to any of the matters referred to in this Section 1.4. -19- 20 (e) The Company may set any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted by this Indenture to be given or taken by Holders. Promptly and in any case not later than ten days after setting a record date, the Company shall notify the Trustee, each Paying Agent and the Holders of such record date. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 15.1) prior to such first solicitation or vote, as the case may be. With regard to any record date, the Holders on such date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to give or take, or vote on, the relevant action, whether or not such Holders remain Holders after such record date. Notwithstanding the foregoing, the Company shall not set a record date for, and the provisions of this paragraph shall not apply with respect to, any notice, declaration or direction referred to in the next paragraph. Upon receipt by the Trustee from any Holder of (i) any notice of default or breach referred to in Section 5.1(3), if such default or breach has occurred and is continuing and the Trustee shall not have given such a notice to the Company, (ii) any declaration of acceleration referred to in Section 5.2, if an Event of Default has occurred and is continuing and the Trustee shall not have given such a declaration to the Company, or (iii) any direction referred to in Section 5.12, if the Trustee shall not have taken the action specified in such direction, then a record date shall automatically and without any action by the Company or the Trustee be set for determining the Holders entitled to join in such notice, declaration or direction, which record date shall be the close of business on the tenth day (or, if such day is not a Business Day, the first Business Day thereafter) following the day on which the Trustee receives such notice, declaration or direction. Promptly after such receipt by the Trustee, and as soon as practicable thereafter, the Trustee shall notify the Company and the Holders of any such record date so fixed. The Holders on such record date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to join in such notice, declaration or direction, whether or not such Holders remain Holders after such record date; provided that, unless such notice, declaration or direction shall have become effective by virtue of Holders of the requisite principal amount of Securities on such record date (or their duly appointed agents or proxies) having joined therein on or prior to the 90th day after such record date, such notice, declaration or direction shall automatically and without any action by any Person be canceled and of no further effect. Nothing in this paragraph shall be construed to prevent a Holder (or a duly appointed agent or proxy thereof) from giving, before or after the expiration of such 90-day period, a notice, declaration or direction contrary to or different from, or, after the expiration of such period, identical to, the notice, declaration or direction to which such record date relates, in which event a new record date in respect thereof shall be set pursuant to this paragraph. In addition, nothing in this paragraph shall be construed to render ineffective any notice, declaration or direction of the type referred to in this paragraph given at any time to the Trustee and the Company by -20- 21 Holders (or their duly appointed agents or proxies) of the requisite principal amount of Securities on the date such notice, declaration or direction is so given. (f) Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Successor Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (g) The provisions of this Section 1.4 are subject to the provisions of Section 9.5. SECTION 1.5. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, election, waiver or Act of Holders of Securities or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee in Chicago, Illinois or the agency of the Trustee in New York, New York or the Paying Agent in Luxembourg by any Holder of Securities or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee and received at its Corporate Trust Office, 135 South LaSalle Street, Chicago, Illinois 60603, Attention: Corporate Trust Department - Lam Research Corporation (facsimile number (312) 904-2236), or to or with the agency of the Trustee in New York, New York at IBJ Schroder Bank & Trust Company, One State Street, New York, New York 10004, Attention: Reorganization Department (facsimile number: (212) 858-2611). In addition, a courtesy copy shall be sent to Trustee's counsel (which shall not constitute notice to the Trustee): Chapman & Cutler, 111 West Monroe Street, Chicago, Illinois, Attention: James E. Spiotto, Esq. (facsimile number (312) 516-1900), or (2) the Company by the Trustee or any Paying Agent or by any Holder of Securities shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing, mailed, first-class postage prepaid, or telecopied and confirmed by mail, first-class postage prepaid, or delivered by hand or overnight courier, addressed to the Company at Lam Research Corporation, 4650 Cushing Parkway, Fremont, California (facsimile number: (510) 572-2876), Attention: Treasurer, with a copy to General Counsel, or at any other address previously furnished in writing to the Trustee by the Company. In addition, a courtesy copy shall be sent to Company's counsel (which shall not constitute notice to the Company): Jackson Tufts Cole & Black, LLP, 60 South Market Street, 10th Floor, San Jose, California 95113 (facsimile number (408) 998-4889), Attention: Richard Scudellari, Esq. and if relating to a conversion notice as described in Section 2.2, with a copy to Company's common stock transfer agent, -21- 22 ChaseMellon Shareholder Services L.L.C. (facsimile number (415) 989-5241), Attention: Paul Collins - Lam Research Corporation. Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION 1.6. Notice to Holders of Securities; Waiver. Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of Securities of any event, such notice shall be sufficiently given to Holders of Securities if in writing and mailed, first-class postage prepaid, to each Holder of a Security affected by such event, at the address of such Holder as it appears in the Note Register, not earlier than the earliest date and not later than the latest date prescribed for the giving of such notice. Such notice shall be conclusively deemed to have been given and received by Holders when such notice is mailed, whether or not such Holder receives such notice. In any case where notice to Holders of Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Security shall affect the sufficiency of such notice with respect to other Holders of Securities given as provided above. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Securities as shall be made with the approval of the Trustee, which approval shall not be unreasonably withheld, shall constitute a sufficient notification to such Holders for every purpose hereunder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.7. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8. Successors and Assigns. All covenants, stipulations, promises and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.9. Separability Clause. -22- 23 In case any provision in this Indenture or the Securities 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 1.10. Benefits of Indenture. Except as provided in the next sentence, nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns hereunder and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture. The provisions of Article Thirteen are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness of the Company. SECTION 1.11. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. SECTION 1.12. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity of any Security or the last day on which a Holder of a Security has a right to convert his Security shall not be a Business Day at any Place of Payment or Place of Conversion, as the case may be, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal and premium, if any, or delivery for conversion of such Security need not be made at such Place of Payment or Place of Conversion, as the case may be, on or by such day, but may be made on or by the next succeeding Business Day at such Place of Payment or Place of Conversion, as the case may be, with the same force and effect as if made on the Interest Payment Date, Redemption Date or Repurchase Date, or at the Stated Maturity or by such last day for conversion; provided, however, that in the case that payment is made on such succeeding Business Day, no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or last day for conversion, as the case may be. SECTION 1.13. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under the Trust Indenture Act to be a part of and to govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this -23- 24 Indenture, the Company and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. SECTION 1.14. Jurisdiction. (a) The Company hereby irrevocably and unconditionally submits to the non-exclusive jurisdiction of any New York State or United States Federal court sitting in New York City over any suit, action or proceeding arising out of or relating to this Indenture or any Security. The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process with respect to itself or its property, the Company irrevocably waives such immunity in respect of its obligations under the Indenture or any Security. The Company agrees that final judgment in any such suit, action or proceeding brought in such a court shall be conclusive and binding upon the Company, and, to the extent permitted by applicable law, may be enforced in any court to the jurisdiction of which the Company is subject by a suit upon such judgment or in any manner provided by law; provided that service of process is effected upon the Company in the manner specified in the following subsection or as otherwise permitted by law. (b) As long as any of the Securities remain outstanding, the Company will at all times have an authorized agent in New York City, upon whom process may be served in any legal action or proceeding arising out of or relating to this Indenture or any Security. Service of process upon such agent and written notice of such service mailed or delivered to the Company shall to the fullest extent permitted by law be deemed in every respect effective service of process upon the Company in any such legal action or proceeding. The Company hereby irrevocably appoints the CT Corporation System, 1633 Broadway, New York, New York 10019 as its agent for such purpose, and covenants and agrees that service of process in any suit, action or proceeding may be made upon it at such office of such agent. Notwithstanding the foregoing, the Company may, with prior written notice to the Trustee, terminate the appointment of such agent and appoint another agent for the above purposes so that the Company shall at all times have an agent for the above purposes in New York City. SECTION 1.15. Indenture and Securities Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Security 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 Security, 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, whether by virtue of any constitution, statute or rule -24- 25 of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. SECTION 1.16. Luxembourg Obligations. The obligations of the Company under this Indenture (i) to maintain a Conversion Agent, Paying Agent or Note Registrar in Luxembourg, (ii) to maintain an office for payment and conversion of the Securities in Luxembourg pursuant to Section 10.2, (iii) to publish notice of the occurrence of certain events under this Indenture in Luxembourg and (iv) to take any other action under this Indenture that is specifically required to be taken in Luxembourg (the "Luxembourg Obligations") shall cease to exist, and the provisions in this Indenture regarding such Luxembourg Obligations shall no longer have any force or effect, if at any time Securities are either no longer listed on the Luxembourg Stock Exchange or such obligation is no longer required by the Luxembourg Stock Exchange, provided that such obligations shall be reinstated and again be in full force and effect if Securities subsequently become listed on the Luxembourg Stock Exchange. ARTICLE TWO SECURITY FORMS SECTION 2.1. Forms Generally. The Securities shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the Securities Act and the Exchange Act, applicable state securities law or the rules of any securities exchange, the Code, and the treasury regulations under the Code, or as may, consistently herewith, be determined by the Officers executing such Securities, as evidenced by their execution thereof. The Assignment Form and Certificate of Transfer shall be in substantially the form set forth in Section 2.3. The Election of Holder to Require Repurchase Form shall be substantially in the form set forth in Section 2.4. The Conversion Notice shall be in substantially the form set forth in Section 2.5. The Trustee's certificate of authentication shall be in substantially the form set forth in Section 2.6. The Securities may be printed, lithographed, typewritten, mimeographed or otherwise produced, as determined by the Officers executing such Security, as evidenced by their execution thereof. -25- 26 SECTION 2.2. Form of Security. [For Global Security only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO LAM RESEARCH CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE -26- 27 FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR UPON ANY TRANSFER OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. -27- 28 LAM RESEARCH CORPORATION 5% CONVERTIBLE SUBORDINATED NOTE DUE 2002 No. ________________ U.S.$_____ CUSIP NO. __________ Lam Research Corporation, a Delaware corporation (herein called the "Company", which term includes any successor Person under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to _______________, or registered assigns (the "Holder"), the principal sum of _____________ United States Dollars (U.S.$_____) [(which amount may from time to time be increased or decreased to such other principal amounts (which, taken together with the principal amounts of all other Outstanding Securities, shall not exceed $355,000,000 in the aggregate at any time) by adjustments made on the records of the Trustee, as Custodian of the Depositary, in accordance with the rules and procedures of the Depositary (1) on September 1, 2002 and to pay interest thereon, from August 26, 1997, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually in arrears on March 1 and September 1 in each year (each, an "Interest Payment Date"), commencing March 1, 1998, at the rate of 5% per annum (together with any Additional Amounts and Liquidated Damages that the Company may be required to pay) until the principal hereof is due, and at a rate of 5% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for ("Defaulted Interest") will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payments of principal shall be made upon the surrender of this Security, at the Corporate Trust Office of the Trustee in Chicago, - ------------ (1) This language shall appear on each Global Security. -28- 29 Illinois or the office of the agency of the Trustee in the Borough of Manhattan, The City of New York or, subject to the right of the Company to terminate such appointment, the Paying Agent in Luxembourg, or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York or Luxembourg 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, or at such other offices or agencies as the Company may designate, by United States Dollar check drawn on a bank in the United States, or transfer to a United States Dollar account (such a transfer to be made only to a Holder of an aggregate principal amount of Securities in excess of U.S. $2,000,000, and only if such Holder shall have furnished wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date) maintained by the Holder with a bank in the United States. Payment of interest on this Security may be made by United States Dollar check mailed to the address of the Person entitled thereto as such address shall appear in the Note Register, or, upon written application by the Holder to the Security Registrar setting forth wire instructions not later than the relevant Record Date, by transfer to a United States Dollar account (such a transfer to be made only to a Holder of an aggregate principal amount of Securities in excess of U.S.$2,000,000 and only if such Holder shall have furnished wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date) maintained by the Holder with a bank in the United States. The Company will pay to the Holder of this Security who is a Non-U.S. Holder such additional amounts ("Additional Amounts") as may be necessary in order that every net payment of the principal of, premium, if any, and interest on this Security (including payment on redemption or repurchase), after deduction or withholding for or on account of any present or future tax, assessment or governmental charge imposed upon or as a result of such payment by the United States of America or any political subdivision or taxing authority thereof or therein (each, a "Taxing Jurisdiction"), will not be less than the amount provided for in this Security to be then due and payable; provided, however, that the Company shall not be obligated to pay any Additional Amounts in respect of payments becoming due on the Securities more than 15 days after the Redemption Date with respect to any redemption of the Tax Affected Securities pursuant to the fourth paragraph of the reverse of this Security to the extent that the Company$s obligation to pay such Additional Amounts arises from the Tax Law Change that resulted in such redemption; and provided, further, that the foregoing obligation to pay Additional Amounts will not apply to: (a) any tax, assessment or other governmental charge which would not have been so imposed but for (i) the existence of any present or former connection between such Non-U.S. Holder (or between a fiduciary, settlor, beneficiary, member, shareholder of or possessor of a power over such Non-U.S. Holder, if such Non-U.S. Holder is an estate, a trust, a partnership or a corporation) and the Taxing Jurisdiction, including, without limitation, such Non-U.S. Holder (or such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or having been a citizen, domiciliary or resident of the United States of America or treated as a resident thereof, or being or having been engaged in trade or business or present -29- 30 therein, or having or having had a permanent establishment therein or (ii) such Non-U.S. Holder's present or former status as a personal holding company, a foreign personal holding company with respect to the United States, a controlled foreign corporation, a passive foreign investment company, or a foreign private foundation or foreign tax exempt entity for United States federal tax purposes, or a corporation which accumulates earnings to avoid United States federal income tax; (b) any tax, assessment or other governmental charge which would not have been so imposed but for the presentation by the Non-U.S. Holder of this Security for payment on a date more than 15 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; (c) any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or governmental charge; (d) any tax, assessment or other governmental charge which would not have been imposed but for the failure to comply with any certification, identification or other reporting requirement concerning the nationality, residence, identity or connection with the United States of such Non-U.S. Holder (or beneficial owner of such Security), if compliance is required or imposed by a statute, treaty, regulation or administrative practice of the United States as a precondition to exemption from all or part of such tax, assessment or other governmental charge; (e) any tax, assessment or other governmental charge which is payable otherwise than by deduction or withholding from payments of principal of, premium, if any, or interest on such Security; (f) any tax, assessment or other governmental charge imposed on interest received by a Non-U.S. Holder actually or constructively holding 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote; (g) any tax, assessment or other governmental charge imposed on a Non-U.S. Holder that is a partnership or a fiduciary or other than the sole beneficial owner of such payment, but only to the extent that any beneficial owner or member of the partnership or beneficiary or settlor with respect to the fiduciary would not have been entitled to the payment of Additional Amounts had the beneficial owner, member, beneficiary or settlor directly been the Holder of this Security; or (h) any combination of items (a), (b), (c), (d), (e), (f) and (g). Except as specifically provided herein and in the Indenture, the Company shall not be required to make any payment with respect to any tax, assessment or other governmental charge -30- 31 imposed by any government or any political subdivision or taxing authority thereof or therein. Whenever in this Security there is a reference, in any context, to the payment of the principal of, premium, if any, or interest on, or in respect of, any Security such mention shall be deemed to include mention of the payment of Additional Amounts payable as described in the preceding paragraph to the extent that, in such context, Additional Amounts are, were or would be payable in respect of such Security and express mention of the payment of Additional Amounts (if applicable) in any provisions of this Security shall not be construed as excluding Additional Amounts in those provisions of this Security where such express mention is not made. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Capitalized terms used herein, including on the reverse hereof, and not defined herein or on the reverse hereof shall have the respective meanings given to such terms in the Indenture. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof or an Authenticating Agent by the manual signature of one of their respective authorized signatories, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers under its corporate seal. Dated: -------------------------- Lam Research Corporation [seal] By: --------------------------------- Name: ----------------------- Title: ----------------------- - --------------------------------- Attest By: --------------------------- -31- 32 [FORM OF REVERSE] This Security is one of a duly authorized issue of securities of the Company designated as its "5% Convertible Subordinated Notes due 2002" (herein called the "Securities"), limited in aggregate principal amount to U.S. $355,000,000, issued and to be issued under and pursuant to an Indenture, dated as of August 15, 1997 (herein called the "Indenture"), between the Company and LaSalle National Bank, Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness of the Company and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are issuable in the denomination of U.S.$1,000 and integral multiples thereof. As provided in the Indenture and subject to the limitations therein set forth, the Securities are exchangeable (a) at the Corporate Trust Office of the Trustee or the office of the agency of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in The City of New York or (b) after and so long as the Securities are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall so require (and to the right of the Company to terminate the appointment of any Note Registrar (as defined below)), the office of Banque de Luxembourg, International Department, 14 Boulevard Royal, L-2449 Luxembourg, or at such other offices or agencies outside the United States as the Company may designate (each a "Note Registrar"). No sinking fund is provided for the Securities. The Securities will not be redeemable at the option of the Company prior to September 6, 2000. At any time on or after September 6, 2000, and prior to maturity, the Securities are subject to redemption at the option of the Company at any time, in whole or in part, at the following Redemption Prices (expressed as percentages of the principal amount) upon not less than 20 nor more than 60 days' notice to the Holders prior to the Redemption Date, if the Closing Price of the Common Stock shall have exceeded 130% of the Conversion Price then in effect for 20 Trading Days within a period of 30 consecutive Trading Days ending within five Trading Days prior to the date notice of redemption is given. If redeemed during the 12-month period beginning September 1 (beginning September 6, 2000 and ending August 31, 2001, in the case of the first such period);
Year Redemption Price ---- ---------------- 2000 102% 2001 101
and 100% at September 1, 2002, together, in each case, with accrued interest to, but excluding, the Redemption Date; provided that Securities that are Tax Affected Securities are also -32- 33 redeemable, in whole but not in part, under the circumstances described in the next succeeding paragraph, at a Redemption Price equal to 100% of the principal amount thereof plus interest accrued to, but excluding, the Redemption Date; provided, however, that interest installments on Securities whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. If the Company determines that, principally as a result of a Tax Law Change, the Company is or would become obligated to pay Additional Amounts to the Holder of any Security, as described in the third paragraph of the face of this Security, and such obligation cannot be avoided by the Company taking reasonable measures available to it, then the Company may, at its option, redeem the Tax Affected Securities in whole, but not in part, at any time, on giving not less than 20 days' notice to the Holders prior to the Redemption Date, at a Redemption Price equal to 100% of the principal amount plus interest accrued to, but excluding, the Redemption Date, and any Additional Amounts then payable; provided, that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obligated to pay any such Additional Amounts were a payment in respect of the Tax Affected Securities then made. Prior to the giving of any notice of redemption pursuant to this paragraph, the Company shall deliver to the Trustee (a) an Officers' Certificate stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Company so to redeem have occurred and (b) an Opinion of Counsel of recognized standing selected by the Company to the effect that the circumstances referred to above in this paragraph exist. The Trustee shall accept such opinion as sufficient evidence of the satisfaction of the conditions precedent described above, in which event it shall be conclusive and binding on the Holders. The Company's right to redeem the Tax Affected Securities shall continue as long as the Company is obligated to pay such Additional Amounts, notwithstanding that the Company shall have made payments of Additional Amounts specified in such third paragraph. In the event of a redemption of less than all of the Securities, the Company will not be required (a) to register the transfer or exchange of Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption or (b) to register the transfer or exchange of any Security, or portion thereof, called for redemption. In any case where the due date for the payment of the principal or premium, if any, or interest, including Additional Amounts and Liquidated Damages on, any Security or the last day on which a Holder of a Security has a right to convert his Security shall be, at any Place of Payment or Place of Conversion, as the case may be, a day on which banking institutions at such Place of Payment or Place of Conversion are authorized or obligated by law or executive order to close, then payment of principal, premium, if any, or interest, including Additional Amounts and Liquidated Damages, or delivery for conversion of such Security need not be made on or by such -33- 34 date at such place but may be made on or by the next succeeding day at such place which is not a day on which banking institutions are authorized or obligated by law or executive order to close, with the same force and effect as if made on the date for such payment or the date fixed for redemption or repurchase, or by such last day for conversion, and no interest shall accrue on the amount so payable for the period after such date. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at his option, at any time prior to the close of business on September 1, 2002, or in case this Security or a portion hereof is called for redemption or the Holder hereof has exercised his right to require the Company to repurchase this Security, or such portion hereof, then in respect of this Security until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the Business Day next preceding the Redemption Date or the Repurchase Date, as the case may be, to convert this Security (or any portion of the principal amount hereof that is an integral multiple of U.S.$1,000, provided that the unconverted portion of such principal amount is U.S.$1,000 or any integral multiple thereof) into fully paid and nonassessable Common Stock of the Company at an initial Conversion Price of U.S. $87.77 for each share of Common Stock (or at the then current adjusted Conversion Price if an adjustment has been made as provided in the Indenture). In order to convert such Security, a Holder must surrender this Security, duly endorsed or assigned to the Company or in blank and, in case such surrender shall be made during the period from the close of business of any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date ("Interest Period") (except Securities called for redemption on a Redemption Date or to be repurchased on a Repurchase Date during, in each case, such Interest Period), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed, to the Company at the Corporate Trust Office of the Trustee in Chicago, Illinois or the office of the agency of the Trustee in the Borough of Manhattan, The City of New York or the Conversion Agent in Luxembourg, or at such other office or agency of the Company, subject to any laws or regulations applicable thereto and subject to the right of the Company to terminate the appointment of any Conversion Agent (as defined below) as may be designated by it for such purpose in the Borough of Manhattan, The City of New York or Luxembourg, or at such other offices or agencies as the Company may designate (each a "Conversion Agent"), provided further, that if this Security or portion hereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during the Interest Period and is surrendered for conversion during such Interest Period, then the Holder of this Security who converts this Security or a portion hereof during such Interest Period will be entitled to receive the interest accruing hereon from the Interest Payment Date next preceding the date of such conversion to such succeeding Interest Payment Date and shall not be required to pay such interest upon surrender of this Security for conversion. Subject to the aforesaid requirement for payment and, in the case of a conversion -34- 35 after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest, no cash payment or adjustment is to be made on conversion, if the date of conversion is not an Interest Payment Date, for interest accrued hereon from the Interest Payment Date next preceding the date of conversion, or for dividends on the Common Stock issued on conversion hereof. The Company shall thereafter deliver to the Holder the fixed number of shares of Common Stock (together with any cash adjustment, as provided in the Indenture) into which this Security is convertible and such delivery will be deemed to satisfy the Company's obligation to pay the principal amount of this Security. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of a share) the Company shall pay a cash adjustment as provided in the Indenture. The Conversion Price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party (other than a consolidation or merger which does not result in any reclassification, conversion, exchange or cancellation of the Common Stock) or the transfer of all or substantially all of the property and assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then Outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger or transfer by a holder of the number of shares of Common Stock of the Company into which this Security could have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock is not a Constituent Person and failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of Non-electing Shares). No adjustment in the Conversion Price will be made until such adjustment would require an increase or decrease of at least one percent of such price, provided that any adjustment that would otherwise be made will be carried forward and taken into account in the computation of any subsequent adjustment. Subject to certain limitations in the Indenture, at any time when the Company is not subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted Security or the holder of Common Stock issued upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information to such Holder of Restricted Securities or such holder of Common Stock issued upon conversion of Restricted Securities, or to a prospective purchaser of any such security designated by any such Holder or holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act in connection with the resale of any such security. The Holder of this Security and the Common Stock issuable upon conversion thereof is entitled to the benefits of a Registration Rights Agreement (subject to the provisions thereof), dated as of August 15, 1997, between the Company and the Initial Purchasers. -35- 36 If a Fundamental Change (as defined in the Indenture) occurs at any time on or prior to September 1, 2002, each Holder shall have the right, at such Holder's option, to require the Company to repurchase all of such Holder's Securities (or any portion of such Securities that is $1,000 or an integral multiple of $1,000 in excess thereof) on the 45th day after notice thereof. Such payment shall be made at the following Repurchase Prices (expressed as percentages of the principal amount thereof) in the event of a Fundamental Change occurring during the 12-month period beginning September 1:
Year Percentage ---- ---------- 1997 105% 1998 104 1999 103 2000 102 2001 101
and 100% at September 1, 2002; provided in each case that if the Applicable Price (as defined in the Indenture) is less than the Reference Market Price (as defined in the Indenture), the Company shall repurchase such Securities at a price equal to the foregoing Repurchase Price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay accrued interest, if any, on such Securities to, but excluding the Repurchase Date; provided that if such Repurchase Date is March 1 or September 1, then the interest payable on such date shall be paid to the Holder of record of the Securities on the Regular Record Date. Whenever in this Security there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security 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 Security shall not be construed as excluding the Repurchase Price in those provisions of this Security when such express mention is not made. [The following paragraph shall appear in each Security that is not a Global Security: In the event of redemption, repurchase or conversion of this Security in part only, a new Security or Securities for the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof.] [The following paragraph shall appear in the Global Security: In the event of a deposit or withdrawal of an interest in this Security, including an exchange, transfer, redemption, repurchase or conversion of this Security in part only, the Trustee, as Custodian of the Depositary, shall make an adjustment on its records to reflect such deposit or withdrawal in accordance with the rules and procedures of the Depositary.] The indebtedness evidenced by this Security and the obligations of the Company under the Indenture are to the extent and in the manner provided in the Indenture, subordinate -36- 37 and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default (as defined in the Indenture) shall occur and be continuing, the principal of all the Securities, together with accrued interest to the date of declaration, may be declared due and payable in the manner and with the effect provided in the Indenture. Upon payment (i) of the amount of principal so declared due and payable, together with accrued interest and premium, if any, Additional Amounts, if any, and Liquidated Damages, if any, to the date of declaration, and (ii) of interest on any overdue principal and overdue interest, to the extent permitted by law, all of the Company's obligations in respect of the payment of the principal of and interest on the Securities shall terminate. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with either (a) the written consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding (as defined in the Indenture), or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least the lesser of (i) a majority in aggregate principal amount of the Securities at the time Outstanding and (ii) 66-2/3% in aggregate principal amount of the Outstanding Securities represented and entitled to vote at such meeting. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Successor Security to this Security, whether or not notation of such consent or waiver is made upon this Security or such other Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default, (b) the Holders of not less than 25% in aggregate principal amount of the Securities Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Securities Outstanding a direction inconsistent with such request, and (c) shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The -37- 38 foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof, premium, if any, or interest hereon (including any Additional Amounts and Liquidated Damages) on or after the respective due dates expressed herein or for the enforcement of the right to convert this Security as provided in the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on (including Additional Amounts and Liquidated Damages, as described herein) this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of Securities is registrable on the Note Register (as defined in the Indenture) upon surrender of a Security for registration of transfer (a) at the Corporate Trust Office of the Trustee or at the office of the agency of the Trustee in the Borough of Manhattan or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, (b) after and so long as the Securities are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall so require, the office of Banque de Luxembourg in Luxembourg or (c) subject to any laws or regulations applicable thereto and to the right of the Company to terminate the appointment of any Note Registrar, at the offices of the Note Registrars described herein or at such other offices or agencies as the Company may designate, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees by the Note Registrar. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. No recourse for the payment of the principal (and premium, if any) or interest on this Security 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 Security, 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 consideration for the issue hereof, expressly waived and released. Prior to due presentation of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered, as the owner thereof for all purposes, whether or not such Security be -38- 39 overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -39- 40 SECTION 2.3. Assignment Form and Certificate of Transfer. ASSIGNMENT FORM AND CERTIFICATE OF TRANSFER To assign this Security fill in the form below: (I) or (we) assign and transfer this Security to - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ______________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. In connection with any transfer of any of the Securities within the period prior to the expiration of the holding period applicable to the sales thereof under Rule 144(k) (other than any transfer pursuant to a registration statement that has been declared effective under the Securities Act of 1933, as amended (the "Securities Act") (or any successor provision)), the undersigned confirms that such Securities are being transferred: CHECK ONE BOX BELOW - to the Company or a subsidiary thereof; or - pursuant to and in compliance with Rule 144A under the Securities Act; or - pursuant to and in compliance with Regulation S under the Securities Act; or - to an Institutional Accredited Investor pursuant to and in compliance with the Securities Act; or - pursuant to Rule 144 of the Securities Act; and unless the box below is checked, the undersigned confirms that such Securities are not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act (an "Affiliate"). - The transferee is an Affiliate of the Company. -40- 41 Dated: ------------------------------ -------------------------------------------- -------------------------------------------- Signature(s) Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a major stock exchange if shares of Common Stock are to be issued, or Securities to be delivered, other than to or in the name of the registered Holder. -------------------------------------------- Signature Guarantee -41- 42 SECTION 2.4. Form of Election of Holder to Require Repurchase. ELECTION OF HOLDER TO REQUIRE REPURCHASE 1. Pursuant to Section 14.1 of the Indenture, the undersigned hereby elects to have this Security repurchased by the Company. 2. The undersigned hereby directs the Company to pay it or _______________ the Repurchase Price plus interest accrued to, but excluding, the Repurchase Date, as provided in the Indenture. Dated: ------------------------------ -------------------------------------------- Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a major stock exchange if shares of Common Stock are to be issued, or Securities to be delivered, other than to or in the name of the registered Holder. -------------------------------------------- Signature Guaranteed Principal amount to be repurchased: ----------------- Remaining principal amount following such repurchase: ------------------------- NOTICE: The signature to the foregoing Election must correspond to the name as written upon the face of this Security in every particular, without alteration or any change whatsoever. -42- 43 SECTION 2.5. Form of Conversion Notice. CONVERSION NOTICE The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or any portion of the principal amount hereof (which is an integral multiple of U.S.$1,000) below designated, into shares of Common Stock of the Company in accordance with the terms of the Indenture referred to in this Security, and directs that such shares, together with a check in payment for any fractional shares and any Securities representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If shares of Common Stock or Securities are to be registered in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Dated: ------------------------------ -------------------------------------- Signatures If shares or Securities are to be Signature(s) must be guaranteed by a registered in the name of a Person commercial bank or trust company or a other than the Holder, please print member firm of a major stock exchange such Person's name and address: if shares of Common Stock are to be issued, or Securities to be delivered, other than to or in the name of the registered Holder. - ------------------------------------ -------------------------------------- Name -------------------------------------- Signature Guarenteed - ------------------------------------ Social Security of toher Taxpayer Principal amount to be converted. Identification Number, if any U.S.$ --------------------------------- -43- 44 SECTION 2.6. Form of Certificate of Authentication. The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities referred to in the within-mentioned Indenture. Dated: --------------- LASALLE NATIONAL BANK, as Trustee By: ------------------------------------ Authorized Signatory -44- 45 ARTICLE THREE THE SECURITIES SECTION 3.1. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to U.S. $355,000,000, except for Securities authenticated and delivered in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 8.5, 11.8, 12.2 or 14.2(e). The Securities shall be known and designated as the "5% Convertible Subordinated Notes due 2002" of the Company. Their Stated Maturity shall be September 1, 2002 and they shall bear interest on their principal amount from August 26, 1997, payable semi-annually in arrears on March 1 and September 1 in each year, commencing March 1, 1998, at the rate of 5% (together with any Additional Amounts and Liquidated Damages the Company may be required to pay) until the principal thereof is due, and at the rate of 5% per annum on any overdue principal and, to the extent permitted by law, on any overdue interest; provided, however, that payments shall only be made on Business Days as provided in Section 1.12. The Securities are entitled to the benefits of registration rights as provided by the Registration Rights Agreement. The principal of, premium, if any, and interest on the Securities shall be payable as provided in the form of Security set forth in Section 2.2 and the Repurchase Price shall be payable at such places as are identified in the Company Notice given pursuant to Section 14.2 (any city in which any Paying Agent is located being herein called a "Place of Payment"). The Securities shall be redeemable at the option of the Company, in whole or in part, and at the option of the Company or otherwise in the event of certain developments, including, developments with respect to U.S. withholding taxes or certification requirements, as provided in Article Eleven and in the form of Security set forth in Section 2.2. The Securities shall be convertible as provided in Article Twelve (any city in which any Conversion Agent is located being herein called a "Place of Conversion"). The Securities shall be subordinated in right of payment to Senior Indebtedness of the Company as provided in Article Thirteen. The Securities shall be subject to repurchase by the Company at the option of the Holders as provided in Article Fourteen. -45- 46 SECTION 3.2. Denominations. The Securities shall be issuable without coupons in denominations of U.S.$1,000 and integral multiples thereof. SECTION 3.3. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or one of its Senior Vice Presidents or one of its Vice Presidents, under an impression of its corporate seal or a facsimile of its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. Any such signature may be manual or facsimile. Securities bearing the manual or facsimile signature of an individual or individuals who were at any time the proper officer or 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 Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee or to its order for authentication (or to the Paying Agent), together with a Company Order for the authentication and delivery of such Securities, and the Trustee or an Authenticating Agent in accordance with such Company Order shall authenticate and make available for delivery such Securities as in this Indenture provided and not otherwise. In connection with any Company Order for authentication, an Officers' Certificate and Opinion of Counsel pursuant to Section 1.2 shall be required. Each Security shall be dated the date of its authentication. In authenticating the Securities and in accepting the additional responsibilities under the Indenture in relation to such Securities, the Trustee shall be entitled to receive and shall be fully protected in relying upon, an Opinion of Counsel stating that: (a) the form or forms of such Securities have been established in conformity with the provisions of this Indenture; (b) the terms of such Securities have been established in conformity with the provisions of this Indenture; (c) such Securities, when completed by appropriate insertions and executed and delivered by the Company to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and -46- 47 issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting the enforcement of creditors$ rights, to general equitable principles and to such other qualifications as such counsel shall conclude do not materially affect the rights of Holders of such Securities; (d) all laws and requirements in respect of the execution and delivery by the Company of such Securities and of the supplemental indenture, if any, have been complied with and that authentication and delivery of such Securities and the execution and delivery of the supplemental indenture, if any, by the Trustee will not violate the terms of the Indenture; (e) the Company has the corporate power to issue such Securities, and has duly taken all necessary corporate action with respect to such issuance; and (f) the issuance of such Securities will not contravene the articles of incorporation or by-laws of the Company or result in any violation of any of the terms or provisions of any law or regulation or of any indenture, mortgage or other agreement by which the Company is bound known to such Counsel, which violation would have a material adverse effect on the Company. The Trustee shall not be required to authenticate and deliver any such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee or an Authenticating Agent by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder is entitled to the benefits of this Indenture. Any Global Security shall represent such of the outstanding Securities as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be increased or reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the holder of such Securities in accordance with this Indenture. Payment of principal of and interest and premium, if any, on any Global Security shall be made to the Holder of such Global Security. -47- 48 SECTION 3.4. Registration, Registration of Transfer and Exchange; Restrictions on Transfer. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 10.2 (including the office of the agency of LaSalle National Bank, in the Borough of Manhattan, The City of New York and the office of Banque de Luxembourg, in Luxembourg) being herein sometimes collectively referred to as the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.2 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount and tenor and bearing such restrictive legends as may be required by this Indenture. At the option of the Holder, and subject to the further provisions of this Section 3.4, Securities may be exchanged for other Securities of any authorized denomination and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency maintained by the Company pursuant to Section 10.2. Whenever any Securities are so surrendered for exchange, and subject to the further provisions of this Section 3.4, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Note Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and, subject to the other provisions of this Section 3.4, entitled to the same benefits, under and subject to the same restrictions imposed by this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Except as provided in Section 3.6, no service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 8.5, 11.8, 12.2 or 14.2(e) (other than, in the case of Securities, where the Common Stock is to be issued or delivered in a name other than that of the Holder of the Security) not involving any transfer and other than any stamp and other duties, if any, which may be imposed in connection with any such transfer or exchange by the United States or any political subdivision thereof or therein, which shall be paid by the Company. -48- 49 In the event of a redemption of the Securities in part, neither the Company nor the Note Registrar will be required (a) to register the transfer of or exchange of Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption or (b) to register the transfer of or exchange any Security, or portion thereof, called for redemption. (b) So long as the Securities are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Securities that are so eligible may be represented by one or more Global Securities registered in the name of the Depositary or the nominee of the Depositary, except as otherwise specified below. The transfer and exchange of beneficial interests in any such Global Security shall be effected through the Depositary in accordance with this Indenture and the procedures of the Depositary therefor. Securities that upon initial issuance are beneficially owned by QIBs will be represented by a Global Security (the "Rule 144A Global Security"), and Securities that upon initial issuance are beneficially owned by Non-U.S. Persons will be represented by another Global Security (the "Regulation S Global Security"). Transfers of interests in the Securities between the Rule 144A Global Security and the Regulation S Global Security will be made in accordance with the standing instructions and procedures of the Depositary and its participants. The Trustee shall make appropriate endorsements to reflect increases or decreases in the principal amounts of such Global Securities as set forth on the face of the Security ("Principal Amount") to reflect any such transfers. Except as provided below, beneficial owners of a Global Security shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered Holders of such Global Securities. (c) So long as the Securities are eligible for book-entry settlement, or unless otherwise required by law, upon any transfer of a definitive Security to a QIB in accordance with Rule 144A or to a Non-U.S. Person in accordance with Regulation S, and upon receipt of the definitive Security or Securities being so transferred, together with a certification, substantially in the form on the reverse of the Security, from the transferor that the transfer is being made in compliance with Rule 144A or Regulation S, as the case may be (or other evidence satisfactory to the Trustee), the Trustee shall make an endorsement on the Rule 144A Global Security or the Regulation S Global Security, as the case may be, to reflect an increase in the aggregate Principal Amount of the Securities represented by such Global Security, the Trustee shall cancel such definitive Security or Securities in accordance with the standing instructions and procedures of the Depositary, the aggregate Principal Amount of Securities represented by such Global Security to be increased accordingly; provided that no definitive Security, or portion thereof, in respect of which the Company or an Affiliate of the Company held any beneficial interest shall be included in such Global Security until such definitive Security is freely tradable in accordance -49- 50 with Rule 144(k); provided further that the Trustee shall issue Securities in definitive form upon any transfer of a beneficial interest in the Global Security to the Company or any Affiliate of the Company. Upon any sale or transfer of a Security to an Institutional Accredited Investor (other than pursuant to a registration statement that has been declared effective under the Securities Act), such Institutional Accredited Investor shall, prior to such sale or transfer, furnish to the Company and/or the Trustee a signed letter containing representations and agreements relating to restrictions on transfer substantially in the form set forth in Exhibit A to this Indenture. Any Global Security may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Securities to be tradeable on The Portal Market or as may be required for the Securities to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or Regulation S or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of Euroclear, Cedel or any securities exchange or automated quotation system upon which the Securities may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Securities are subject. (d) Every Security that bears or is required under this Section 3.4(d) to bear the legend set forth in this Section 3.4(d) (together with any Common Stock issued upon conversion of the Securities and required to bear the legend set forth in Section 3.4(e), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 3.4 (d) (including those set forth in the legend set forth below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted Security by such Holder's acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Sections 3.4(d) and 3.4(e), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security. Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any certificate evidencing such Security (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 3.4(e), if applicable) shall bear a legend in substantially the following form, unless such Security has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), or unless otherwise agreed by the Company in writing, with written notice thereof to the Trustee: THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY -50- 51 NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO LAM RESEARCH CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED -51- 52 HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any Security (or Successor Security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of such Security for exchange to the Note Registrar in accordance with the provisions of this Section 3.4, be exchanged for a new Security or Securities of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 3.4(d). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in the second paragraph of Section 3.4(b) and in this Section 3.4(d)), a Global Security may not be transferred as a whole or in part except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints DTC to act as Depositary with respect to the Global Securities. Initially, the Rule 144A Global Security and the Regulation S Global Security shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Custodian for Cede & Co. -52- 53 If at any time the Depositary for a Global Security notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security, the Company may appoint a successor Depositary with respect to such Global Security. If a successor Depositary is not appointed by the Company within ninety (90) days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Securities, will authenticate and deliver, Securities in certificated form, in aggregate principal amount equal to the Principal Amount of such Global Security, in exchange for such Global Security. If a Security in certificated form is issued in exchange for any portion of a Global Security after the close of business at the office or agency where such exchange occurs on any Record Date and before the opening of business at such office or agency on the next succeeding Interest Payment Date, interest will not be payable on such Interest Payment Date in respect of such Security, but will be payable on such Interest Payment Date, subject to the provisions of Section 3.7, only to the Person to whom interest in respect of such portion of such Global Security is payable in accordance with the provisions of this Indenture. Securities in certificated form issued in exchange for all or a part of a Global Security pursuant to this Section 3.4 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Securities in certificated form to the Persons in whose names such Securities in certificated form are so registered. At such time as all interests in a Global Security have been redeemed, repurchased, converted, canceled, exchanged for Securities in certificated form, or transferred to a transferee who receives Securities in certificated form thereof, such Global Security shall, upon receipt thereof, be canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a Global Security is exchanged for Securities in certificated form, redeemed, converted, repurchased or canceled, exchanged for Securities in certificated form or transferred to a transferee who receives Securities in certificated form therefor or any Security in certificated form is exchanged or transferred for part of a Global Security, the principal amount of such Security shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced or increased, as the case may be, and an endorsement shall be made on such Global Security, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase. (e) Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of such Security shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a -53- 54 registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or such Common Stock has been issued upon conversion of Securities that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act, or unless otherwise agreed by the Company in writing with written notice thereof to the Common Stock transfer agent: THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO LAM RESEARCH CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER FURNISHES TO CHASE MELLON SHAREHOLDER SERVICES L.L.C., AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT WILL FURNISH TO CHASEMELLON SHAREHOLDER SERVICES L.L.C. AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES -54- 55 ACT AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 3.4(e). (f) Any Security or Common Stock issued upon the conversion or exchange of a Security that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Securities or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). SECTION 3.5. Temporary Securities Pending the preparation of Securities in certificated form, the Company may execute and the Trustee or an Authenticating Agent shall, upon the written request of the Company, authenticate and deliver temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the Securities in certificated form, but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every such temporary Security shall be executed by the Company and authenticated by the Trustee or such Authenticating Agent upon the same conditions and in substantially the same manner, and with the same effect, as the Securities in certificated form. Without unreasonable delay the Company will execute and deliver to the Trustee or such Authenticating Agent Securities in certificated form (other than in the case of Global Securities) and thereupon any or all -55- 56 temporary Securities (other than any such Global Security) may be surrendered in exchange therefor, at each office or agency maintained by the Company and the Trustee or such Authenticating Agent shall authenticate and make available for delivery in exchange for such temporary Securities an equal aggregate principal amount of Securities in certificated form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Securities in certificated form authenticated and delivered hereunder. SECTION 3.6. Mutilated, Destroyed, Lost or Stolen Securities If any mutilated Security is surrendered to the Trustee or to a Note Registrar outside the United States, the Company shall execute, the Trustee or an Authenticating Agent shall authenticate and the Trustee or Note Registrar shall deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there be delivered to the Company and either to the Trustee or to a Note Registrar outside the United States: (1) evidence to their satisfaction of the destruction, loss or theft of any Security, and (2) such security or indemnity as may be satisfactory to the Company and the Trustee and such Note Registrar to save each of them and any agent of either of them harmless, then, in the absence of actual notice to the Company, the Trustee or the Note Registrar that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon its request, the Trustee or an Authenticating Agent shall authenticate and the Trustee or Note Registrar shall deliver in lieu of any such destroyed, lost or stolen Security or in exchange for the Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section 3.6, 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 (other than any stamp and other duties, if any, which may be imposed in connection therewith by the United States of America or any political subdivision thereof or therein, which shall be paid by the Company) and any other expenses (including the fees and expenses of the Trustee, any Paying Agent and any Note Registrar) connected therewith. -56- 57 Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies of any Holder with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.7. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security, and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon, the Trustee shall fix the Special Record Date for the payment of such Defaulted Interest, which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities at such Holder's address as it appears in the Note Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having -57- 58 been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. In the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable. SECTION 3.8. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company or the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee, any Paying Agent or the Note Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. -58- 59 Notwithstanding the foregoing, with respect to any Global Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any Depositary, as a Holder, with respect to such Global Security or impair, as between such Depositary and owners of beneficial interests in such Global Security, the operation of customary practices governing the exercise of the rights of such Depositary (or its nominee) as Holder of such Global Security. SECTION 3.9. Cancellation. All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered to the Trustee shall be canceled promptly by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section 3.9. The Trustee shall destroy all canceled Securities in accordance with applicable law and its customary practices in effect from time to time. SECTION 3.10. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.11. CUSIP Numbers. The Company in issuing Securities may use "CUSIP" numbers (if then generally in use) in addition to serial numbers; if so, the Trustee shall use such "CUSIP" numbers in addition to serial numbers in notices of redemption and repurchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such CUSIP numbers either as printed on the Securities or as contained in any notice of a redemption or repurchase and that reliance may be placed only on the serial or other identification numbers printed on the Securities, and any such redemption or repurchase shall not be affected by any defect in or omission of such CUSIP numbers. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture. This Indenture shall, upon Company Request, cease to be of further effect (except as to any surviving rights of conversion, or registration of transfer or exchange, or replacement of Securities herein expressly provided for and any right to receive Additional Amounts and Liquidated Damages, if any, as provided in the form of Security set forth in Section 2.2 and the -59- 60 Company's obligations to the Trustee pursuant to Section 6.7), and the Trustee, at the expense of the Company, shall execute proper instruments in form and substance satisfactory to the Trustee acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee or the Paying Agent or its agent for cancellation (other than Securities referred to in clauses (i) and (ii) of clause (1)(A) above) (i) have become due and payable, or (ii) will have become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of clause (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds (immediately available to the Holders in the case of clause (i)) in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, premium, if any, and interest (including any applicable Additional Amounts and Liquidated Damages) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. -60- 61 Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Company to any Authenticating Agent under Section 6.12, the obligation of the Company to pay Additional Amounts and, if money shall have been deposited with the Trustee pursuant to clause (1)(B) of this Section 4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. Funds held in trust pursuant to this Section are not subject to the provisions of Article Thirteen. SECTION 4.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine to the Persons entitled thereto, of the principal, premium, if any, and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. All moneys deposited with the Trustee pursuant to Section 4.1 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon a Company Request. ARTICLE FIVE REMEDIES SECTION 5.1. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Thirteen or 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): (1) default in the payment of the principal of or premium, if any, on any Security at its Maturity, whether or not such payment is prohibited by the subordination provisions of Article Thirteen; or (2) default in the payment of any interest (including any Additional Amounts or Liquidated Damages, if any) upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days, whether or not such payment is prohibited by the subordination provisions of Article Thirteen; or -61- 62 (3) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance or breach of which is specifically dealt with elsewhere in this Section), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (4) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable bankruptcy, moratorium of payments, insolvency, reorganization or other similar law or, (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of substantially all of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (5) the commencement by the Company of a voluntary case or proceeding under any applicable bankruptcy, moratorium of payments, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent or to be granted moratorium of payment, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable bankruptcy, moratorium of payment, insolvency, reorganization or other similar law or to the commencement of any bankruptcy, moratorium of payment or insolvency proceedings against it, or the filing by it of a petition or consent seeking reorganization or similar relief under any applicable law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of substantially all of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(4) or (5)) occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities may declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the -62- 63 Trustee if given by the Holders), and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable. If an Event of Default specified in Section 5.1(4) or (5) occurs, the principal of, and accrued interest on, all the Securities shall ipso facto become immediately due and payable without any declaration or other Act of the Holders or any act on the part of the Trustee. At any time after such declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article Five provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) The Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest (including any Additional Amounts and Liquidated Damages) on all Securities, (B) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at a rate of 5% per annum, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the nonpayment of the principal of, and any interest on, Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No rescission or annulment referred to above shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest (including any Additional Amounts and Liquidated Damages) on any Security when it becomes due and payable and such default continues for a period of 30 days, or -63- 64 (2) default is made in the payment of the principal of or premium, if any, on any Security at the Maturity thereof, The Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest (including any Additional Amounts and Liquidated Damages) and interest on any overdue principal and premium, if any, and on any overdue interest (including any Additional Amounts and Liquidated Damages), to the extent permitted by law, at a rate of 5% per annum, and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, moratorium of payments, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or the creditors of either, the Trustee (irrespective of whether the principal of, and any interest on, the Securities 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 on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Securities and take such other actions, including participating as a member, voting or otherwise, of any official committee of creditors appointed in such matter, and to file such other papers or documents, in each of the foregoing cases, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, -64- 65 expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding, and (2) to collect and receive any moneys or other property payable or deliverable on any such claim and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding; provided, however, that the Trustee may, on behalf of such Holders, vote for the election of a trustee in bankruptcy or similar official. SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such 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 Securities in respect of which judgment has been recovered. SECTION 5.6. Application of Money Collected. Any money collected by the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon presentation of the Securities and the notation thereon of 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 6.7; SECOND: To the payment of the amounts then due and unpaid for principal, premium, if any, or interest (including any Additional Amounts and Liquidated Damages) on the Securities in respect of which or for the benefit of which such money has been -65- 66 collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest (including any Additional Amounts and Liquidated Damages), respectively; and THIRD: Any remaining amounts shall be repaid to the Company. SECTION 5.7. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or Repurchase Date, as the case may be), and to convert such Security in accordance with Article -66- 67 Twelve, and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9. Restoration of Rights and Remedies. If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and such Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or (subject to the limitations contained in this Indenture) by the Holders of Securities. SECTION 5.12. Control by Holders of Securities. Subject to Section 6.3(6), the Holders of a majority in aggregate principal amount of the Outstanding Securities 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 that (1) such direction shall not be in conflict with any rule of law or with this Indenture; -67- 68 (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; (3) the Trustee need not take any action which might result in personal liability or be unjustly prejudicial to the Holders of Securities not consenting; and (4) such direction shall be presented by such Holders to the Trustee in a timely manner. SECTION 5.13. Waiver of Past Defaults. The Holders, either (a) through the written consent of not less than a majority in aggregate principal amount of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of the lesser of (x) not less than a majority in aggregate principal amount of Outstanding Securities and (y) at least 66-2/3% in aggregate principal amount of the Outstanding Securities represented at such meeting, may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of, premium, if any, or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article Eight cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his or her 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, suffered 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. SECTION 5.15. Waiver of Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension law or usury law or other law that would prohibit or forgive the Company from paying all or any portion of its obligations on the Securities as provided herein, wherever -68- 69 enacted, now or at any time hereafter in force, 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 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 had been enacted. ARTICLE SIX THE TRUSTEE SECTION 6.1. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; 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; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture, but not to verify the contents thereof. (b) In case an Event of Default has occurred and is continuing of which a Responsible Officer of the Trustee has actual knowledge, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (1) this paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and -69- 70 (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in aggregate principal amount of the Outstanding Securities or such lesser percentage as provided in this Indenture relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability has not been provided to it. SECTION 6.2. Notice of Defaults. Within 90 days after the occurrence of any default hereunder as to which the Trustee has received written notice, the Trustee shall give to all Holders of Securities, in the manner provided in Section 1.6, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders; and provided, further, that in the case of any default of the character specified in Section 5.1(4), no such notice to Holders of Securities shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; -70- 71 (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of the Board shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) 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 of Securities pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) 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, coupon, other evidence of indebtedness or other paper or document, but the Trustee in its sole 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; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the permissive right of the Trustee to take or refrain from taking any actions enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable in such actions other than for its own negligence, bad faith or willful misconduct in exercising any such right; and (9) the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. SECTION 6.4. Not Responsible for Recitals or Issuance of Securities. -71- 72 The recitals contained herein and in the Securities (except the Trustee's certificates of authentication) shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, of the Securities or of the Common Stock issuable upon the conversion of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5. May Hold Securities, Act as Trustee Under Other Indentures. The Trustee, any Authenticating Agent, any Paying Agent, any Conversion Agent or any other agent of the Company or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not the Trustee, Authenticating Agent, Paying Agent, Conversion Agent or such other agent. The Trustee may become and act as trustee under other indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding in the same manner as if it were not Trustee hereunder. SECTION 6.6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.7. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except for any such expense, disbursement or advance as may be attributable to its negligence, bad faith or willful misconduct. The Trustee agrees to repay such expenses, disbursements and advances attributable to its negligence, bad faith or willful misconduct -72- 73 upon the entry of a final nonappealable determination that the Trustee engaged in negligence, bad faith or willful misconduct; and (3) to indemnify the Trustee (and its directors, officers, employees and agents) for, and to hold it harmless against, any loss, liability or expense incurred without negligence, bad faith or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs, expenses and reasonable attorneys' fees of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(4) or Section 5.1(5), the expenses (including the reasonable charges of its counsel) and the compensation for the services are intended to constitute expenses of the administration under any applicable Federal or state bankruptcy, insolvency or other similar law. Any Paying Agent or Authenticating Agent appointed hereunder shall be entitled to the benefits of Section 6.7(3) as if the indemnity set forth therefor were specifically afforded to such Paying Agent or Authenticating Agent. The provisions of this Section shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee, any Paying Agent or any Authenticating Agent, as the case may be. The obligations of the Company under this Section to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities. SECTION 6.8. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such, having (or if the Trustee is a member of a bank holding company, its bank holding company has) a combined capital and surplus of at least U.S.$50,000,000, subject to supervision or examination by Federal or state authority, in good standing. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall -73- 74 resign immediately in the manner and with the effect hereinafter specified in this Article and a successor shall be appointed pursuant to Section 6.9. SECTION 6.9. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the removed Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (d) If at any time: (1) the Trustee shall cease to be eligible under Section 6.8 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee and shall comply with the applicable requirements of this Section and Section 6.10. If, within one year after such resignation, removal or incapability, -74- 75 or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.10, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by this Section and Section 6.10, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders of Securities in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.10. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be eligible under this Article. SECTION 6.11. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such -75- 76 authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.12. Authenticating Agents. The Trustee may appoint an additional Authenticating Agent or Agents with respect to the Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon exchange or substitution pursuant to this Indenture. Securities authenticated by an Authenticating Agent shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder, and every reference in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof, the District of Columbia authorized under such laws to act as Authenticating Agent and subject to supervision or examination by government or other fiscal authority. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.12. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section 6.12, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof 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 such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, the Trustee may appoint a successor Authenticating Agent which shall be subject to acceptance by the Company. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 6.12. -76- 77 The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.12 and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7. If an Authenticating Agent is appointed with respect to the Securities pursuant to this Section 6.12, the Securities may have endorsed thereon, in addition to or in lieu of the Trustee's certification of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within-mentioned Indenture. Dated: LASALLE NATIONAL BANK, as Trustee By [Authenticating Agent], as Authenticating Agent By: ----------------------------------------- Authorized Signatory SECTION 6.13. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.14. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of Section 311 of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE SEVEN CONSOLIDATION, MERGER, TRANSFER OR LEASE SECTION 7.1. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, and shall not transfer -77- 78 and assign all its obligations of, and position as, the Company hereunder, except for a consolidation or merger in which the Company is the surviving party, unless: (a) the Person formed by such consolidation or into which the Company is merged or which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety, or to which obligations of, and position as, the Company hereunder are transferred and assigned (the "Successor") (i) shall be a corporation, limited liability company, partnership or trust organized and existing under the laws of, and resident for tax purposes in, the United States of America or any political subdivision thereof, and (ii) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, due and punctual payment of the principal of and interest (including Additional Amounts, if any, and Liquidated Damages, if any) on all of the Securities and the performance of every covenant of this Indenture and in the Securities on the part of the Company to be performed or observed; (b) immediately after giving effect to any such consolidation, merger, conveyance or transfer, or such transfer and assignment, no default and no Event of Default shall have occurred and be continuing; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance or transfer, or such transfer and assignment, and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been compiled with. SECTION 7.2. Successor Substituted. Upon any consolidation, merger or any conveyance or transfer of the properties and assets of the Company substantially as an entirety, or upon transfer and assignment of all obligations of, and position as, the Company hereunder, in accordance with Section 7.1, the Successor shall succeed to and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Successor had been named as the Company herein, and thereafter, the predecessor Person shall be relieved of all obligations and covenants under the Indenture and the Securities. ARTICLE EIGHT SUPPLEMENTAL INDENTURES SECTION 8.1. Supplemental Indentures Without Consent of Holders of Securities. -78- 79 Without the consent of any Holders of Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto in form satisfactory to the Trustee for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants and obligations of the Company herein and in the Securities as permitted by this Indenture; or (2) to add to the covenants of the Company for the benefit of the Holders of Securities, or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; (4) to secure the Securities; or (5) to make provision with respect to the conversion rights of Holders of Securities pursuant to Section 12.11 or the repurchase rights of Holders of Securities pursuant to Section 14.3; or (6) to comply with the requirements of the Trust Indenture Act or the rules and regulations of the Commission thereunder in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, as contemplated by this Indenture or otherwise; or (7) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture as the Company and the Trustee may deem necessary or desirable, provided, such action pursuant to this clause (7) shall not adversely affect the interests of the Holders of Securities in any material respect. Upon Company Request, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and subject to and upon receipt by the Trustee of the documents described in Section 8.3 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained. SECTION 8.2. Supplemental Indentures with Consent of Holders of Securities. With either (a) the written consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by the Act of said Holders delivered to the Company and the Trustee, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of the lesser of (x) not less -79- 80 than a majority in aggregate principal amount of the Outstanding Securities and (y) 66-2/3% in aggregate principal amount of the Outstanding Securities represented at such meeting, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent or affirmative vote of the Holder of each Outstanding Security, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount or the rate of interest payable thereon or any premium payable upon redemption or mandatory repurchase thereof, or change the obligation of the Company to pay Additional Amounts pursuant to Section 10.4 in a manner adverse to the Holders, or change the Place of Payment or coin or currency in which any Security or the interest or any premium thereon or any other amount in respect thereof is payable, or impair the right to institute suit for the enforcement of any payment in respect of any Security on or after the Stated Maturity thereof (or, in the case of redemption or any repurchase, on or after the Redemption Date or Repurchase Date, as the case may be) or, except as permitted by Section 12.11, adversely affect the right to convert any Security as provided in Article Twelve, or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders of Securities, or (2) reduce the requirements of Section 9.4 for quorum or voting, or reduce the percentage in aggregate principal amount of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section or Section 5.13, except to increase any percentage contained herein or therein or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or (4) modify the provisions of Article Fourteen in a manner adverse to the Holders; or (5) modify any of the provisions of Section 10.7 in a manner adverse to the Holders. -80- 81 It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 8.3. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Sections 6.1 and 6.3) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that such supplemental indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 8.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 8.5. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 8.6. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 8.2, the Company shall give notice to all Holders of Securities of such fact, setting forth in general terms the substance of such supplemental indenture, in the manner provided in Section 1.6. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. -81- 82 After and so long as the Securities are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall require, notice of any supplemental indenture pursuant to this Article Eight will be given by publication in a Authorized Newspaper in Luxembourg, or, if not practicable in Luxembourg, elsewhere in a Western European city. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. ARTICLE NINE MEETINGS OF HOLDERS OF SECURITIES SECTION 9.1. Purposes for Which Meetings May Be Called. A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities. SECTION 9.2. Call, Notice and Place of Meetings. (a) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 9.1, to be held at such time and at such place in Chicago, Illinois, in the Borough of Manhattan, The City of New York or, after and so long as the Securities are listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange shall require, in Luxembourg, as the Trustee shall determine. Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of Securities for any purpose specified in Section 9.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York or, after and so long as the Securities are listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange shall require, in Luxembourg, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section. SECTION 9.3. Persons Entitled to Vote at Meetings. -82- 83 To be entitled to vote at any meeting of Holders of Securities, a Person shall be (a) a Holder of one or more Outstanding Securities on the applicable record date, or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 9.4. Quorum; Action. The Persons entitled to vote a majority in aggregate principal amount of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such reconvened meeting, such reconvened meeting may be further adjourned for a period not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such reconvened meeting (subject to repeated applications of this sentence). Notice of the reconvening of any adjourned meeting shall be given as provided in Section 9.2(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the principal amount of the Outstanding Securities which shall constitute a quorum. Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum, the Persons entitled to vote 25% in aggregate principal amount of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by the proviso to Section 8.2) shall be effectively passed and decided if passed or decided by the lesser of (i) not less than a majority in aggregate principal amount of the Outstanding Securities and (ii) Persons entitled to vote not less than 66-2/3% in aggregate principal amount of Outstanding Securities represented and entitled to vote at such meeting. Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities, whether or not present or represented at the meeting. The Trustee shall, in the name and at the expense of the Company, notify all the Holders of Securities of any such resolutions or decisions pursuant to Section 1.6. -83- 84 SECTION 9.5. Determination of Voting Rights; Conduct and Adjournment of Meetings. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to proof of the holding of Securities 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 deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman (which may be the Trustee) of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 9.2(b), in which case the Company or the Holders of Securities 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 Persons entitled to vote a majority in aggregate principal amount of the Outstanding Securities represented at the meeting. (c) At any meeting, each Holder of a Security or proxy shall be entitled to one vote for each U.S.$1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security 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, except as a Holder of a Security or proxy. (d) Any meeting of Holders of Securities duly called pursuant to Section 9.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in aggregate principal amount of the Outstanding Securities represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 9.6. Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts at Stated Maturity and serial numbers of the Outstanding Securities 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, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of -84- 85 the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 9.2 and, if applicable, Section 9.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another 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. ARTICLE TEN COVENANTS SECTION 10.1. Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay the principal of and premium, if any, and interest (including Additional Amounts, if any, or Liquidated Damages, if any) on the Securities in accordance with the terms of the Securities and this Indenture. The Company will deposit or cause to be deposited with the Trustee on or prior to the due date for any installment of interest thereon or on the Stated Maturity of any Security all payments so due, which payments shall be in immediately available funds on the date of such due date or Stated Maturity, as the case may be. SECTION 10.2. Maintenance of Offices or Agencies. The Company hereby appoints (a) the Corporate Trust Office of the Trustee in Chicago, Illinois and an agency of the Trustee in the Borough of Manhattan, The City of New York, where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion, and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served, and (b) after and so long as the Securities are listed on Luxembourg Stock Exchange and the Luxembourg Stock Exchange shall require, the office of Banque de Luxembourg, 14 Boulevard Royal, L-2449 Luxembourg, as its agent outside of the United States where, subject to any applicable laws or regulations, Securities may be surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where Securities may be surrendered for conversion. The Company may at any time and from time to time vary or terminate the appointment of any such agent or appoint any additional agents for any or all of such purposes; provided, however, that until all of the Securities have been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of, premium, if any, and interest on the Securities have been made available for payment and either paid or returned to the Company pursuant to the provisions of Section 10.3, the Company will maintain (1) in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for -85- 86 payment and conversion, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served, and (2) after and so long as the Securities are listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange shall require, subject to any laws or regulations applicable thereto, in Luxembourg an office or agency where Securities may be presented and surrendered for payment, where Securities may be presented for registration of transfer or exchange or conversion. The Company will give prompt written notice to the Trustee, and notice to the Holders in accordance with Section 1.6, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency. 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, presentations and surrenders may be made and notices and demands may be served on the agency of the Trustee in the Borough of Manhattan, the City of New York, or other Paying Agent or Conversion Agent outside the United States, and the Company hereby appoints the Paying Agent in Luxembourg as its agent to receive such respective presentations, surrenders, notices and demands outside the United States. SECTION 10.3. Money for Security Payments To Be Held in Trust. If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and the Company will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, on or prior to each due date of the principal of, premium, if any, or interest on any Securities, deposit with such Paying Agent a sum sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held for the benefit of the Persons entitled to such principal, premium, if any, or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; -86- 87 (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for the earlier of ten days prior to the time such money would escheat to the state or two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. SECTION 10.4. Additional Amounts. The Company will pay to the Holder of any Security Additional Amounts as provided in the form of Security, as set forth in Section 2.2. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of, premium, if any, or interest on, or in respect of, any Security, such mention shall be deemed to include mention of the payment of Additional Amounts provided for in this Section to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to the provisions of this Section and express mention of the payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. At least 10 days prior to March 1, 1998, or an earlier Redemption Date or Repurchase Date (and at least 10 days prior to each date of payment of principal, premium, if any, or interest after March 1, 1998, or such earlier Redemption Date or Repurchase Date), the Company shall furnish the Trustee, the agency of the Trustee in the Borough of Manhattan, the Paying Agent in the Borough of Manhattan, The City of New York and the Paying Agent in Luxembourg, if other than the Trustee, with an Officers' Certificate instructing the Trustee and such Paying Agents -87- 88 whether or not such payment of principal of, premium, if any, or interest on the Securities shall be made to the Holders of Securities subject to withholding or deduction. If any withholding or deduction shall be required, such Officers' Certificate shall specify the amount required to be withheld or deducted with respect to such payments to such Holders of Securities and the Company will pay to the Trustee or the applicable Paying Agent the Additional Amounts, if any, required to be paid as set forth in the first sentence of this Section 10.4. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence, bad faith or willful misconduct arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers' Certificate furnished pursuant to this Section. In the absence of any such Officers' Certificates with respect to withholding, the Trustee can conclusively rely on the fact that there is no such withholding. SECTION 10.5. Corporate Existence. Subject to Article Seven, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence. SECTION 10.6. Statement by Officers as to Default. The Company will deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating that in the course of performance by the signers of their duties as such officers of the Company they would normally obtain knowledge of whether any default exists in the performance and observance of any of the terms, provisions and conditions of this Indenture and whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture. Such Officers' Certificate shall further state, as to each such officer signing such Certificate, to the best of the knowledge of such officer, as of the date of such Officers' Certificate, (a) whether any such default exists, (b) whether the Company (as applicable) during the preceding fiscal year kept, observed, performed and fulfilled each and every covenant and obligation of the Company under this Indenture and (c) whether there was any default in the performance and observance of any of the terms, provisions or conditions of this Indenture during such preceding fiscal year. If the officer or officers signing the Officers' Certificate know of such a default, whether then existing or occurring during such preceding fiscal year, the Officers' Certificate shall describe such default and its status with particularity. The Company shall also promptly notify the Trustee if the Company's fiscal year is changed so that the end thereof is on any date other than the then current fiscal year end date. The Company will deliver to the Trustee, forthwith upon becoming aware of any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or any Event of Default, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. -88- 89 Any notice required to be given under this Section 10.6 shall be delivered to the Trustee at its Corporate Trust Office. SECTION 10.7. Delivery of Certain Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a holder of a Restricted Security, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such holder of Restricted Securities, or to a prospective purchaser of any such security designated by any such holder, as the case may be, to the extent required to permit compliance by such holder with Rule 144A under the Securities Act (or any successor provision thereto) in connection with the resale of any such security; provided, however, that the Company shall not be required to furnish such information in connection with any request made on or after the date which is two years from the later of (i) the date such a security (or any such predecessor security) was last acquired from the Company or (ii) the date such a security (or any such predecessor security) was last acquired from an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act (or any successor provision thereto). "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 11.1. Right of Redemption. The Securities may be redeemed in accordance with the provisions of the form of Security set forth in Section 2.2. SECTION 11.2. Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of the Securities or this Indenture, shall be made in accordance with such provision and this Article Eleven. SECTION 11.3. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of any of the Securities, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date. If the Securities are to be redeemed pursuant to an election of the Company -89- 90 which is subject to a condition specified in the form of Security set forth in Section 2.2, the Company shall furnish the Trustee with an Officers' Certificate stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Company so to redeem have occurred. SECTION 11.4. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed (other than pursuant to the fourth paragraph on the reverse of the form of Security in Section 2.2), the particular Securities to be redeemed shall be selected by the Trustee within seven Business Days after it receives the notice described in 11.3, from the Outstanding Securities not previously called for redemption, by such method as the Trustee may deem fair and appropriate. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and each Note Registrar in writing of the securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.5. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 1.6 to the Holders of Securities to be redeemed not less than 20 nor more than 60 days prior to the Redemption Date, and such notice shall be irrevocable. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Securities are to be redeemed, the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities which will be outstanding after such partial redemption, -90- 91 (4) that on the Redemption Date the Redemption Price, and accrued interest, if any, will become due and payable upon each such Security to be redeemed, and that interest thereon shall cease to accrue on and after said date, (5) the Conversion Price then in effect, the date on which the right to convert the Securities to be redeemed will terminate and the places where such Securities, may be surrendered for conversion, (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, and (7) in the case of a notice of redemption pursuant to the fourth paragraph on the reverse of the form of Security in Section 2.2, a form of written certification of each beneficial owner of a Security as to such beneficial owner's entitlement to Additional Amounts. In case of a partial redemption, the notice shall specify the serial and CUSIP numbers (if any) and the portions thereof called for redemption and that transfers and exchanges may occur on or prior to the Redemption Date. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name of and at the expense of the Company. Notice of redemption of Securities to be redeemed at the election of the Company received by the Trustee shall be given by the Trustee to each Paying Agent in the name of and at the expense of the Company. After and so long as the Securities are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall require, notice of redemption will be given by publication in a Authorized Newspaper in Luxembourg, or, if not practicable in Luxembourg, elsewhere in a Western European city. SECTION 11.6. Deposit of Redemption Price. By 10:00 a.m. (New York time) on any Redemption Date of the Securities, the Company shall deposit with the Trustee or with the Paying Agent so directed by the Trustee (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money (which shall be in immediately available funds on such Redemption Date) sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit. -91- 92 If any Security called for redemption is converted, any money deposited with the Trustee or with a Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security, if a Security, or any Predecessor Security to receive interest as provided in the last paragraph of Section 3.7) be paid to the Company on Company Request as soon as administratively practicable after the Trustee receives such Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 11.7. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price, including accrued interest) such Securities shall cease to bear interest. Upon surrender of any Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued and unpaid interest to the Redemption Date; provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal amount of, premium, if any, and, to the extent permitted by applicable law, accrued interest on such Security shall, until paid, bear interest from the Redemption Date at a rate of 5% per annum and such Security shall remain convertible into Common Stock until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. SECTION 11.8. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 10.2 (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 shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. SECTION 11.9. Conversion Arrangement on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities by an agreement with one or more investment bankers -92- 93 or other purchasers (the "Purchasers") to purchase such securities by paying to the Trustee in trust for the Holders, on or before the Redemption Date, an amount not less than the applicable Redemption Price, together with interest accrued to the Redemption Date, of such Securities. Notwithstanding anything to the contrary contained in this Article Eleven, the obligation of the Company to pay the Redemption Price, together with interest accrued to, but excluding, the Redemption Date, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such Purchasers. If such an agreement is entered into (a copy of which shall be filed with the Trustee prior to the close of business on the Business Day immediately prior to the Redemption Date), any Securities called for redemption that are not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, and consistent with any agreement or agreements with such Purchasers, to be acquired by such Purchasers from such Holders and (notwithstanding anything to the contrary contained in Article Twelve) surrendered by such Purchasers for conversion, all as of immediately prior to the close of business on the Redemption Date (and the right to convert any such Securities shall be extended though such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it to the Holders in the same manner as it would monies deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such Purchasers for the purchase and conversion of any Securities 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 Securities between the Company and such Purchasers, including the costs and expenses, including reasonable legal fees, 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 TWELVE CONVERSION OF SECURITIES SECTION 12.1. Conversion Privilege and Conversion Price. Subject to and upon compliance with the provisions of this Article Twelve, at the option of the Holder thereof, the Holder of any Security is entitled at his option, at any time prior to the close of business on September 1, 2002, to convert such Security into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock of the Company at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall be subject, in the case of the conversion of any Global Security, to any applicable book-entry procedures of the Depositary therefor and the following sentence. In case a Security or portion thereof is called for redemption -93- 94 or is delivered for repurchase, such conversion right in respect of the Security or portion so called shall expire at the close of business on the Business Day prior to the Redemption Date or the Repurchase Date (as defined in Article Fourteen), as the case may be, unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be. The price at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Price") shall be initially U.S.$87.77 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in this Article Twelve. SECTION 12.2. Exercise of Conversion Privilege. Beneficial owners of interests in a Global Security may exercise their right of conversion by delivering to the Depositary the appropriate instruction form for conversion pursuant to the Depositary's conversion program and, in the case of conversions through Euroclear or Cedel, in accordance with Euroclear's or Cedel's normal operating procedures. To convert a definitive Security into shares of Common Stock, a Holder must (i) complete and manually sign the conversion notice in the form set forth in Section 2.4 on the back of the definitive Security (or complete and manually sign a facsimile thereof) and deliver such notice to the Trustee at the Corporate Trust Office of the Trustee or the office of the agency of LaSalle National Bank, in New York, New York, (ii) surrender the definitive Security to the Trustee at the Corporate Trust Office of the Trustee or the office of the agency of LaSalle National Bank, in New York, New York or the Conversion Agent in Luxembourg, (iii) if required, furnish appropriate endorsements and transfer documents, (iv) if required, pay all transfer or similar taxes, and (v) if required, pay funds equal to interest payable on the next Interest Payment Date. The date on which all of the foregoing requirements have been satisfied is the date of surrender for conversion. The Trustee shall promptly deliver to the Company and the Company's Common Stock transfer agent notification of such notice of conversion at the address described in Section 1.5. Such notice of conversion can be obtained from the Trustee at the Corporate Trust Office or the office of any Conversion Agent. Each Security surrendered for conversion will be converted into Common Stock in registered form. Each Security surrendered for conversion (in whole or in part) during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (except Securities called for redemption on a Redemption Date or to be repurchased on a Repurchase Date during, in each case, such period) shall 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 of such Security (or part thereof, as the case may be) being surrendered for conversion. The interest so payable on such Interest Payment Date with respect to any Security (or portion thereof, if applicable) which has been called for redemption on a Redemption Date, or is repurchasable on a Repurchase Date, occurring, in either case, during the period from the close of business on any Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date, which Security (or portion thereof, if applicable) is surrendered for conversion during such period, shall be paid to the Holder of such Security being converted in an amount equal to the interest that would have been payable on such Security if -94- 95 such Security had been converted as of the close of business on such Interest Payment Date. The interest so payable on such Interest Payment Date in respect of any Security (or portion thereof, as the case may be) which has not been called for redemption on a Redemption Date, or is not eligible for repurchase on a Repurchase Date, occurring, in either case, during the period from the close of business on any Record Date next preceding any Interest Payment Date, which Security (or portion thereof, as the case may be) is surrendered for conversion during such period, shall be paid to the Holder of such Security as of such Regular Record Date. Except as provided in this paragraph and subject to the last paragraph of Section 3.7, no cash payment or adjustment shall be made upon any conversion on account of, if the date of conversion is not an Interest Payment Date, any interest accrued from the Interest Payment Date next preceding the conversion date, in respect of any Security (or part thereof, as the case may be) surrendered for conversion, or on account of any dividends on the shares of Common Stock issued upon conversion. The Company's delivery to the Holder of the number of shares of Common Stock (and cash in lieu of fractions thereof, as provided in this Indenture) into which a Security is convertible will be deemed to satisfy the Company's obligation to pay the principal amount of the Security. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion, in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and deliver to the Trustee, for delivery to the Holder, a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 12.3. All shares of Common Stock delivered upon such conversion of Securities that are Restricted Securities shall, if required, bear restrictive legends set forth in Section 3.4(c) and shall be subject to the restrictions on transfer provided in such legends. Neither the Trustee nor any agent maintained for the purpose of such conversion shall have any responsibility for the inclusion or content of any such restrictive legends on such shares of Common Stock; provided, however, that the Trustee or Conversion Agent shall have provided, to the Company or to the Note Registrar for such shares of Common Stock, prior to or concurrently with a request to the Company to deliver such shares of Common Stock, written notice that the Securities delivered for conversion are Restricted Securities. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in an aggregate principal amount equal to the unconverted portion of the principal amount of such Security. A Security may be converted in part, but only if the principal amount of such Security to be converted is any integral multiple of U.S.$1,000 and the principal amount of such security -95- 96 to remain Outstanding after such conversion is equal to U.S.$1,000 or any integral multiple thereof. In the event that the original issuance of the Securities would otherwise constitute the sale or issuance by the Company of Common Stock (or securities convertible into or exercisable for Common Stock) equal to 20% or more of the Common Stock or 20% or more of the voting power outstanding before the original issuance of the Securities for less than the greater of book or market value of the Common Stock for purposes of paragraph (i) of Rule 4460 of the Rules of the Association of the National Association of Securities Dealers, Inc. ("NASD"), and, therefore, under such Rule shareholder approval would have been required for the issuance of the Securities but for the application of this paragraph, and the Company shall have delivered an Opinion of Counsel to such effect to the Trustee (which shall be based, at least in part, on a formal finding by the NASD to such effect), then, to the extent issuance of shares of Common Stock upon conversion of the Securities would otherwise render the total shares issued upon conversion to be in excess of 19.9% of the number of shares of Common Stock outstanding on the date of original issuance of Securities, upon any such conversion of Securities, in lieu of shares of Common Stock in excess of such 19.9%, the Company shall pay an amount in cash equal to the fair market value of the shares of Common Stock otherwise issuable upon such conversion. For purposes of the preceding sentence, fair market value shall be deemed to be the Current Market Price as of the applicable conversion date (such conversion date to be determined in accordance with Section 12.2). SECTION 12.3. Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion of any Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Securities (or specified portions thereof), the Company shall calculate and pay a cash adjustment in respect of such fraction (calculated to the nearest 1/100th of a share) in an amount equal to the same fraction of the Current Market Price per share of Common Stock (calculated in accordance with Section 12.4(8) below) at the close of business on the day of conversion. SECTION 12.4. Adjustment of Conversion Price. The Conversion Price shall be subject to adjustments from time to time as follows: (1) 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 -96- 97 multiplying such Conversion Price by a fraction, the numerator of which 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 of which 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. If any dividend or distribution of the type described in this Section 12.4(1) 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. (2) In case the Company shall issue rights or warrants to all holders of its outstanding 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 Common Stock at a price per share less than the Current Market Price (as defined in Section 12.4(8)(b)) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date fixed for determination of shareholders entitled to receive such rights or warrants by a fraction, the numerator of which 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 the denominator of which 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 adjustment 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 Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such 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. (3) In case outstanding 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 -97- 98 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. (4) 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 12.4(1) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 12.4(2), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 12.4(1) (any of the foregoing hereinafter in this Section 12.4(4) called the "Distribution Securities")), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect on the Distribution Record Date with respect to such distribution by a fraction the numerator of which shall be the Current Market Price per share of Common Stock on such Distribution 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 Distribution Record Date of the portion of the Distribution Securities so distributed applicable to one share of Common Stock and the denominator of which shall be the Current Market Price per share of Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Distribution Record Date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Distribution Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price per share of the Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of Distribution Securities such Holder would have received had such Holder converted each Security on the Distribution 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 Company's Board of Directors determines the fair market value of any distribution for purposes of this Section 12.4(4) 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. 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 shares of Common Stock, shall be deemed not to have been distributed for purposes of this Section 12.4 (and no adjustment to the Conversion Price under this Section 12.4 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 12.4(4). If any such right or warrant, -98- 99 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 or different amounts of any of the foregoing, or both, 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 12.4 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of shares of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of shares 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. Notwithstanding the foregoing, in the event that the Company shall distribute rights or warrants to subscribe for additional shares of the Common Stock (other than rights or warrants described in Section 12.4(2)), pro rata to holders of Common Stock, and in the case of the rights issued pursuant to the Company's rights agreement in existence as of the date hereof, the Company may, in lieu of making any adjustment pursuant to this Section 12.4(4), make proper provision (in the case of the Company's rights agreement in existence as of the date hereof, to the extent it does not make proper provision) so that each holder of a Security who converts such Security (or any portion thereof) after the Distribution Record Date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion (the "Conversion Shares"), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of such rights or warrants of separate certificates evidencing such rights or warrants (the "Distribution Date"), the same number of rights or warrants to which a holder of a number of shares of Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions of and applicable to such rights or warrants; and (ii) if such conversion occurs after the Distribution Date, the same number of rights or warrants to which a holder of the number of shares of Common Stock into which the principal amount of the Security so converted was convertible immediately prior to the Distribution Date would have been entitled on the Distribution Date in accordance with the terms and provisions of, and applicable to such rights or warrants. -99- 100 For purposes of this Section 12.4(4) and Sections 12.4(1) and (2), any dividend or distribution to which this Section 12.4(4) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), 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 12.4(4) 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 12.4(1) and (2) with respect to such dividend or distribution shall then be made), except (A) the Distribution Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 12.4(1) and (2) 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 12.4(1). (5) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any quarterly period does not exceed the greater of (A) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Conversion Price pursuant to this Section 12.4(5) (as adjusted to reflect subdivisions or combinations of the Common Stock), and (B) 3.75% of the arithmetic average of the Closing Prices (determined as set forth in Section 12.4(8)) during the ten Trading Days immediately prior to the date of declaration of such dividend, (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary and (z) any cash that is distributed as part of a distribution requiring a Conversion Price adjustment pursuant to Section 12.4(4)), 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 such Distribution Record Date by a fraction of which the numerator shall be the Current Market Price of the Common Stock on the Distribution 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 Distribution 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 Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Security on the Distribution 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 any adjustment -100- 101 is required to be made as set forth in this Section 12.4(5) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 12.4(5) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (6) 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 Board Resolution) 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 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 stockholders 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 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 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. (7) In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary of the Company for an amount which increases the offeror$s ownership of Common Stock to more than 25% of the Common Stock outstanding and shall involve the payment by such Person 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) at the last time (the "Tender Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price per share of the Common Stock on the Trading Day next succeeding the Tender Expiration Time, and in which, as of the Tender Expiration -101- 102 Time the Board of Directors is not recommending rejection of the offer, 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 Tender 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 Tender Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Tender Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders 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 Tender Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) on the Tender Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Tender Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Tender Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person 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. Notwithstanding the foregoing, the adjustment described in this Section 12.4(7) shall not be made if, as of the Tender Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article Seven. (8) For purposes of this Section 12.4, the following terms shall have the meaning indicated: (a) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in 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 security exchange or quotation system in the United States on which such security is quoted or listed or admitted to trading, or, 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 Nasdaq National Market 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. (b) "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 -102- 103 the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution or Fundamental Change requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(1), (2), (3), (4), (5), (6) or (7) 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, distribution or Fundamental Change requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(1), (2), (3), (4), (5), (6) or (7) 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, distribution or Fundamental Change 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 in a manner consistent with any determination of such value for purposes of Section 12.4(4), (6) or (7) whose determination shall be conclusive and described in a resolution of the Board of Directors) 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 12.4(6) or (7), 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 12.4(1), (2), (3), (4), (5), (6) or (7) occurs on or after the Expiration Time or Tender Expiration Time, as the case may be, 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 -103- 104 Common Stock trades regular way on such exchange or in such market after the Expiration Time or Tender Expiration Time, as the case may be, of such offer. (c) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (d) "Distribution 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 stockholders 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). (e) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made on thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (9) No adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such price; provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may, at its option, make such reductions in the Conversion Price as the Board deems advisable, in addition to those required by paragraphs (1), (2), (3), (4), (5), (6) or (7) of this Section 12.4 in order to avoid or diminish any income tax to any holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution on Common Stock (or rights to acquire such shares) or from any event treated as such for income tax purposes, resulting from any dividend or distribution of shares or issuance of rights or warrants to purchase or subscribe for shares 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 (i) at least twenty (20) days, (ii) the reduction is irrevocable during the period and (iii) the Board 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 -104- 105 preceding sentence, the Company shall give notice of the reduction to the Holders of Securities in the manner provided in Section 1.6 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. (11) No adjustment of the Conversion Price will result in zero or a negative number. SECTION 12.5. Notice of Adjustments of Conversion Price. Whenever the Conversion Price is adjusted as herein provided: (1) the Company shall compute the adjusted Conversion Price in accordance with Section 12.4 and shall prepare a certificate signed by the President, Treasurer, Chief Financial Officer or Vice President of Finance of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall promptly be filed with the Trustee and with each Conversion Agent; and (2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall promptly be prepared and as soon as practicable thereafter, such notice shall be provided by the Company to all Holders in accordance with Section 1.6. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate or the information and calculations contained therein, except to exhibit the same to any Holder of Securities desiring inspection thereof at its office during normal business hours. After and so long as the Securities are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange shall require, notice of any adjustment of the Conversion Price pursuant to this Article Twelve will be given by publication in an Authorized Newspaper in Luxembourg, or, if not practicable in Luxembourg, elsewhere in a Western European city. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such Conversion Price adjustment. SECTION 12.6. Notice of Certain Corporate Action. In case: (a) the Company shall declare a dividend (or any other distribution) on all or substantially all of its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 12.4; or -105- 106 (b) the Company shall authorize the granting to the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights that would require any adjustment pursuant to Section 12.4; or (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary of the Company shall commence a tender offer for all or a portion of the Company's outstanding Common Stock (or shall amend any such tender offer); then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options 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, rights, options or warrants are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. If at the time the Trustee shall not be the Conversion Agent, a copy of such notice and any notice referred to in the following paragraph shall also forthwith be filed by the Company with the Trustee. The preceding paragraph to the contrary notwithstanding, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, notice of any tender offer by the Company or any subsidiary of the Company for all or any portion of the Common Stock at or about the time that such notice of tender offer is provided to the public generally (such notice to be sent to all Holders within five days after receipt of such notice by the Trustee or Conversion Agent from the Company). -106- 107 SECTION 12.7. Company to Provide Common Stock. The Company shall ensure that the Company has, free from preemptive rights, out of its authorized but unissued Common Stock, the full number of shares of Common Stock for the purpose of effecting the conversion of Securities. -107- 108 SECTION 12.8. Taxes on Conversions. The Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. SECTION 12.9. Company Covenant as to Common Stock. The Company covenants that all Common Stock which may be delivered upon conversion of Securities, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable and, except as provided in Section 12.8, the Company will pay all taxes, liens and charges with respect to the issue thereof. SECTION 12.10. Cancellation of Converted Securities. All Securities delivered for conversion shall be delivered to the Trustee or the Paying Agent in Luxembourg or its agent to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION 12.11. Provision in Case of Consolidation, Merger, or Sale of Assets of the Company. In case of any consolidation of the Company with, or merger of the Company into, any other Person, or any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding Common Stock of the Company) or any sale or transfer of all or substantially all of the assets of the Company, the Company and the Person formed by such consolidation or resulting from such merger or which acquires such assets shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then Outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 12.1, to convert such Security only into the kind and amount of securities, cash -108- 109 and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Common Stock of the Company (i) is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person, and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale or transfer by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purposes of this Section 12.11 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by the holders of 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, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section 12.11 shall similarly apply to successive consolidations, mergers, sales or transfers. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security as provided in Section 1.6 promptly upon such execution. Neither the Trustee, any Paying Agent nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. SECTION 12.12. Responsibility of Trustee for Conversion Provisions. The Trustee and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent 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, or whether a supplemental indenture need be entered into. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any Common Stock, or of any other securities or property or cash, which may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent shall be responsible for any failure of the Company to make or calculate any cash payment or to issue, transfer or deliver any Common Stock or share certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion; and the Trustee and any Conversion Agent shall not be responsible for any failure of the Company to comply with any of the covenants of the Company contained in this Article. -109- 110 ARTICLE THIRTEEN SUBORDINATION OF SECURITIES SECTION 13.1. Agreement of Subordination. The Company covenants and agrees, and each Holder of Securities issued hereunder by his acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article Thirteen; and each Person holding any Security, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and interest on all Securities (including, but not limited to, the Redemption Price with respect to the Securities called for redemption in accordance with Article Eleven, or the Repurchase Price with respect to Securities submitted for repurchase in accordance with Article Fourteen, as the case may be, as provided in this Indenture and Additional Amounts, if any, and Liquidated Damages, if any) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full in cash of all Senior Indebtedness of the Company, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article Thirteen shall prevent the occurrence of any default or Event of Default hereunder. SECTION 13.2. Payments to Holders. No payment shall be made with respect to the principal of, or premium, if any, or interest on the Securities by the Company (including, but not limited to, the Redemption Price with respect to the Securities to be called for redemption in accordance with Article Eleven or the Repurchase Price with respect to Securities submitted for repurchase in accordance with Article Fourteen, as the case may be, as provided in this Indenture and Additional Amounts, if any, Liquidated Damages, if any), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 13.5, if: (i) a default in the payment of principal, premium, interest, rent or other obligations due on any Senior Indebtedness of the Company has occurred and is continuing (or, in the case of Senior Indebtedness of the Company for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness of the Company), unless and until such default shall have been cured or waived or shall have ceased to exist; or -110- 111 (ii) a default (other than a payment default but including any default in the payment of principal, premium, interest, rent or other obligations on Designated Senior Indebtedness that would be a payment default but for the period of grace specified in such instrument or lease) on Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Representative of Designated Senior Indebtedness or a holder of Designated Senior Indebtedness or the Company. If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee (unless such default was waived, cured or otherwise ceased to exist and thereafter subsequently reoccurred) shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Securities upon the earlier of: (1) in the case of a payment default, the date upon which the default is cured or waived or ceases to exist, or (2) in the case of a default referred to in clause (ii) above, the earlier of the date on which such default is cured or waived or ceases to exist or 179 days after the date on which the applicable Payment Blockage Notice is received if the maturity of such Designated Senior Indebtedness has not been accelerated. unless this Article Thirteen otherwise prohibits the payment or distribution at the time of such payment or distribution (including without limitation, in the case of default referred to in clause (ii) above, as a result of a payment default with respect to the applicable Senior Indebtedness as a consequence of the acceleration of the maturity thereof or otherwise). Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, moratorium of payments, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness of the Company shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness of the Company, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness of the Company before any payment is made on account of the principal of, premium, if any, or interest (including Additional Amounts, if any, or Liquidated Damages, if any) on the Securities by the Company (except payments by -111- 112 the Company made pursuant to Article Four from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding-up, liquidation or reorganization); and upon any such dissolution or winding-up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee would be entitled, except for the provision of this Article Thirteen, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, moratorium of payments, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness of the Company held by such holders, or as otherwise required by law or a court order) or their Representative or Representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness of the Company may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness of the Company in full, in cash or other payment satisfactory to the holders of such Senior Indebtedness of the Company, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness of the Company, before any payment or distribution is made to the Holders or to the Trustee. For purposes of this Article Thirteen, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Thirteen with respect to the Securities to the payment of all Senior Indebtedness of the Company which may at the time be outstanding; provided that (i) the Senior Indebtedness of the Company is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness of the Company (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The merger of the Company into another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article Seven shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 13.2 if such other corporation shall, as a part of such merger, conveyance or transfer, comply with the conditions stated in Article Seven. In the event of the acceleration of the Securities because of an Event of Default, no payment or distribution shall be made to the Trustee or any Holder of Securities in respect of the principal of, premium, if any, or interest on the Securities by the Company (including, but not limited to, the Redemption Price with respect to the Securities called for redemption in accordance with Article Eleven or the Repurchase Price with respect to Securities submitted for repurchase in accordance with Article Fourteen, as the case may be, as provided in this Indenture -112- 113 and Additional Amounts, if any, and Liquidated Damages, if any), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 13.5, until all Senior Indebtedness of the Company has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness of the Company or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the Company of the acceleration. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing, shall be received by the Trustee or the Holders of the Securities before all Senior Indebtedness of the Company is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness of the Company, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness of the Company, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness of the Company or their Representative or Representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness of the Company may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company remaining unpaid to the extent necessary to pay all Senior Indebtedness of the Company in full in cash or other payment satisfactory to the holders of such Senior Indebtedness of the Company, after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of such Senior Indebtedness of the Company. Nothing in this Article Thirteen shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7. This Section 13.2 shall be subject to the further provisions of Section 13.5. SECTION 13.3. Subrogation of Securities. Subject to the payment in full in cash of all Senior Indebtedness of the Company, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness of the Company pursuant to the provisions of this Article Thirteen (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent as the Securities are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness of the Company until the principal, premium, if any, and interest on the Securities shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of the Company of any cash, property or securities to which the Holders of -113- 114 the Securities or the Trustee would be entitled except for the provisions of this Article Thirteen, and no payment over pursuant to the provisions of this Article Thirteen, to or for the benefit of the holders of Senior Indebtedness of the Company by Holders of the Securities or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company, and the Holders of the Securities, be deemed to be a payment by the Company to or on account of the Senior Indebtedness of the Company. It is understood that the provisions of this Article Thirteen are and are intended solely for the purposes of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Indebtedness of the Company, on the other hand. Nothing contained in this Article Thirteen or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of the Senior Indebtedness of the Company, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Thirteen of the holders of Senior Indebtedness of the Company in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article Thirteen, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness of the Company and other Indebtedness of the Company, the amount thereof or payable thereon and all other facts pertinent thereto or to this Article Thirteen. SECTION 13.4. Authorization to Effect Subordination. Each Holder of a Security by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article Thirteen and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 5.4 hereof at least 30 days before the expiration of the time to file such claim, the holders -114- 115 of any Senior Indebtedness of the Company or their Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Securities. SECTION 13.5. Notice to Trustee. The Company shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any Paying Agent of any fact known to the Company which would prohibit the making of any payment of monies deposited by the Company to or by the Trustee or any Paying Agent in respect of the Securities pursuant to the provisions of this Article Thirteen. Notwithstanding the provisions of this Article Thirteen 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 of monies deposited by the Company to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Thirteen, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from the Company (in the form of an Officers' Certificate) or a Representative of Senior Indebtedness or of a holder or holders of Senior Indebtedness of the Company or from any trustee thereof; and before the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; provided that if on a date not fewer than two Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest on any Security) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 13.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies deposited by the Company and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Notwithstanding anything in this Article Thirteen to the contrary, nothing shall prevent any payment by the Trustee to the Holders of monies deposited with it pursuant to Section 4.1, and any such payment shall not be subject to the provisions of Section 13.1 or 13.2. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Representative or a Person representing himself to be a holder of Senior Indebtedness of the Company (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness of the Company or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article Thirteen, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of the Company 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 Thirteen, and if such evidence is not -115- 116 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 13.6. Trustee's Relation to Senior Indebtedness of the Company. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Thirteen in respect of any Senior Indebtedness of the Company at any time held by it, to the same extent as any other holder of Senior Indebtedness of the Company, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Thirteen, and no implied covenants or obligations with respect to the holders of Senior Indebtedness of the Company shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the Company and the Trustee shall not be liable to any holder of Senior Indebtedness of the Company if it shall pay over or deliver to Holders of Securities, the Company or any other Person money or assets to which any holder of Senior Indebtedness of the Company shall be entitled by virtue of this Article Thirteen or otherwise. SECTION 13.7. No Impairment of Subordination. No right of any present or future holder of any Senior Indebtedness of the Company 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 noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. SECTION 13.8. Article Applicable to Paying Agents. If at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall (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 the first paragraph of Section 13.5 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 13.9. Senior Indebtedness of the Company Entitled to Rely. The holders of Senior Indebtedness of the Company (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article Thirteen, and no -116- 117 amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. SECTION 13.10. Certain Conversions Deemed Payment. For the purposes of this Article Thirteen only, (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article Twelve shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 12.2), property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section 13.10, the term ?junior securities? means (a) shares of any stock of any class of the Company (including, without limitation, the Common Stock of the Company), or (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness of the Company which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article Thirteen or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness of the Company and the Holders, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article Twelve. ARTICLE FOURTEEN REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE SECTION 14.1. Right to Require Repurchase. In the event that a Fundamental Change (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 Securities, or any portion of the principal amount thereof that is equal to U.S.$1,000 or any integral multiple thereof (provided that no single Security may be repurchased in part unless the portion of the principal amount of such Security to be Outstanding after such repurchase is equal to U.S.$1,000 or integral multiples of U.S.$1,000 in excess thereof), on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined in Section 14.2) at the following prices (expressed as percentages of the principal amount thereof) (the "Repurchase Price") in the event of a Fundamental Change occurring during the 12-month period beginning September 1 (plus interest accrued to, but excluding, the Repurchase Date): -117- 118
Year Repurchase Price ---- ---------------- 1997 105% 1998 104 1999 103 2000 102 2001 101
and 100% at September 1, 2002; provided that if the Applicable Price with respect to the Fundamental Change is less than the Reference Market Price, the Company shall repurchase such Securities at a price equal to the foregoing Repurchase Price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price; and provided, further, that installments of interest on Securities whose Stated Maturity is on or prior to the Repurchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the Regular Record Date according to their terms and the provisions of Section 3.7. Such right to require the repurchase of the Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article Four, unless a Fundamental Change shall have occurred prior to such discharge. Whenever in this Indenture (including Sections 2.2, 3.1, 5.1(1) and 5.8) there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security 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 14.2. Notices; Method of Exercising Repurchase Right, Etc. (a) Unless the Company shall have theretofore called for redemption all of the Outstanding Securities, on or before the 30th day after the occurrence of a Fundamental Change, the Company or, at the request and expense of the Company, the Trustee, shall give to all Holders of Securities, in the manner provided in Section 1.6, notice (the "Company Notice") of the occurrence of the Fundamental Change 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 notice of a repurchase right shall state: (1) the Repurchase Date, (2) the date by which the repurchase right must be exercised, (3) the Repurchase Price, (4) a description of the procedure which a Holder must follow to exercise a repurchase right, and the place or places where such Securities maturing after the -118- 119 Repurchase Date, are to be surrendered for payment of the Repurchase Price and accrued interest, if any, (5) that on the Repurchase Date the Repurchase Price, and accrued interest, if any, will become due and payable upon each such Security designated by the Holder to be repurchased, and that interest thereon shall cease to accrue on and after said date, and (6) the Conversion Price then in effect, the date on which the right to convert the principal amount of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion. So long as the Securities are listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange shall so require, on or before the 30th day after the occurrence of a Fundamental Change, the Company or, at the request of the Company, the Paying Agent in Luxembourg, will provide notice of such Fundamental Change by publishing such notice in an Authorized Newspaper in Luxembourg, or, if not practicable in Luxembourg, elsewhere in a Western European city. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. 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 Securities to be repurchased (and, if any Security 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 Securities with respect to which the repurchase right is being exercised. Such written notice shall be irrevocable, except that the right of the Holder to convert the Securities with respect to which the repurchase right is being exercised shall continue until the close of business on the Business Day prior to the Repurchase Date. (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, as provided above, for payment to the Holder on the Repurchase Date together with accrued and unpaid interest to the Repurchase Date payable with respect to the Securities as to which their purchase right has been exercised; provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash, in the case of Securities, to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date. -119- 120 (d) If any Security (or portion thereof) surrendered for repurchase shall not be so paid on the Repurchase Date, the principal amount of such Security (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate of 5% per annum, and each Security shall remain convertible into Common Stock until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) Any Security 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 shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) All securities delivered for repurchase shall be delivered to the Trustee, the Paying Agent or any other agents (as shall be set forth in the Company Notice) to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION 14.3. Merger, Consolidation, etc. In the case of any merger, consolidation, sale or transfer of all or substantially all of the assets of the Company to which Section 12.11 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 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 Company and the Person resulting from such merger or consolidation 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 to cause the Company to repurchase the Securities following a Fundamental Change, including without limitation the applicable provisions of this Article Fourteen and the definitions of the Common Stock and Fundamental Change, as appropriate, and such other related definitions set forth herein as determined in good faith by the Company and the Company (which determination shall be conclusive and binding), to make such provisions apply in the event of a subsequent Fundamental Change to the common stock and the issuer -120- 121 thereof if different from the Company and the Common Stock of the Company (in lieu of the Company and Common Stock of the Company). ARTICLE FIFTEEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 15.1. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after the Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date, and (b) at such other times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that no such list need be furnished so long as the Trustee is acting as Note Registrar. SECTION 15.2. Trustee to Furnish Company Names and Addresses of Holders. The Trustee will furnish or cause to be furnished to the Company, or to Company$s counsel: (a) within 10 days from the date of this Indenture, an updated Note Register, (b) semi-annually, not more than 15 days after the Regular Record Date, an updated Note Register, in such form as the Company may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date, (c) During the preparation, pendency and effectiveness of the Shelf Registration Statement (described in the Registration Rights Agreement) beginning thirty days after the date of this Indenture and until such time as the Company is no longer required to maintain the effectiveness of such Shelf Registration Statement, the Trustee shall provide the Company on the first and fifteenth date of every month (unless such date is a weekend or holiday, and then on the preceding Business Day) during such period with an updated copy of the Note Register detailing the holders of the Securities for the preceding week, and -121- 122 (d) at such other times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that no such list need be furnished so long as the Trustee is not acting as Note Registrar. SECTION 15.3. Preservation of Information. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 15.1, if any, and the names and addresses of Holders received by the Trustee in its capacity as Note Registrar. The Trustee may destroy any list furnished to it pursuant to Section 15.1 upon receipt of a new list so furnished. (b) If and when this Indenture has become qualified under the Trust Indenture Act, the rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made hereunder. SECTION 15.4. Reports by Trustee. (a) If and when this Indenture becomes qualified under the Trust Indenture Act, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) If and when this Indenture becomes qualified under the Trust Indenture Act, a copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 15.5. Reports by Company. If and when this Indenture becomes qualified under the Trust Indenture Act, the Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; -122- 123 provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. SECTION 15.6. Reports with Respect to Registration of Securities. The Company shall provide to the Trustee a form of Selling Securityholder Questionnaire, within forty-five (45) days of the date of this Indenture. Within ten (10) Business Days following the receipt of such Selling Securityholder Questionnaire, the Trustee shall deliver to each Holder of Securities at such time a copy of the Selling Securityholder Questionnaire in the form provided to the Trustee by the Company. Thereafter, and until such time as the Company is no longer required to maintain the effectiveness of the Shelf Registration Statement (as defined in the Registration Rights Agreement), the Trustee shall deliver, upon request of any Holder of Securities, a Selling Securityholder Questionnaire in the form provided to the Trustee by the Company. --------------------- This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -123- 124 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. LAM RESEARCH CORPORATION By ----------------------------------------- Name: Title: LASALLE NATIONAL BANK Trustee By ----------------------------------------- Name: Title: 125 EXHIBIT A Lam Research Corporation 4650 Cushing Parkway Fremont, California 94538 LaSalle National Bank Corporate Trust Department 135 South LaSalle Street Chicago, Illinois 60603 Gentlemen: We are delivering this letter in connection with an offering of 5% Convertible Subordinated Notes due 2002 (the "Notes) which are convertible into shares of Common Stock, $.001 par value (the "Common Stock"), of Lam Research Corporation (the "Company"). We hereby confirm that: 1. we are an "accredited investor" within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act of 1933 (the "Securities Act") or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act: 2. (A) any purchase of Notes by us will be for our own account or for the account of one or more other institutional accredited investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act (such trusts, together with accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act, an "Institutional Accredited Investor") and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(l)(5)(a) of the Securities Act that is acquiring Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; 3. in the event that we purchase any Notes, we will acquire Notes having a minimum principal amount of not less than $250,000 for our own account or for any separate account for which we are acting; 4. we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing the Notes; and 126 5. we are not acquiring Notes with a view to distribution thereof or with any present intention of offering or selling Notes or the Common Stock issuable upon conversion thereof, except as permitted below; provided that the disposition of our property and property of any accounts for which we are acting as fiduciary shall remain at all times within our control. We understand that the Notes are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Notes and the shares of Common Stock issuable upon conversion thereof have not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Notes, that if in the future we decide to resell or otherwise transfer such Notes or the Common Stock issuable upon conversion thereof, such Notes or Common Stock may be resold or otherwise transferred only (i) to the Company or any subsidiary thereof, or (ii) inside the United States to a person who is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, or (iii) inside the United States to an Institutional Accredited Investor that, prior to such transfer, furnishes to the Trustee or transfer agent for such securities a signed letter containing certain representations and agreements relating to the restrictions on transfer of such securities (the form of which letter can be obtained from such Trustee or transfer agent), or (iv) outside the United States in a transaction meeting the requirements of Rule 904 under the Securities Act, or (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Art (if applicable), or (vi) pursuant to a registration statement which has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), and in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction and in accordance with the legends set forth on the Notes or the Common Stock issuable upon conversion thereof, as the case may be. We further agree to provide any person purchasing any of the Notes or the Common Stock issuable upon conversion thereof other than pursuant to clause (vi) above from us a notice advising such purchaser that resales of such securities are restricted as stated herein. We understand that the Trustee for the Notes and/or the transfer agent for the Common Stock will not be required to accept for registration of transfer any Notes or any shares of Common Stock issued upon conversion of the Notes except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that any Notes and any certificates representing Common Stock will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph other than certificates representing Common Stock transferred pursuant to clause (vi) above. We acknowledge that the Company, others and you will rely upon our confirmations, acknowledgments and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete. -2- 127 THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK -------------------------------------------- (Name of Purchaser) By: ----------------------------------------- Name: Title: Address: -3- 128 Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -i- EX-4.2 3 REGISTRATION RIGHTS AGREEMENT DATED AUGUST 15,1997 1 Exhibit 4.2 FINAL LAM RESEARCH CORPORATION REGISTRATION RIGHTS AGREEMENT Dated as of August 15, 1997 Deutsche Morgan Grenfell Inc. ABN AMRO Rothschild Lombard Odier International Underwriters Limited c/o Deutsche Morgan Grenfell Inc. 51 West 52nd Street New York, NY 10019 Ladies and Gentlemen: Lam Research Corporation, a Delaware corporation (the "Company"), proposes to issue and sell to Deutsche Morgan Grenfell Inc., ABN AMRO Rothschild and Lombard Odier International Underwriters Limited (the "Initial Purchasers") upon the terms set forth in a purchase agreement dated August 19, 1997 (the "Purchase Agreement") between the Initial Purchasers and the Company, its 5% Convertible Subordinated Notes due 2002. As an inducement to the Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchasers thereunder, the Company agrees with the Initial Purchasers, (i) for the benefit of the Initial Purchasers and (ii) for the benefit of the Holders (as defined below) from time to time of the Registrable Securities (as defined below), including the Initial Purchasers, as follows: 1. DEFINITIONS. Capitalized terms used herein without definition shall have their respective meanings set forth in or pursuant to the Purchase Agreement or the Offering Memorandum, dated August 19, 1997, in respect of the Securities. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Affiliate" of any specified Person means any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with such specified Person. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 2 FINAL "Agreement" shall mean this Registration Rights Agreement as the same may be amended, supplemented or modified from time to time in accordance with the terms hereof. "Commission" means the United States Securities and Exchange Commission. "Common Stock" means the common stock, $0.001 par value, of the Company and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture. "DTC" means The Depository Trust Company. "Effectiveness Period" has the meaning set forth in Section 2(b) hereof. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Holder" shall mean any person that is the record owner of Registrable Securities (and includes any person that has a beneficial interest in any Registrable Security in book-entry form). "Indenture" shall mean the Indenture, dated as of 15 August 1997, between the Company and the Trustee thereunder, pursuant to which the Securities are being issued, as amended, modified or supplemented from time to time in accordance with the terms thereof. "Issue Date" means August 26, 1997 "Liquidated Damages" has the meaning set forth in Section 2(c). "Managing Underwriters" means the investment banker or investment bankers and manager or managers that shall administer an underwritten offering, if any, as set forth in Section 6 hereof. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Prospectus" means the prospectus included in any Shelf Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities. -2- 3 FINAL "Registration Default" has the meaning set forth in Section 2(c) hereof. "Restricted Securities" shall mean all Securities required pursuant to the Indenture to bear any Restricted Securities Legend (as defined in the Indenture). "Registrable Security" shall mean any Restricted Security and any share of Common Stock issuable upon conversion thereof except any such Restricted Security or share of Common Stock which (i) has been effectively registered under the Securities Act and sold in a manner contemplated by the Registration Statement, (ii) has been transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto), or is transferable pursuant to paragraph (k) of such Rule 144 (or any successor provision thereto), or (iii) has otherwise been transferred and a new security or share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company in accordance with the Indenture. "Rule 144" shall mean Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Rule 144A" shall mean Rule 144A promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Rule 415" shall mean Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Rule 430A" shall mean Rule 430A promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Securities" shall mean the $310,000,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002 of the Company being issued pursuant to the Indenture (together with up to $45,000,000 aggregate principal amount of such convertible subordinated notes if, and to the extent, the Initial Purchasers' over-allotment option is exercised). "Securities Act" means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Shelf Registration" means a registration effected pursuant to Section 2 hereof. -3- 4 FINAL "Shelf Registration Statement" means a shelf registration statement of the Company pursuant to the provisions of Section 2 hereof filed with the Commission which covers some or all of the Registrable Securities, as applicable, on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Special Counsel" means any special counsel to the Holders, determined as provided in Section 4 hereof. "Trust Indenture Act" has the meaning set forth in Section 1.1 of the Indenture. "Trustee" means the Trustee under the Indenture. "underwriter" means any underwriter of Registrable Securities in connection with an offering thereof under a Shelf Registration Statement. 2. SHELF REGISTRATION. (a) The Company shall, within 90 calendar days following the Issue Date of the Securities, file with the Commission a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement and, thereafter, shall use its reasonable efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act as soon as practicable, and in any event within 180 calendar days after the Issue Date. (b) The Company shall use its reasonable efforts: (i) To keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the later of a) the Issue Date or b) the last date of original issuance of the Securities or such shorter period that will terminate upon the earliest of the following: (A) when all the Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement, (B) when all shares of Common Stock issued upon conversion of any such Securities that had not been sold pursuant to the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement and (C) when there shall cease to be outstanding Registrable Securities (in any such case, such period being called the "Effectiveness Period"); and -4- 5 FINAL (ii) After the effectiveness of the Shelf Registration Statement, promptly upon the request of any Holder, to take any action reasonably necessary to register the sale of any Registrable Securities of such Holder and to identify such Holder as a selling securityholder. The Company shall be deemed not to have used its reasonable efforts to keep the Shelf Registration Statement effective during the requisite period if the Company voluntarily takes any action that would result in Holders of Registrable Securities covered thereby not being able to offer and sell any such Registrable Securities during that period, unless (i) such action is required by applicable law, (ii) the continued effectiveness of the Shelf Registration Statement would require the Company to disclose a material financing, acquisition or other corporate transaction, and the Board of Directors shall have determined in good faith that such disclosure is not in the best interests of the Company and the holders of its outstanding Common Stock, or (iii) the Board of Directors shall have determined in good faith that there is a valid business purpose or reason for such suspension, and (x), in the case of clause (i) above, the Company thereafter promptly complies with the requirements of paragraph 3(i) below and (y) the Company complies with its obligations, if any, to pay Liquidated Damages. (c) (1) If (i) on or prior to 90 days following the Issue Date a Shelf Registration Statement has not been filed with the Commission or (ii) on or prior to the 180th day following the Issue Date, such Shelf Registration Statement is not declared effective (each, a "Registration Default"), additional interest ("Liquidated Damages") will accrue on the Restricted Securities from and including the date following such Registration Default until such time as such Shelf Registration Statement is filed or such Shelf Registration Statement is declared effective, as the case may be. Liquidated Damages will be paid semi-annually in arrears, with the first semi-annual payment due on the first Interest Payment Date under the Indenture following the date on which such Liquidated Damages begin to accrue, and will accrue at a rate per annum equal to an additional one-quarter of one percent (0.25%) of the principal amount, to and including the 90th day following such Registration Default and one-half of one percent (0.50%) thereof from and after the 91st day following such Registration Default. In the event that Shelf Registration Statement ceases to be effective for more than 90 days or the Company suspends the use of the prospectus which is a part thereof for more than 90 days, whether or not consecutive, during any 12-month period, then the interest rate borne by Restricted Securities will increase by an additional one-half of one percent (0.50%) per annum from the 91st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective or the Company suspends the use of the prospectus which is a part thereof, as the case may be, until the earlier of such time as (i) the Shelf Registration Statement again becomes effective, (ii) the use of the related prospectus ceases to be suspended or (iii) the Effectiveness Period expires. Following the cure of all Registration Defaults relating to any Restricted Securities, the accrual of Liquidated Damages -5- 6 FINAL with respect to such Restricted Securities will cease (without in any way limiting the effect of any subsequent Registration Default). In no event shall the Company be required to pay Liquidated Damages in excess of the applicable maximum amount of one-half of one percent (0.50%) set forth above, regardless of whether one or multiple Registration Defaults exist. (2) Liquidated Damages on the Restricted Securities shall be paid by the Company to the holders of record of such Restricted Securities on each Interest Payment Date (as defined in the Indenture) in the same manner as for interest on such Restricted Securities as provided in the form of Securities set forth in Section 2.2 of the Indenture. (3) All of the Company's obligations set forth in this Section 2(c) which are unsatisfied to any extent with respect to any Restricted Security at the time such security ceases to be a Restricted Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding the earlier termination of this Agreement). (4) Any payments due and payable pursuant to this Section 2(c) shall be subordinated to Senior Indebtedness (as defined in the Indenture) to the extent and in the manner set forth in the Indenture. (5) The rights of the recordholders of Restricted Securities to Liquidated Damages as set forth in this Section 2(c) is not intended to be exclusive of any other right or remedy, and shall be in addition to every other right and remedy given hereunder or under the Indenture or now or hereafter existing at law or in equity or otherwise. 3. REGISTRATION PROCEDURES. In connection with any Shelf Registration Statement, the following provisions shall apply: (a) The Company shall furnish to the Special Counsel and Holders (if requested), prior to the filing thereof with the Commission, a copy of any Shelf Registration Statement, and each amendment thereof and each amendment or supplement, if any, to the Prospectus included therein and shall use its reasonable efforts to reflect in each such document, when so filed with the Commission, such comments as the Special Counsel and Holders reasonably may propose. (b) The Company shall take such action as may be necessary so that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated therein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain -6- 7 FINAL 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 and (iii) any Prospectus forming part of any Shelf Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. (c) (1) The Company shall advise the Initial Purchasers and, in the case of clause (i), the Holders and, if requested by any Initial Purchaser or any such Holder, confirm such advice in writing: (i) when a Shelf Registration Statement and any amendment thereto has been filed with the Commission and when the Shelf Registration Statement or any post effective amendment thereto has become effective; and (ii) of any request by the Commission for amendments or supplements to the Shelf Registration Statement or the Prospectus included therein or for additional information. (2) The Company shall advise the Holders and, if requested by any such Holder, confirm such advice in writing of: (i) the issuance by the Commission of any stop order suspending effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose; (ii) the receipt by the Company of any notification with respect to the suspension of the qualification of the securities included therein for sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) the happening of any event that requires the making of any changes in the Shelf Registration Statement or the Prospectus so that, as of such date, the Shelf Registration Statement and the Prospectus do not contain an untrue statement of a material fact and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading (which advice shall be accompanied by an instruction to -7- 8 FINAL suspend the use of the Prospectus until the requisite changes have been made). (d) The Company shall use its reasonable efforts to prevent the issuance, and if issued to obtain the withdrawal, of any order suspending the effectiveness of any Shelf Registration Statement at the earliest possible time. (e) The Company shall furnish to the Special Counsel and each Holder (if requested) with respect to a Shelf Registration Statement, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all reports, other documents and exhibits (including those incorporated by reference). (f) The Company shall, during the Effectiveness Period, deliver to each Holder with respect to a Shelf Registration Statement, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request, and the Company consents (except during the continuance of any event described in Section 3(c)(2)(iii)) to the use of the Prospectus or any amendment or supplement thereto by each of the Holders in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto during the Effectiveness Period. (g) Prior to any offering of Registrable Securities pursuant to any Shelf Registration Statement, the Company shall register or qualify or cooperate with the Special Counsel and Holders in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holders reasonably request in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Registrable Securities covered by such Shelf Registration Statement; provided, however, that in no event shall the Company be obligated to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to so qualify but for this Section 3(g), (ii) file any general consent to service of process in any jurisdiction where it is not as of the date hereof then so subject or (iii) subject itself to taxation in any jurisdiction if it is not so subject. (h) Unless any Registrable Securities shall be in book-entry only form, the Company shall cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to any Shelf Registration Statement free of any restrictive legends and in such permitted -8- 9 FINAL denominations and registered in such names as Holders may request in connection with the sale of Registrable Securities pursuant to such Shelf Registration Statement. (i) Upon the occurrence of any event contemplated by paragraph 3(c)(2)(iii) above, the Company shall promptly prepare a post-effective amendment to any Shelf Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities included therein, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Company notifies the Holders of the occurrence of any event contemplated by paragraph 3(c)(2)(iii) above, the Holders shall suspend the use of the Prospectus until the requisite changes to the Prospectus have been made. (j) Not later than the effective date of any Shelf Registration Statement hereunder, the Company shall provide a CUSIP number for the Securities registered under such Shelf Registration Statement. (k) The Company shall use its reasonable efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to their securityholders or otherwise provide in accordance with Section 11(a) of the Securities Act as soon as practicable after the effective date of the applicable Shelf Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act. (l) The Company shall cause the Indenture and the Securities to be qualified under the Trust Indenture Act in a timely manner; and in connection with such qualification, the Company shall cooperate with the Trustee under the Indenture and the Holders (as defined in the Indenture) to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and the Company shall execute and use all reasonable efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner. (m) The Company may require each Holder with respect to a Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of Registrable Securities held by such Holder as may be required by applicable law or regulation for inclusion in such Shelf Registration Statement (including, without limitation, the information required by Item 507 of -9- 10 FINAL Regulation S-K of the Securities Act), and the Company may exclude from such registration the Registrable Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request unless, and until such time as, such information is furnished by such Holder. (n) The Company shall enter into such customary agreements (including underwriting agreements in customary form) to take all other appropriate actions in order to expedite or facilitate the registration or the disposition of the Registrable Securities, and in connection therewith, if an underwriting agreement is entered into pursuant to an underwritten offering in accordance with the provisions of Section 6, cause the same to contain indemnification provisions and procedures substantially identical to those set forth in Section 5 (or such other provisions and procedures acceptable to the Managing Underwriters, if any) with respect to all parties to be indemnified pursuant to Section 5. (o) The Company shall make reasonably available for inspection by one representative of the Holders designated in writing by the Holders of a majority of the Registrable Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by such representative or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries; (p) The Company shall cause the Company's officers, directors and employees to make reasonably available for inspection all relevant information reasonably requested by such representative or any such underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such representative, any Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (q) The Company will use its reasonable efforts to cause the Common Stock issuable upon conversion of the Securities to be admitted for quotation on the Nasdaq National Market or other stock exchange or trading system on which the Common Stock primarily trades on or prior to the effective date of any Shelf Registration Statement hereunder. -10- 11 FINAL (r) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by (A) such Rules or By-Laws, including Schedule E thereto, shall so require, engaging a "qualified independent underwriter" (as defined in Schedule E) to participate in the preparation of the Shelf Registration Statement relating to such Registrable Securities and to exercise usual standards of due diligence in respect thereto, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD. (s) The Company shall use its reasonable efforts to take all other steps necessary to effect the registration, offering and sale of the Registrable Securities covered by the Shelf Registration Statement contemplated hereby. (t) Notwithstanding any provision of this Section 3 to the contrary, the Company shall not be required to amend or supplement the Shelf Registration Statement pursuant to the requirements of Sections 3(b), 3(c), 3(i) or 3(s) hereof if (i) such amendment or supplement would require the Company to disclose a material financing, acquisition or corporate transaction and the Board of Directors shall have determined that such disclosure is not in the best interests of the Company and the holders of its outstanding Common Stock or (ii) the Board of Directors shall have determined in good faith that there is a valid business purpose or reason for suspending the use of the Prospectus included in such Shelf Registration Statement in accordance with Section 3(i) hereof instead of making such amendment or supplement, provided that in each such case the Company complies with its obligations, if any, to pay Liquidated Damages. 4. REGISTRATION EXPENSES. Except as otherwise provided in Section 6, the Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 2 and 3 hereof and shall bear or reimburse the Holders for the reasonable fees and disbursements of a Special Counsel designated by the Company. For purposes of this Agreement, the Company initially appoints Wilson Sonsini Goodrich & Rosati, Professional Corporation, as Special Counsel; provided that the Holders of a majority of the Registrable Securities covered by the Shelf Registration Statement have the right pursuant -11- 12 FINAL to this Agreement to substitute another firm of counsel as Special Counsel under this Agreement. 5. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with any Shelf Registration Statement, the Company shall indemnify and hold harmless each Holder, the Initial Purchasers, each underwriter who participates in an offering of Registrable Securities, each person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees, trustees and agents, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, including any amounts paid in settlement of any investigation, litigation, proceeding or claim, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Shelf Registration Statement (or any amendment thereto) covering Registrable Securities, including 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 misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that the Company shall not be liable under this clause (i) for any settlement of any action effected without its written consent, which consent shall not be unreasonably withheld; and (ii) against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of counsel chosen by the Holders, such Holder or any underwriter (except to the extent otherwise expressly provided in Section 5(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) of this Section 5(a); provided that this indemnity shall not apply to any loss, liability, claim, damage or expense to the extent arising out of an 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 such Holder or any underwriter in writing expressly for use in the Shelf Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). Any amounts advanced by the Company to an indemnified party pursuant to this Section 5 as a result of such losses shall be returned to the Company if it -12- 13 FINAL shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company. (b) Each Holder shall agree, severally and not jointly, to indemnify and hold harmless the Company, each underwriter who participates in an offering of Registrable Securities and the other Holders and each of their respective directors, officers (including each officer of the Company who signed the Shelf Registration Statement), employees, trustees and agents and each Person, if any, who controls the Company, any underwriter or any other Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 5(a)(i) and (ii) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto); provided, however, that, no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to the Shelf Registration Statement. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers served on such indemnified party, but failure to so notify an indemnifying party shall not relieve it of any liability which it may have to the indemnified party 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 an indemnifying party so elects within a reasonable time after receipt of such notice, such indemnifying party, jointly with any other indemnifying party, may assume the defense of such action with counsel chosen by it and approved by the indemnified party or parties defendant in such action, provided that if any such indemnified party reasonably determines that there may be legal defenses available to such indemnified party which are different from or in addition to those available to such indemnifying party or that representation of such indemnifying party and any indemnified party by the same counsel would present a conflict of interest, then such indemnifying party or parties shall not be entitled to assume such defense. If an indemnifying party is not entitled to assume the defense of such action as a result of the proviso to the preceding sentence, counsel for such indemnifying party shall be entitled to conduct the defense of such indemnifying party and counsel for each indemnified party or parties shall be entitled to conduct the defense of such indemnified party or parties. If an indemnifying party assumes the defense of an action in accordance with and as permitted by the provisions of this paragraph, such indemnifying party 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 -13- 14 FINAL the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from its 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. (d) In order to provide for just and equitable contribution in circumstances in which the indemnity provision agreement provided for in this Section 5 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company, and the Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and the Holders, as incurred; provided that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company, on the one hand, and the Holders, on the other hand, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and the Holders, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holders, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the Holders, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree, and the Holders shall agree, that it would not be just and equitable if contribution pursuant to this Section 5 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 5(d), each director, officer, employee, trustee, agent and Person, if any, who controls a Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Holder, and each director, officer, employee, trustee and agent of the Company, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its written consent. (e) The Company may require, as a condition to including any Registrable Securities in any Registration Statement filed and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the holder of such Registrable Securities and from each -14- 15 FINAL underwriter named in any such underwriting agreement, severally and not jointly, to comply with the provisions of paragraphs (a) through (d) of this Section 5. 6. UNDERWRITTEN OFFERING. The Holders who desire to do so may sell Registrable Securities in an underwritten offering. In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by the Holders of a majority of the Registrable Securities to be included in such offering; provided, however, that (i) such investment bankers and managers and underwriting arrangements must be reasonably satisfactory to the Company and (ii) the Company shall not be obligated to arrange for more than one underwritten offering during the Effectiveness Period. No Holder may participate in any underwritten offering contemplated hereby unless such Holder (a) agrees to sell such Holder's Registrable Securities in accordance with any approved underwriting arrangements, (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such approved underwriting arrangements and (c) at least 20% of the outstanding Registrable Securities are included in such underwritten offering. The Holders participating in any underwritten offering shall be responsible for any expenses customarily borne by selling securityholders, including underwriting discounts and commissions and fees and expenses of counsel to the selling securityholders and shall reimburse the Company for the fees and disbursements of their counsel, their independent public accountants and any printing expenses incurred in connection with such underwritten offerings. Notwithstanding the foregoing or the provisions of Section 6(a) hereof, upon receipt of a request from the Managing Underwriter or a representative of Holders of a majority of the Registrable Securities outstanding to prepare and file an amendment or supplement to the Shelf Registration Statement and Prospectus in connection with an underwritten offering, the Company may delay the filing of any such amendment or supplement for up to 90 days if the Company in good faith has a valid business reason for such delay. The Company shall in connection with an underwritten offering in accordance with the provisions of this Section: (a) The Company shall, if requested, promptly include or incorporate in a Prospectus supplement or post-effective amendment to a Shelf Registration Statement, such information as the Managing Underwriters administering an underwritten offering of Registrable Securities registered thereunder reasonably request to be included therein and to which the Company does not reasonably object and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after they are notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; -15- 16 FINAL (b) make such representations and warranties to the Holders and the underwriters in form, substance and scope as are customarily made by the Company to underwriters in primary underwritten offerings and covering matters, including, but not limited to, those set forth in the Purchase Agreement; (c) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters) addressed to each Holder and the underwriters covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters (it being agreed that the matters to be covered by such opinion or written statement by such counsel delivered in connection with such opinions shall include in customary form, without limitation, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, including the documents incorporated by reference therein, of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading); (d) obtain "cold comfort" letters and updates thereof from the independent public accountants of the Company (and, if necessary, any other independent public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Shelf Registration Statement), addressed to each Holder and the underwriters in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (e) deliver such documents and certificates as may be reasonably requested by any such Holders and the Managing Underwriters, including those to evidence compliance with Section 3(i) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. 7. MISCELLANEOUS. (a) Other Registration Rights. The Company may grant registration rights that would permit any Person that is a third party the right to piggy-back on any Shelf Registration Statement, provided that if the Managing Underwriter, if any, of such offering delivers an opinion to the Holders that the total amount of securities which they and the holders of such piggy-back rights intend to include in any Shelf Registration Statement is so large as to materially adversely affect the success of such offering (including the price at which -16- 17 FINAL such securities can be sold), then only the amount, the number or kind of securities to be offered for the account of holders of such piggy-back rights will be reduced to the extent necessary to reduce the total amount of securities to be included in such offering to the amount, number or kind recommended by the Managing Underwriter prior to any reduction in the amount of Registrable Securities to be included. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Deutsche Morgan Grenfell Inc. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 7(c); (2) if to the Initial Purchasers, initially at the address set forth in the Purchase Agreement; (3) if to the Company, initially at its address set forth in the Purchase Agreement; and (4) if to the Special Counsel, the address given by such Special Counsel to the Company in accordance with the provisions of this Section 7(c). All such notices and communications shall be deemed to have been duly given when received. The Initial Purchasers, the Company and the Special Counsel by notice to the others may designate additional or different addresses for subsequent notices or communications. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and the Holders, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Registrable Securities. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Registrable Securities and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (e) Counterparts. This agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so -17- 18 FINAL executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This agreement shall be governed by and construed in accordance with the laws of the State of New York, United States of America, without giving effect to any provisions relating to conflicts of laws. (h) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. -18- 19 FINAL Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, LAM RESEARCH CORPORATION By: -------------------------------- Name: -------------------------------- Title: -------------------------------- The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. DEUTSCHE MORGAN GRENFELL INC. Acting severally on behalf of itself and the several Initial Purchasers named herein. By: DEUTSCHE MORGAN GRENFELL INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- -19- EX-5.1 4 OPINION OF JACKSON TUFTS COLE & BLACK LLP 1 EXHIBIT 5.1 [JACKSON TUFTS COLE & BLACK, LLP LETTERHEAD] October 31, 1997 Lam Research Corporation 4650 Cushing Parkway Fremont, CA 94538 Re: Registration Statement on Form S-3 of Lam Research Corporation Ladies and Gentlemen: We are acting as counsel for Lam Research Corporation, a Delaware corporation (the "Company") in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of the offer and sale of up to $310,000,000 of the Company's 5% Convertible Subordinated Notes due 2002 (the "Notes") and 3,531,958 shares of the company's Common Stock, par value $.001 per share, issuable on conversion thereof (the "Shares"), to be sold from time to time by the selling securityholders listed in a Registration Statement on Form S-3, which is expected to be filed with the Securities and Exchange Commission (the "Commission") on or about the date hereof (as amended, the "Registration Statement"). In reaching the conclusions expressed in this opinion we have examined and relied on such documents, corporate records and other instruments, including the Indenture (the "Indenture") dated as of August 15, 1997 between the Company and LaSalle National Bank and certificates of officers of the Company, and made such further investigation and inquiry as we have deemed necessary to reach the opinions expressed herein. In making the foregoing examination, we have assumed the genuineness of all signatures on original documents of all copies submitted to us. Based solely upon the foregoing, subject to the comments and exceptions hereinafter stated, it is our opinion that: 1. The Notes have been duly authorized for issuance by the Company. 2. The Indenture has been duly authorized, executed and delivered by the Company. 3. The Shares, when issued and delivered in accordance with the terms of the Notes and the Indenture upon conversion of the Notes, will be legally issued, fully paid and non-assessable. We express no opinion as to the laws of any jurisdiction other than the General Corporation Law of the State of Delaware and the federal laws of the United States of America, in each case as in effect of the date hereof. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm therein under the caption "Legal Matters." In giving this consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ JACKSON TUFTS COLE & BLACK, LLP EX-5.2 5 OPINION OF WINTHROP STIMSON PUTNAM & ROBERTS 1 EXHIBIT 5.2 [Winthrop, Stimson, Putnam & Roberts Letterhead] October 29, 1997 Lam Research Corporation 4650 Cushing Parkway Fremont, CA 94538 Re: Registration Statement on Form S-3 of Lam Research Corporation Ladies and Gentlemen: We are acting as special New York counsel for Lam Research Corporation, a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933 (the "Act"), of up to $310,000,000 of the Company's 5% Convertible Subordinated Notes due 2002 (the "Notes") and 3,531,958 shares of the company's Common Stock, par value $.001 per share, issuable on conversion thereof (the "Shares"), to be sold from time to time by the selling securityholders listed in a Registration Statement on Form S-3, which is expected to be filed with the Securities and Exchange Commission (the "Commission") on or about the date hereof (as amended, the "Registration Statement"). In reaching the conclusions expressed in this opinion we have examined and relied on such documents, corporate records and other instruments, including the Indenture (the "Indenture") dated as of August 15, 1997 between the Company and LaSalle National Bank (the "Trustee")and made such further investigation and inquiry as we have deemed necessary to reach the opinions expressed herein. We have not examined the Notes, except specimens thereof. In making the foregoing examination, we have assumed the genuineness of all signatures on original documents of all copies submitted to us. Based solely upon the foregoing, subject to the qualifications and exceptions hereinafter stated, it is our opinion that, assuming (i) that the Company has sufficient legal capacity under the laws of its jurisdiction of incorporation to enter into and carry out its obligations under the Indenture and the Notes; (ii) assuming the due authorization and execution and delivery by the Company in accordance with such authorization and as contemplated by the form of such agreement of the Indenture; (iii) assuming the due authorization and execution and delivery by the Company in accordance with such authorization of the Notes and (iv) assuming due authorization, execution and delivery by the Trustee of the Indenture, (x) the Indenture is a valid and binding obligation of the Company, enforceable against the Company in accordance with the terms thereof, except as (i) limited or otherwise affected by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar 2 Lam Research Corporation October 24, 1997 Page 2 laws of general application relating to or affecting creditor's rights and (ii) limited by general principles of equity (regardless of whether considered in a proceeding at law or in equity) including, without limitation, the availability or unavailability of equitable remedies and an implied covenant of good faith and fair dealing and (y) the Notes, assuming they have been executed by the Company and authorized by the Trustee in accordance with the provisions of the Indenture and delivered to and paid for by the initial purchasers thereof, constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with the terms thereof except as (i) limited or otherwise affected by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws of general application relating to or affecting creditors' rights and (ii) limited by general principles of equity (regardless of whether considered in a proceeding at law or in equity), including, without limitation, the availability or unavailability of equitable remedies and an implied covenant of good faith and fair dealing, and will be entitled to the benefits of the Indenture. We express no opinion as to the laws of any jurisdiction other than the laws of the State of New York as in effect of the date hereof. Notwithstanding anything to the contrary contained herein, we express no opinion as to rights to indemnity and contribution. We hereby consent to the filing of this opinion as Exhibit 5.2 to the Registration Statement and to the reference to our firm therein under the caption "Legal Matters." In giving this consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ Winthrop, Stimson, Putnam & Roberts EX-11.1 6 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 LAM RESEARCH CORPORATION COMPUTATION OF SUPPLEMENTAL EARNINGS PER SHARE FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRIMARY FULLY DILUTED -------- ------------- YEAR-ENDED JUNE 30, 1997 Net loss............................................................. $(30,676) $ (30,676) -------- -------- $(30,676) $ (30,676) ======== ======== Weighted average shares outstanding.................................. 36,919 36,919 -------- -------- Common and common equivalent shares used in computing per share amounts............................................................ 36,919 36,919 ======== ======== Net loss per share................................................... $ (0.83) $ (0.83) ======== ======== YEAR-ENDED JUNE 30, 1996 Net Income........................................................... $145,878 $ 145,878 Add interest expense on convertible subordinated debentures, net of tax................................................................ -- 3,264 -------- -------- $145,878 $ 149,142 ======== ======== Weighted average shares outstanding.................................. 33,753 33,753 Net effect of dilutive stock option.................................. 1,726 1,744 Assumed conversion of subordinated debentures........................ -- 2,222 -------- -------- Common and common equivalent shares used in computing per share amounts............................................................ 35,479 37,719 ======== ======== Net income per share................................................. $ 4.11 $ 3.95 ======== ======== YEAR-ENDED JUNE 30,1995 Net Income........................................................... $ 90,279 $ 90,279 Add interest expense on convertible subordinated debentures, net of tax................................................................ -- 3,455 -------- -------- $ 90,279 $ 93,734 ======== ======== Weighted average shares outstanding.................................. 29,377 29,377 Net effect of dilutive stock options................................. 3,014 3,374 Assumed conversion of subordinated debentures........................ -- 2,640 -------- -------- Common and common equivalent shares used in computing per share amounts............................................................ 32,391 35,391 -------- -------- $ 2.79 $ 2.65 ======== ========
- --------------- Note: Amounts presented above applicable to prior periods have been restated to reflect the Company's merger with OnTrak Systems, Inc. as a pooling of interests. EX-12.1 7 RATIOS OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 LAM RESEARCH CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED JUNE 30, ---------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- ------- ------- Income (loss) before income taxes..... $(60,859) $216,399 $128,970 $59,506 $27,431 Fixed charges......................... 24,650 22,576 12,583 7,451 3,992 Earnings (loss)....................... (36,209) 238,975 141,553 66,957 31,423 Divided by fixed charges.............. 24,650 22,576 12,583 7,451 3,992 Ratio of earnings to fixed charges.... n/a 10.6x 11.2x 9.0x 7.9x
- --------------- Note: Above noted amounts have been restated to reflect the combined results of Lam Research Corporation and OnTrak Systems, Inc. Note: For purposes of calculating the ratio of earnings to fixed charges, (i) earnings consist of consolidated net income (loss) before income taxes of the combined company (ii) fixed charges consist of interest expense incurred, by the combined company, including capital leases, amortization of interest costs and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor. Earnings were not sufficient to cover fixed charges for fiscal 1997 by approximately $36 million. EX-23.1 8 CONSENT OF ERNST & YOUNG LLP 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 Lam Research Corporation for the registration of $310,000,000 of 5% convertible subordinated notes due 2002 and up to 3,531,958 shares of Common Stock, and to the incorporation by reference therein of our report dated August 26, 1997, with respect to the consolidated financial statements of Lam Research Corporation incorporated by reference in its Annual Report on Form 10-K for the year ended June 30, 1997, and our report dated August 26, 1997, with respect to the supplemental consolidated financial statements and schedule of Lam Research Corporation included herein. /s/ ERNST & YOUNG LLP San Jose, California October 28, 1997 EX-23.2 9 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of Lam Research Corporation of our report dated July 24, 1997, except for Note 2, which is dated as of August 5, 1997, relating to the consolidated financial statements of OnTrak Systems, Inc., which appears on page 7 of Lam Research Corporation's Current Report on Form 8-K/A dated August 5, 1997 as amended on October 3, 1997. We also consent to the use in the Prospectus constituting part of this Registration Statement on Form S-3 of Lam Research Corporation of our report dated July 24, 1997, except for Note 2, which is dated as of August 5, 1997, relating to the consolidated financial statements of OnTrak Systems, Inc. which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP San Jose, California October 27, 1997 EX-25.1 10 FORM T-1 STATEMENT 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM T-1 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ----------------------- LASALLE NATIONAL BANK (Exact name of trustee as specified in its charter) 36-1521370 (I.R.S. Employer Identification No.) 135 South LaSalle Street, Chicago, Illinois 60603 (Address of principal executive offices) (Zip Code) ----------------------- M. ROBERT K. QUINN Senior Vice President and General Counsel Telephone: (312) 904-2010 135 South LaSalle Street Chicago, Illinois 60603 (Name, address and telephone number of agent for service) ----------------------- LAM RESEARCH CORPORATION (Exact name of obligor as specified in its charter) Delaware 94-2634797 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 4650 Cushing Parkway Fremont, California (510) 659-0200 94538-6470 (Address of Principal Executive Offices) (Zip Code) ----------------------- 5% Convertible Subordinated Notes due 2002 (Title of the indenture securities) 2 ITEM 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. 1. Comptroller of the Currency, Washington D.C. 2. Federal Deposit Insurance Corporation, Washington, D.C. 3. The Board of Governors of the Federal Reserve Systems, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes. ITEM 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. If the obligor or any underwriter for the obligor is an affiliate of the trustee, describe each such affiliation. Neither the obligor nor any underwriter for the obligor is an affiliate of the trustee. ITEM 3. VOTING SECURITIES OF THE TRUSTEE. Furnish the following information as to each class of voting securities of the trustee: Not applicable ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: (a) Title of the securities outstanding under each other indenture. Not applicable (b) A brief statement of the facts relied upon as a basis for the claim that no conflicting interest within the meaning of Section 310(b)(1) of the Act arises as a result of the trusteeship under such other indenture, including a statement as to how the indenture securities will rank as compared with the securities issued under such other indenture. Not applicable ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR UNDERWRITERS. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or of any underwriter for the obligor, identify each such person having any such connection and state the nature of each such connection. Not applicable 3 ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner and executive officer of the obligor. Not applicable ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner, and executive officer of each such underwriter. Not applicable ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE. Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee: Not applicable ITEM 9. SECURITIES OF THE UNDERWRITER OWNED OR HELD BY THE TRUSTEE. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee. Not applicable ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR. If the trustee owns beneficially or holds as collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10 percent or more of the voting securities of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person. Not applicable ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of a person who, to the knowledge of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such person any of which are so owned or held by the trustee. Not applicable 4 ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE. If the obligor is indebted to the trustee, furnish the following information. Not applicable ITEM 13. DEFAULTS BY THE OBLIGOR. a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. Not applicable b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. Not applicable ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS. If any underwriter is an affiliate of the trustee, describe each such affiliation. Not applicable ITEM 15. FOREIGN TRUSTEE. Identify the order or rule pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified. Not applicable ITEM 16. LIST OF EXHIBITS. List below all exhibits filed as part of this statement of eligibility and qualification. 1. A copy of the Articles of Association of LaSalle National Bank now in effect. 2. A copy of the certificate of authority to commence business. 3. A copy of the authorization to exercise corporate trust powers. 4. A copy of the existing By-Laws of LaSalle National Bank. 5. Not applicable. 6. The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939. 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. 8. Not applicable. 9. Not applicable. 5 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939,the trustee, LaSalle National Bank, a corporation organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago, State of Illinois, on 10/25/97 2:57 AM. LASALLE NATIONAL BANK By: /s/ SARAH H. WEBB ----------------------------- Sarah H. Webb First Vice President 6 EXHIBIT 1 ARTICLES OF ASSOCIATION 7 ARTICLES OF ASSOCIATION LA SALLE NATIONAL BANK (LOGO) LA SALLE NATIONAL BANK CHICAGO, ILLINOIS 8 (LOGO) LaSalle National Bank ARTICLES OF ASSOCIATION FIRST. The title of this association, which shall carry on the business of banking under the laws of the United States shall be "LaSalle National Bank." SECOND. The place where the main banking house or office of this association shall be located, its operations of discount and deposit carried on, and its general business conducted, shall be Chicago, County of Cook, State of Illinois. THIRD. The Board of Directors of this association shall consist of such number of its shareholders, not less than five nor more than twenty-five, as from time to time shall be determined by a majority of the votes to which all of its shareholders are at the time entitled. A majority of the Board of Directors shall be necessary to constitute a quorum for the transaction of business. The Board of Directors, by vote of a majority of the full board, may, between annual meetings of shareholders increase the membership of the Board where the number of directors last elected by shareholders was 15 or less, by not more than two members, and where the number of directors last elected by shareholders was 16 or more, by not more than four members and by a like vote appoint qualified persons to fill the vacancies created thereby; provided that the number of Directors shall at no time exceed twenty-five. FOURTH. The regular annual meeting of the shareholders of this association shall be held at its main banking house, or other convenient place duly authorized by the board of directors on such day of each year as is specified therefor in the bylaws. FIFTH. The amount of capital stock which this association is authorized to issue shall be Twenty Million Dollars ($20,000,000.00) divided into 2,000,000 shares of common capital stock of the par value of $10.00 each; but said capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. If the capital stock is increased by the sale of additional shares thereof, other than to key officers and employees of the association upon the exercise of options granted pursuant to the terms of a stock option plan then in effect, as to which sales all pre-emptive rights are waived, each shareholder shall be entitled to subscribe for such additional shares in proportion to the number of shares of said capital stock owned by him at the time the increase is authorized by the shareholders, unless another time subsequent to the date of the shareholders' meeting is specified in a resolution adopted by the shareholders at the time the increase is authorized. The board of directors shall have the power to prescribe a reasonable period of time within which the pre-emptive rights to subscribe to the new shares of capital stock may be exercised. The association, at any time and from time to time, may authorize and issue debt obligations, whether or not subordinated, without the approval of the shareholders. SIXTH. The board of directors shall appoint one of its members president of this association, who shall be chairman of the board, but the board of directors may appoint a director in lieu of the president to be chairman of the board, who shall perform such duties as may be designated by the board of directors. The board of directors shall have the power to appoint one or more vice presidents, a cashier and such other officers as may be required to transact the business of this association; to fix the salaries to be paid to all officers of this association; and to dismiss such officers, or any of them. The board of directors shall have the power to define the duties of officers and employees of this association, to require bonds from them, and to fix the penalty thereof; to regulate the manner in which directors shall be elected or appointed, and to appoint judges of the election; to make all bylaws that it may be lawful for 9 them to make for the general regulation of the business of this association and the management of its affairs; and generally to do and perform all acts that it may be lawful for a board of directors to do and perform. SEVENTH. This association shall have succession from the date of its organization certificate until such time as it be dissolved by act of its shareholders in accordance with the provisions of the banking laws of the United States, or until its franchise becomes forfeited by reason of violation of law, or until terminated by either a general or a special act of Congress, or until its affairs be placed in the hands of a receiver and finally wound up by him. EIGHTH. The board of directors of this association, or any three or more shareholders owning, in the aggregate, not less than ten per centum of the stock of this association, may call a special meeting of shareholders at any time: Provided, however, that, unless otherwise provided by law, not less than ten days prior to the date fixed for any such meeting, a notice of the time, place, and purpose of the meeting shall be given by first-class mail, postage prepaid, to all shareholders of record of this association at their respective addresses as shown upon the books of the association. These articles of association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the shareholders owning at least a majority of the stock of this association, subject to the provisions of the banking laws of the United States. The notice of any shareholders' meeting, at which an amendment to the articles of association of this association is to be considered, shall be given as herein-above set forth. NINTH. Any person, his heirs, executors, or administrators, may be indemnified or reimbursed by the association for reasonable expenses actually incurred in connection with any action, suit, or proceeding, civil or criminal, to which he or they shall be made a party by reason of his being or having been a director, officer, or employee of the association or of any firm, corporation, or organization which he served in any such capacity at the request of the association: Provided, however, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding as to which he shall finally be adjudged to have been guilty of or liable for negligence or wilful misconduct in the performance of his duties to the association: And, provided further, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding which has been made the subject of a compromise settlement except with the approval of a court of competent jurisdiction, or the holders of record of a majority of the outstanding shares of the association, or the board of directors, acting by vote of directors not parties to the same or substantially the same action, suit, or proceeding, constituting a majority of the whole number of the directors. The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such person, his heirs, executors, or administrators, may be entitled as a matter of law. ******** May 17, 1982 Form No. 181, Rev 5/17/82 GW 10 EXHIBIT 2 CERTIFICATE OF AUTHORITY TO COMMENCE BUSINESS 11 STATE OF ILLINOIS AUDITOR'S OFFICE NO. 333 (LOGO) NATIONAL BANK TRUST CERTIFICATE Springfield, FEBRUARY 15th 1928 I, OSCAR NELSON, Auditor of Public Accounts of the State of Illinois, do hereby certify that the NATIONAL BUILDERS BANK OF CHICAGO located at CHICAGO, County of COOK and State of Illinois, a corporation organized under and by authority of the statutes of the United States governing National Banks and authority granted by the Federal Reserve Act for the purpose of accepting and executing trusts, has this day deposited in this office, securities in the sum of TWO HUNDRED THOUSAND Dollars, $200,000.00 of the character designated by Section 6 of the Act of the Legislature of the State of Illinois entitled "An Act to provide for and regulate the administration of trusts by trust companies," The said deposit is made for the benefit of the creditors of said NATIONAL BUILDERS BANK OF CHICAGO under and by virtue of the provisions of the Act above referred to and the said securities are now held by me in this office in my official capacity as such Auditor of Public Accounts, for the uses and purposes aforesaid. I further certify that by virtue of the Acts aforesaid, the NATIONAL BUILDERS BANK OF CHICAGO is hereby authorized to accept and execute trusts and receive deposits of trust funds under the provisions and limitations of "An Act to provide for and regulate the administration of trusts in Illinois. IN TESTIMONY WHEREOF, I hereunto subscribe my name and affix the seal of my office, the day and year first above written. (SEAL) /s/ OSCAR NELSON --------------------------- AUDITOR OF PUBLIC ACCOUNTS. STATE OF ILLINOIS. 12 NO. 13146. TREASURY DEPARTMENT (LOGO) OFFICE OF COMPTROLLER OF THE CURRENCY Washington, D.C., NOVEMBER 29, 1927. WHEREAS, by satisfactory evidence presented to the undersigned, it has been made to appear that "NATIONAL BUILDERS BANK OF CHICAGO" in the CITY of CHICAGO in the County of COOK and State of ILLINOIS has complied with all the provisions of the Statutes of the United States, required to be complied with before an association shall be authorized to commence the business of Banking; NOW THEREFORE I, J.W. MCINTOSH, Comptroller of the Currency, do hereby certify that "NATIONAL BUILDERS BANK OF CHICAGO" in the CITY of CHICAGO in the County of COOK and State of ILLINOIS is authorized to commence the business of Banking as provided in Section Fifty one hundred and sixty nine of the Revised Statutes of the United States. IN TESTIMONY WHEREOF witness my hand and Seal of (SEAL) office this TWENTY-NINTH day of NOVEMBER, 1927. (SEAL) /s/ J.W. MCINTOSH --------------------------- Comptroller of the Currency 13 CERTIFICATE OF CHANGE OF CORPORATE TITLE (LOGO) NO. 13146. TREASURY DEPARTMENT OFFICE OF THE COMPTROLLER OF THE CURRENCY WASHINGTON, D.C., MAY 1, 1940. WHEREAS, by satisfactory evidence presented to me, it appears that under authority of sections 2, 3, and 4, of the Act of Congress approved May 1, 1886, entitled "An Act to enable national banking associations to increase their capital stock and to change their names or location," shareholders owning two-thirds of the stock of the national banking association heretofore known as-- "NATIONAL BUILDERS BANK OF CHICAGO," located in CHICAGO, County of COOK, State of ILLINOIS, have voted to change the name of said association to-- "LASALLE NATIONAL BANK," and have complied with all the provisions of the said Act relative to national banking associations changing their name. NOW, THEREFORE, IT IS HEREBY CERTIFIED, that the name of the said association has been changed to-- "LASALLE NATIONAL BANK," and that such change of name is hereby approved under authority conferred by said Act. (SEAL) IN TESTIMONY WHEREOF, witness my hand and seal of office this FIRST day of MAY, 1940. /s/ ---------------------------------- ACTING Comptroller of the Currency. 14 EXHIBIT 3 AUTHORIZATION TO EXERCISE CORPORATE TRUST POWERS 15 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [LETTERHEAD] WASHINGTON May 9, 1940 LaSalle National Bank, Chicago, Illinois. Gentlemen: The Board of Governors of the Federal Reserve System has been officially advised by the Comptroller of the Currency that on May 1, 1940, National Builders Bank of Chicago, Chicago, Illinois, changed its title to LaSalle National Bank, and accordingly there is enclosed herewith a certificate showing that LaSalle National Bank has authority to exercise the fiduciary powers enumerated therein. Kindly acknowledge receipt of this certificate. Very truly yours, /s/ S. R. CARPENTER ------------------------------ S. R. Carpenter, Assistant Secretary. Enclosure 16 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON I, S. R. Carpenter, Assistant Secretary of the Board of Governors of the Federal Reserve System (formerly known as the Federal Reserve Board), do hereby certify that it appears from the records of the Board of Governors of the Federal Reserve System that: (1) Pursuant to the authority vested in the Federal Reserve Board by an Act of Congress approved December 23, 1913, known as the Federal Reserve Act, as amended, the Federal Reserve Board on December 8, 1927, granted to National Builders Bank of Chicago, Chicago, Illinois, the right to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of Illinois; (2) Under the provisions of an Act of Congress approved May 1, 1886, National Builders Bank of Chicago, Chicago, Illinois, on May 1, 1940, changed its title to LaSalle National Bank; and (3) By virtue of the foregoing, LaSalle National Bank, Chicago, Illinois, has authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of Illinois, subject to regulations prescribed by the Board of Governors of the Federal Reserve System. IN WITNESS WHEREOF, I have hereunto subscribed my name and caused the seal of the Board of Governors of the Federal Reserve System to be affixed at the City of Washington in the District of Columbia. /s/ S. R. CARPENTER -------------------------- Assistant Secretary. Dated May 9, 1940 17 EXHIBIT 4 BY-LAWS OF LA SALLE NATIONAL BANK 18 BYLAWS OF LA SALLE NATIONAL BANK CHICAGO, ILLINOIS LA SALLE NATIONAL BANK (LOGO) Organized Under the National Banking Laws of the United States 19 BYLAWS of the LA SALLE NATIONAL BANK (a National Banking Association which association is herein referred to as the "bank") ARTICLE I MEETINGS OF SHAREHOLDERS SECTION 1.1. ANNUAL MEETING. The regular annual meeting of the shareholders for the election of directors and the transaction of whatever other business may properly come before the meeting, shall be held at the main office of the Bank, 135 South LaSalle Street, Chicago, Illinois, or such other place as the Board of Directors may designate, at 9:00 A.M., on the third Wednesday of March of each year. Notice of such meeting shall be mailed, postage prepaid, at least ten days prior to the date thereof, addressed to each shareholder at his address appearing on the books of the Bank. If for any cause, an election of directors is not made on the said day, the Board of Directors shall order the election to be held on some subsequent day as soon thereafter as practicable, according to the provisions of law; and notice thereof shall be given in the manner herein provided for the annual meeting. SECTION 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided by statute, special meetings of the shareholders may be called for any purpose at anytime by the board of directors or by any three or more shareholders owning, in the aggregate, not less than ten percent of the stock of the bank. Every such special meeting, unless otherwise provided by law, shall be called by mailing, postage pre-paid, not less than ten days prior to the date fixed for such meeting, to each shareholder at his address appearing on the books of the bank, a notice stating the purpose of the meeting. SECTION 1.3. NOMINATIONS FOR DIRECTOR. Nominations for election to the board of directors may be made by the board of directors or by any shareholder of any outstanding class of capital stock of the bank entitled to vote for the election of directors. Nominations, other than those made by or on behalf of the existing management of the bank, shall be made in writing and shall be delivered or mailed to the president of the bank and to the Comptroller of the Currency, Washington, D.C., not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors, provided, however, that if less than 21 days' notice of the meeting is given to the shareholders, such nomination shall be mailed or delivered to the president of the bank and to the Comptroller of the Currency not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of capital stock of each proposed nominee; (d) the name and address of the notifying shareholder; and (e) the number of shares of capital stock of the bank owned by the notifying shareholder. Nominations not made in accordance herewith, may, in his discretion, be disregarded by the chairman of the meeting, and upon his instructions, the vote tellers may disregard all votes cast for each such nominee. SECTION 1.4. JUDGES OF ELECTION. Every election of directors shall be managed by three judges, who shall be appointed by the board of directors prior lo the time of said election. The judges of election shall hold and conduct the election at which they are appointed to serve; and after the election, they shall file with the cashier a certificate under their hands, certifying the result thereof and the names of the directors elected. The judges of election. at the request of the chairman of the meeting, shall act as tellers of any other vote by ballot taken at such meeting, and shall certify the result thereof. 20 SECTION 1.5. PROXIES. Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing, but no officer or employee of this bank shall act as proxy. Proxies shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Proxies shall be dated and shall be filed with the records of the meeting. SECTION 1.6. QUORUM. A majority of the outstanding capital stock, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders, unless otherwise provided by law; but less than a quorum may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting, unless otherwise provided by law or by the articles of association. ARTICLE II DIRECTORS SECTION 2.1. BOARD OF DIRECTORS. The board of directors (hereinafter referred to as the "board"), shall have power to manage and administer the business affairs of the bank. Except as expressly limited by law, all corporate powers of the bank shall be vested in and may be exercised by said board. SECTION 2.2. NUMBER. The board shall consist of not less than five or more than twenty-five shareholders, the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full board or by resolution of the shareholders at any meeting thereof; provided, however, that a majority of the full board may not increase the number of directors by more than two if the number of directors last elected by shareholders was fifteen or less and by not more than four where the number of directors last elected by shareholders was sixteen or more, provided that in no event shall the number of directors exceed twenty-five. SECTION 2.3. ORGANIZATION MEETING. The cashier, upon receiving the certificate of the judges, of the result of any election, shall notify the directors-elect of their election and of the time at which they are required to meet at the main office of the bank for the purpose of organizing the new board and electing and appointing officers of the bank for the succeeding year. Such meeting shall be appointed to be held on the day of election or as soon thereafter as practicable, and, in any event, within thirty days thereof. If, at the time fixed for such meeting, there shall not be a quorum present the directors present may adjourn the meeting, from time to time, until a quorum is obtained. SECTlON 2.4 REGULAR MEETINGS. The regular meetings of the board shall be held, without notice, on the third Wednesday of each month at the main office. When any regular meeting of the board falls upon a holiday, the meeting shall be held on the next banking business day unless the board shall designate some other day. SECTION 2.5 SPECIAL MEETINGS. Special meetings of the board may be called by the chairman of the board, the president, or at the request of three or more directors. Each member of the board shall be given notice stating the time and place, by telegram, letter or in person, of each such special meeting. SECTION 2.6. QUORUM. A majority of the directors shall constitute a quorum at any meeting, except when otherwise provided by law; but a less number may adjourn any meeting from time to time, and the meeting may be held, as adjourned, without further notice. SECTION 2.7. VACANCIES. When any vacancy occurs among the directors, the remaining members of the board, in accordance with the laws of the United States, may appoint a director to fill such vacancy at any regular meeting of the board, or at a special meeting called for that purpose. 21 SECTION 2.8. RETIREMENT POLICY. A retirement policy adopted by the board of directors shall be applicable to directors who are not active officers of the bank. ARTICLE III COMMITTEES OF THE BOARD SECTION 3.1. EXECUTIVE COMMITTEE. There shall be an executive committee of the board. The members of the executive committee shall be chosen by the board from time to time, shall hold office during its pleasure, and shall consist of the chairman of the board, the chairman of the executive committee selected by the board, who may but need not be the same person designated to be president, and the president, ex officio, and not less than seven additional members of the board who shall not be active officers of the bank. It shall be the duty of this committee to exercise such powers and perform such duties in respect to the making of loans and discounts as shall from time to time be specified by resolution of the board. During such periods as the board shall not be in session, the executive committee shall have and may exercise all the powers of the board except such as are by law or by these bylaws required to be exercised only by the board. The executive committee may make rules for holding and conducting its meetings and keep in the minute book of the bank a report of all action taken which shall be submitted for approval at each regular meeting of the board and the action of the board shall be recorded in the minutes of that meeting. A quorum of the executive committee shall consist of not less than five of its members, at least three of whom shall not be active officers of the bank. The chairman of the board, or in his absence in the order named if present, the chairman of the executive committee or the president, may designate any director who is not an active officer of the bank, or a designated member, to serve as a member of the executive committee at any specified meeting. Vacancies in the executive committee at any time existing may be filled by appointment by the board. The board may at anytime revise or change the membership and chairmanship of the executive committee and make new or additional appointments thereto. The chairman of the executive committee shall be ex officio a member of all committees except the examining committee and the trust audit committee, and shall have such other duties as may from time to time be assigned him by the board. SECTION 3.2. OFFICERS' COMPENSATION COMMITTEE. There shall be an officers' compensation committee of the board. The members of the officers' compensation committee shall consist of the members ex officio provided for in other sections of these bylaws and not less than three additional non-officer members of the board who shall be appointed by the board each year at its first meeting after the directors have been elected and qualified. It shall be the duty of this committee to study the compensation of all officers of the bank and from time to time report their recommendations to the board; and such other duties, if any, as may from time to time be assigned to it by the board. A majority of the committee, including at least two non-officer members, shall be necessary for the committee to keep records of its action. SECTION 3.3. EXAMINING COMMITTEE. There shall be an examining committee of the board. The members of the examining committee shall consist of the members ex officio provided for in other sections of these bylaws, but exclusive of any active officer of the bank and not less than three additional non-officer members of the board who shall be appointed by the board each year at its first meeting after the directors have been elected and qualified. It shall be the duty of this committee to make an examination at least twice each year into the affairs of the bank or to cause the examinations to be made by accountants (who may be the bank's own accountants) responsible only to the board in such examinations, and to report the result of such examinations in writing to the board at the next regular meeting thereafter, or it may, at its sole discretion, submit the reports of the national bank examiner or of the Chicago Clearing House Association examination, with or without additional comments by the committee itself, for, and in lieu of its personal examinations. Such reports shall state whether the bank is in sound condition, whether adequate internal audit controls and procedures are being maintained and shall recommend to the board such changes in the manner of doing business or conducting the affairs of the bank as shall be deemed advisable. 22 SECTION 3.4. OTHER COMMITTEES. The board may appoint, from time to time, from its own members, other committees of one or more persons, for such purposes and with such powers as the board may determine. ARTICLE IV OFFICERS AND EMPLOYEES SECTION 4.1. CHAIRMAN OF THE BOARD. The board shall appoint one of its members to be chairman of the board. The chairman of the board shall supervise the carrying out of the policies adopted or approved by the board. He shall have general executive powers, as well as the specific powers conferred by these bylaws. He shall be ex officio a member of all committees, except the examining committee and the trust audit committee. He shall have general supervision and direction of the business, affairs and personnel of the bank. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned to him by the board. SECTION 4. 2. VICE CHAIRMAN OF THE BOARD. The board may appoint one of its members to be vice chairman of the board. He shall perform such duties as may from time to time be assigned to him by the board. SECTION 4.3. PRESIDENT. The board shall appoint one of its members to be president of the bank. He shall be the chief executive officer and the chief administrative officer of the bank and in the absence of the chairman of the board, he shall preside at any meeting of the board at which he is present. The president shall have general executive powers, and shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice to the office of president, or imposed by these bylaws. He shall be ex officio a member of all committees, except the examining committee and trust audit committee. He shall have general supervision of the business, affairs and personnel of the bank and in the absence of the chairman of the board, shall exercise the powers and perform the duties of the chairman of the board. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned to him by the board. SECTION 4.4. SENIOR OFFICERS. The board may appoint one or more executive vice presidents and one or more senior vice presidents. Each such senior officer shall have such powers and duties as may be assigned to him by the board, the chairman of the board, or the president. SECTION 4.5. VICE PRESIDENT. The board may appoint one or more vice presidents. Each vice president shall have such powers and duties as may be assigned to him by the board, the chairman of the board, or the president. SECTION 4.6. CASHIER. The board shall appoint a cashier who shall have such powers and duties as may be assigned to him by the board, the chairman of the board, or the president. The cashier shall be custodian of the corporate seal, records, documents and papers of the bank. He shall provide for keeping of proper records of all transactions of the bank. SECTION 4.7. SECRETARY. The board shall appoint a secretary who shall be secretary of the bank. He shall also perform such duties as may be assigned to him from time to time by the board. The board may appoint a secretary of the board who shall keep accurate minutes of all meetings. He shall attend to the giving of all notices; he shall also perform such other duties as may be assigned to him from time to time by the board. SECTION 4.8. OTHER OFFICERS. The board may appoint one or more assistant vice presidents, one or more trust officers, one or more assistant secretaries, one or more assistant cashiers, and such other officers and attorneys-in-fact as from time to time may appear to the board to be required or desirable to transact the 23 business of the bank. Such officers, respectively, shall exercise such powers and perform such duties as pertain to their several offices or as may be conferred upon or assigned to them by the board the chairman of the board or the president. SECTION 4.9. CLERKS AND AGENTS. The chairman of the board, the president, or any other active officer of the bank authorized by the chairman of the board, or the president, may appoint and dismiss all or any paying tellers receiving tellers note tellers, vault custodians, bookkeepers and other clerks, agents and employees as they may deem advisable for the prompt and orderly transaction of the business of the bank, define their duties, fix the salaries to be paid them and the conditions of their employment. SECTION 4.10. RESPONSIBILITY FOR MONEYS, ETC. Each of the active officers and clerks of this bank shall be responsible for all moneys, funds valuables and property of every kind and description that may from time to time be entrusted to his care or placed in his hands by the board or others, or that otherwise may come into his possession as an active officer or clerk of this bank. SECTION 4.11. SURETY BONDS. All the active officers and clerks of this bank may be covered by one of the blanket form bonds customarily written by the surety companies, drawn for such an amount, and executed by such surety company, as the board may from time to time require, and duly approve; or at the discretion of the board, all such active officers and clerks shall, each for himself, give such bond, with such security, and in such denominations as the board may from time to time require and direct. All bonds approved by the board shall assure the faithful and honest discharge of the respective duties of such active officer or clerk and shall provide that such active officer or clerk shall faithfully apply and account for all moneys, funds, valuables and property of every kind and description that may from time to time come into his hands or be entrusted to his care, and pay over and deliver the same to the order of the board or to such other person or persons as may be authorized to demand and receive the same. SECTION 4.12. TERM OF OFFICE - OFFICER DIRECTOR. The chairman of the board, the vice chairman of the board and the president, together with any other active officers who may be duly elected members of the board, shall hold their respective offices for the current year for which the board (of which they shall be members) was elected and until their successors are appointed, unless they shall resign, be disqualified, or be removed; and any vacancy occurring in the office of the chairman of the board, the vice chairman of the board, the president, or in the board, shall, if required by these bylaws, be filled by the remaining members. SECTION 4.13. TERM OF OFFICE - OFFICER. The executive vice presidents, the senior vice presidents, the vice presidents, the assistant vice presidents, the cashier, the secretary, the trust officers and all other officers and attorneys-in-fact who are not duly elected members of the board, shall be appointed to hold their offices, respectively, during the pleasure of the board. ARTICLE V TRUST DEPARTMENT SECTION 5.1. TRUST DEPARTMENT. There shall be a department of the bank known as the trust department which shall perform the fiduciary responsibilities of the bank. SECTION 5.2. TRUST OFFICER. There shall be a senior vice president and trust officer, or vice president and trust officer of this bank, who shall be designated as the managing officer of the trust department and whose duties shall be to manage, supervise and direct all the activities of the trust department. He shall do, or cause to be done, all things necessary or proper in carrying on the business of the trust department in accordance with provisions of law and regulations. He shall act pursuant to opinion of counsel where such opinion is deemed necessary. Opinions of counsel shall be retained on file in connection with all important matters pertaining to fiduciary activities. The trust officer shall be responsible for all assets and documents held by the bank in connection with fiduciary matters. 24 The board may appoint such other officers of the trust department as it may deem necessary, with such duties as may be assigned to them by the board, the chairman of the board, or the president. SECTION 5.3. TRUST INVESTMENT COMMITTEE. There shall be appointed by the board a trust investment committee of this bank composed of not less than four members, including members ex officio provided for in other sections of these bylaws, who shall be capable and experienced officers or directors of the bank. All investments of funds held in a fiduciary capacity shall be made, retained or disposed of only with the approval of the trust investment committee; and the committee shall keep minutes of all its meetings, showing the disposition of all matters considered and passed upon by it. The committee shall, promptly after the acceptance of an account for which the bank has investment responsibilities, review the assets thereof, to determine the advisability of retaining or disposing of such assets. The committee shall conduct a similar review at least once during each calendar year thereafter and within fifteen months of the last such review. A report of all such reviews, together with the action taken as a result thereof, shall be noted in the minutes of the committee. Three members of the trust investment committee shall constitute a quorum, and any action approved by a majority of those present shall constitute the action of the committee. SECTION 5.4. TRUST AUDIT COMMITTEE. The board shall appoint a committee of not less than three directors, including members ex officio provided for in other sections of these bylaws, exclusive of any active officers of the bank, which shall at least once during each calendar year and within fifteen months of the last such audit make suitable audits of the trust department, or cause suitable audits to be made, by auditors responsible only to the board, and at such time shall ascertain whether the department has been administered in accordance with law, Regulation 9, and sound fiduciary principles. Notwithstanding the provisions of this Section, the board at any time may assign to the Examining Committee, in addition to the duties of the Examining Committee set forth in Section 3.3 of these bylaws, all of the duties of the Trust Audit Committee and during such time as the Examining Committee is performing the duties of both committees, the Trust Audit Committee shall cease to function as a committee of this board. The board at any time may reassign the duties provided for in this Section to the Trust Audit Committee. SECTION 5.5. TRUST DEPARTMENT FILES. There shall be maintained in the trust department, files containing all fiduciary records necessary to assure that its fiduciary responsibilities have been properly undertaken and discharged. SECTION 5.6. TRUST INVESTMENTS. Funds held in a fiduciary capacity shall be invested in accordance with the instrument establishing the fiduciary relationship and local law. Where such instrument does not specify the character and class of investments to be made and does not vest in the bank a discretion in the matter, fund shield pursuant to such instrument shall be invested in investments in which corporate fiduciaries may invest under local law. ARTICLE VI STOCK AND STOCK CERTIFICATES SECTION 6.1. TRANSFERS. Shares of capital stock shall be transferable on the books of the bank and a transfer book shall be kept in which all transfers of stock shall be recorded. Every person becoming a shareholder be such transfer shall in proportion to his shares, succeed to all rights and liabilities of the prior holder of such shares. SECTION 6.2. STOCK CERTIFICATES. Certificates of capital stock shall bear the signature of any one of, the chairman of the board, or the president (which may be engraved, printed or impressed) and shall be signed manually or by facsimile process by the secretary, assistant secretary, cashier, assistant cashier, or any other officer appointed by the board for that purpose, to be known as an authorized officer and the seal of the bank shall be engraven thereon. Each certificate shall recite on its face that the stock represented thereby is transferable, properly endorsed, only on the books of the bank. 25 ARTICLE VII CORPORATE SEAL SECTION 7.1. CORPORATE SEAL. The chairman of the board, the president, the cashier, the secretary or any assistant cashier or assistant secretary, or other officer thereunto designated by the board, shall have authority to affix the corporate seal to any document requiring such seal, and to attest the same. Such seal shall be substantially in the form set forth herein. ARTICLE VIII INDEMNIFYING OFFICERS AND DIRECTORS SECTION 8.1. INDEMNIFYING OFFICERS AND DIRECTORS. Any person, his heirs, executors or administrators, may be indemnified or reimbursed by the bank for reasonable expenses actually incurred in connection with any action, suit or proceeding, civil or criminal, to which he or they shall be made a party by reason of his being or having been a director, officer or employee of the bank or of any firm, corporation or organization which he served in any such capacity at the request of the bank; provided, however, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit or proceeding as to which he shall finally be adjudged to have been guilty of or liable for negligence or willful misconduct in the performance of his duties to the bank; and, provided further, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit or proceeding which has been made the subject of a compromise settlement except with the approval of a court of competent jurisdiction, or the holders of record of a majority of the outstanding shares of the bank, or the board, acting by vote of directors not parties to the same or substantially the same action suit or proceeding, constituting a majority of the whole number of the directors. The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such person, his heirs, executors or administrators, may be entitled as a matter of law. ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 9.1. FISCAL YEAR. The fiscal year of the bank shall be the calendar year. SECTION 9.2. EXECUTION OF INSTRUMENTS. All agreements, indentures mortgages, deeds, conveyances transfers certificates declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments or documents may be signed, executed, acknowledged, verified, delivered or accepted for the bank by the chairman of the board, or the vice chairman of the board, or the president, or any executive vice president, or any senior vice president, or any vice president, or the secretary or the cashier, or, if in connection with the exercise of fiduciary powers of the bank by any of said officers or by any officer in the trust department. Any such instruments may also be signed, executed, acknowledged, verified, delivered or accepted for the bank in such other manner and by such other officers as the board may from time to time direct. The provisions of this Section 9.2 are supplementary to any other provisions of these bylaws. SECTION 9.3. RECORDS. The articles of association, the bylaws, and the proceedings of all meetings of the shareholders and of the board shall be recorded in appropriate minute books provided for the purpose; where these bylaws so provide, the proceedings of standing committees of the board shall be recorded in appropriate minute books provided for the purpose. 26 ARTICLE X EMERGENCIES SECTION 10.1. CONTINUATION OF BUSINESS. In the event of a state of emergency of sufficient severity to interfere with the conduct and management of the affairs of this bank, the officers and employees will continue to conduct the affairs of the bank under such guidance from the directors as may be available except as to matters which by statute require specific approval of the board of directors and subject to conformance with any governmental directives during the emergency. SECTION 10.2. DESIGNATION OF PLACE OF BUSINESS. The offices of the bank at which its business shall be conducted shall be the main office thereof located at 135 South LaSalle Street, Chicago, Illinois, and any other legally authorized location which may be leased or acquired by this bank to carry on its business. During an emergency resulting in any authorized place of business of this bank being unable to function, the business ordinarily conducted at such location shall be relocated elsewhere in suitable quarters, in addition to or in lieu of the locations heretofore mentioned, as may be designated by the board of directors or by the executive committee or by such persons as are then, in accordance with resolutions adopted from time to time by the board of directors dealing with the exercise of authority in the time of such emergency, conducting the affairs of this bank. Any temporarily relocated place of business of this bank shall be returned to its legally authorized location as soon as practicable and such temporary place of business shall then be discontinued. ARTICLE XI BYLAWS SECTION 11.1 INSPECTION. A copy of the bylaws with all amendments thereto, shall at all times be kept in a convenient place at the main office of the bank and shall be open for inspection to all shareholders, during banking hours. SECTION 11.2 AMENDMENTS. The bylaws may be amended, altered or repealed, at any regular meeting of the board, by a vote of a majority of the whole number of the directors. *** I........................................... hereby certify that I am the................................ Cashier/Secretary of LaSalle National Bank, Chicago, Illinois and that the foregoing is a true and correct copy of the bylaws of this bank as amended and that the same are in full force and effect ............. day of...................19........ ............................... Cashier/Secretary. December 15, 1982 (SEAL) 27 EXHIBIT 5 NOT APPLICABLE 28 EXHIBIT 6 LaSalle National Bank hereby consents in accordance with the provisions of Section 321(b) of the Trust Indenture Act of 1939, that reports of examinations by Federal, State, Territorial and District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. LA SALLE NATIONAL BANK By: /s/ SARAH H. WEBB --------------------------- Sarah H. Webb First Vice President 29 EXHIBIT 7 Latest Report of Condition of Trustee published pursuant to law or the requirement of its surviving or examining authority. 30 EXHIBIT 8 NOT APPLICABLE 31 EXHIBIT 9 NOT APPLICABLE EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY SUPPLEMENTAL FINANCIAL INFORMATION EXTRACTED FROM THE SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS, THE SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND THE ACCOMPANYING NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL FINANCIAL STATEMENTS. 1,000 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 140,872 54,821 234,450 2,377 261,738 803,146 317,339 120,347 1,035,049 340,975 0 0 0 37 647,445 1,035,049 1,060,535 1,073,197 723,404 1,133,973 0 0 5,222 (60,859) (30,183) (30,676) 0 0 0 (30,676) (0.83) (0.83)
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